Philippine-headquartered cloud kitchen brand CloudEats to exit Vietnam

CloudEats, owner and manager of many cloud kitchens across the Philippines and Vietnam, will officially withdraw from Vietnam on October 25, according to notices sent to premise owners in Ho Chi Minh City.

A premise owner who wished to remain anonymous confirmed that he had received an email from a CloudEats representative about ending the lease agreement ahead of schedule. The company was taking final steps to vacate the premise by the end of October, the email said.

Founded in 2019 and headquartered in Manila, the Philippines, CloudEats began by operating “cloud kitchens” primarily focused on food delivery. The startup entered the Vietnamese market in early 2022.

"Cloud kitchens" are virtual restaurants that provide commercial kitchen space to restaurant owners and food businesses at a lower cost for delivery and takeout. By eliminating the need for a full-service restaurant with storefronts and dining rooms, the virtual kitchens can save costs by occupying cheaper real estate. This trend thrived during the Covid-19 pandemic.

At the peak of the “cloud kitchen” model, CloudEats owned over 50 kitchens at one point, serving more than 2.5 million customers across the Philippines and Vietnam. Co-founder and CEO Kimberly Yao had previously revealed plans for expansion into other Southeast Asian countries like Thailand, Malaysia, and Indonesia in 2023.

In September 2022, the company raised $7 million in Series A funding from Nordstar to accelerate digitalization in the food service sector across Southeast Asia.

Forecasts indicated that the “cloud kitchen” market in Asia was expected to grow by 14.2% annually from 2021 to 2027; while the food delivery market in Southeast Asia was projected to reach $49.7 billion by 2030, up from $15.2 billion in 2021.

However, CloudEats’ impending exit from Vietnam shows that the “cloud kitchen” model has sustainability problems. Although it thrived from 2019 to 2022 with participation from major players like Grab, BAEMIN, Uber's CloudKitchen and Travis Kalanick, the model has faced significant challenges.

In Vietnam, Chef Station, founded by young entrepreneur Ninh Hoang Ngan, began operations in 2020 after a month-long trial, while Cloud Cook raised VND6 billion ($241,700) in investment from Shark Tank in 2021.

Significant limitations

According to experts, although the “cloud kitchen” model was attractive and saw rapid growth during the pandemic, it had significant limitations.

"When the pandemic ended, the combined effects of economic downturn and shifting consumer behavior quickly revealed the model's weaknesses. Culinary experiences involve not just food but also ambiance and service. Customers need an initial in-person experience before deciding to order again. Therefore, online-only stores have to offer competitive pricing and other unique factors to attract customers - challenges that “cloud kitchens” have yet to fix," said marketing expert Le Trong Dat.

According to Dat, one of the toughest aspects of the F&B business is proving the origin of food, controlling ingredients, and delivering a great initial customer experience. These can only be achieved through in-person experiences at the restaurant.

He noted that giants like Grab built a “cloud kitchen” model and incurred heavy losses, even though they had sufficient financial and technological resources, ultimately having to exit.

CloudKitchens, a company that once reached a valuation of $15 billion, faced allegations of misrepresenting the true origin of the food that customers ordered through delivery apps like Grubhub and DoorDash.

“This means customers have no way to know how the food is prepared or whether it meets hygiene standards. Meanwhile, the prices are not cheap, sometimes even higher than traditional restaurants," he said.

Bui Son, who manages a restaurant and café in HCMC’s Tan Binh district, added another perspective on competition regarding operational aspects and rental costs.

"Many people think that a “cloud kitchen” model wouldn't incur much operational costs since it saves on rent and staff. In reality, this model incurs significant expenses in other areas, such as chefs, ingredients, maintenance, delivery, marketing and technology. As a result, operational costs remain high but selling prices have to be low. If they aren't cheaper than traditional restaurants, they can't compete."