Uber founder takes aim at South Korea’s shared kitchen market

Uber CEO Travis Kalanick. (AP file photo)
Updated 11 July 2019
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Uber founder takes aim at South Korea’s shared kitchen market

  • Country is first overseas location Los Angeles-based CloudKitchens has entered under its own brand

SEOUL: Chef Youm Jung-phil plans to close his restaurant in Seoul’s affluent Gangnam district this month, worn down by the rising cost of labor and rent as well as declines in the number of customers eating in. Instead Youm, who has nearly 20 years of experience in the industry, has opted to sell his avocado burgers and bagels by delivery only, renting a 16.5 square meter kitchen space from Uber co-founder Travis Kalanick’s CloudKitchens. “I am anxious every day. I can’t sleep well because this is not something I have done before,” said Youm, who was approached by CloudKitchens. “But the risks are low and I’ll have the opportunity to experiment with various menus without high cost,” he said, adding his rent will fall by roughly two-thirds.
The world’s No. 4 market for online food orders, South Korea punches far above its population size in terms of sheer numbers of restaurants and spending on food deliveries. That, plus a near 30 percent rise in the minimum wage over the past two years, is helping drive a rapid shift to shared kitchens and delivery-only businesses, industry executives and investors say — a shift which threatens the traditional restaurant industry. South Korea is the first overseas market Los Angeles-based CloudKitchens has entered under its own brand, people with knowledge of the matter said. “That Kalanick and other investors are entering Korea speaks to its attractiveness as a market for cloud kitchens.
It’s a big market and is growing faster than the U.S,” said Jimmy Kim, CEO of investment firm SparkLabs. Tucked away in a Gangnam back alley, CloudKitchens’ first South Korean outlet opened quietly in May with more than 20 separate kitchen spaces, sources said, declining to be identified as they were not authorized to speak to the media. Another 10 or more outlets are planned, six of them this year, one source added. CloudKitchens also acquired local firm Simple Kitchen this year, four sources familiar with matter said. Simple Kitchen, which counts SparkLabs as an investor, said previously it was planning 25 branches for 500 restaurants by end-2019.
CloudKitchens and Simple Kitchen did not respond to Reuters requests for comment. CloudKitchens, which also offers restaurant owners marketing support, is a unit of shared service provider City Storage Systems which scandal-hit Kalanick bought last year for $150 million after stepping down as Uber CEO. Kalanick has since acquired UK commercial kitchen firm FoodStars and is reportedly looking at investing in China.
In South Korea, a key rival is local firm WECOOK, which has four outlets and plans to lift that to 17 this year. “Investors are plowing money into South Korea which is coming to the fore in the global delivery market,” said WECOOK CEO Andy Kim, adding he expects shared kitchen firms to use lessons learnt in Korea and apply them to other Asian markets. FOOD FOR ONE While shared kitchens are growing in popularity in many countries including the US and China, the South Korean market is seen as particularly ripe for development of delivery-only restaurants.

HIGHLIGHTS

● Korea restaurant sector seeing rapid shift to shared kitchens.

● High rents, jump in mininum wage help to spur shift.

● Food delivery boom also propeled by surge in single households

About half of South Korea’s 51.8 million people are located in Seoul and its two surrounding cities, while 95 percent of adults own a smartphone. It also has 127 restaurants per 100,000 people, compared with 69 for China, 57 for Japan and 21 for the United States, according to research firm Euromonitor. Its online market for food delivery and pickup more than doubled over the past five years to $5.9 billion — bigger than Japan and Germany’s markets combined and trailing only China, the US and the UK, Euromonitor data also showed.
Euromonitor expects the South Korean market to grow to $9 billion by 2023. A huge jump in the number of single people living on their own is also propelling the boom in food delivery services — a market that pits local industry leader Woowa Brothers Corp. against rivals such as Germany’s Delivery Hero , Uber Eats and new entrant SoftBank-backed e-commerce firm Coupang. Single person households accounted for 29 percent of South Korean households in 2018, almost double 2020 levels as high living costs make marriage and children a less popular option.
“More customers living alone are shunning human interaction. They don’t want to go through the hassle of eating out,” Youm said. Delivery services have seen explosive growth. Woowa, operator of food delivery app, Baedal Minjok, said from 2016 to 2018 revenue quadrupled to 319 billion won ($270 million) while operating profit jumped 24 times to 58.6 billion won. Woowa, valued at $2.7 billion, counts Goldman Sachs, Singapore wealth fund GIC and Sequoia Capital among its backers. Delivery Hero, which in December sold its German business to Takeaway.com for $1 billion, is doubling down on Korea, now its No. 2 market after Kuwait.
It plans to increase staff to 800 from 500 last year and has doubled its marketing budget this year to 100 billion won. Following a string of investments in local firms, its South Korean revenue has more than doubled since 2016 to $107 million last year. South Korea’s Coupang is testing food delivery services in some Seoul areas. Its entry has angered Woowa, which accuses Coupang of offering exclusive contracts in return for cutting commissions, and has asked the antitrust regulator to investigate. Coupang said it is in talks with Woowa to resolve the dispute but declined to comment on its food delivery strategy.
The Korea Fair Trade Commission declined comment.

Decoder


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 39 min 10 sec ago
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.