hankyoreh

Kim Jun-ho and his friends had made up their minds to start a business selling spaghetti and other Italian dishes from a food truck. But once they actually tried to open the business, they discovered how much work it involved: on top of renting the truck, they had to source the ingredients, develop menu items, transport the food and keep the truck in working order.

After a good deal of thought, Kim decided to use a shared kitchen service. For two months, they used a shared kitchen that a company provided to try out various dishes and put the finishing touches on their menu. The shared kitchen provided solutions to everything that was too complicated for the truck to handle, such as preparing and storing ingredients.

“It was great that we only had to rent the kitchen for as long as we needed it. We prepared the ingredients in the shared kitchen and then cooked them up in the food truck. Another convenient feature was that the kitchen had refrigerators, freezers and closets where we could store all our food and packaging materials,” Kim said.

“A” is a restaurant in the Dangsan neighborhood of Seoul’s Yeongdeungpo District that is known of its delivery of fried chicken and pizza. After the restaurant decided to expand its operations into Seoul’s Gangnam neighborhood, it set up shop in a shared kitchen in the area instead of opening a physical branch. This eliminated the need to find a location and buy cooking equipment. “A” runs its Gangnam “branch” by preparing dishes in the shared kitchen and then delivering them to customers nearby.

Shared kitchens on the rise in South Korea and around the world

“Uber Eats is going to purchase more than twenty buildings in South Korea and turn them into shared kitchens. Dozens of restaurants will have their kitchens in one place and will run their businesses on an order and delivery system. Using a shared kitchen means you don’t need to decorate the building or hire servers. You can cut your costs by 90%.”

These remarks were made by Travis Kalanick, founder of Uber, the world’s largest ride hailing company. Kalanick was announcing his shared kitchen business and his plans to expand into South Korea in a meeting with around 80 representatives from South Korea’s F&B and delivery businesses in Oct. 2018. After setting up his first shared kitchen, called Cloud Kitchens, in Los Angeles, Kalanick has selected South Korea as his second base of operation.

A shared kitchen is a company that rents out a space stocked with culinary accoutrements to restaurateurs. (Commercial shared kitchens can be distinguished from similar services catering to individuals.) The business model is undergoing rapid growth around the world, including the US, Europe and China. The trend took off in South Korea last year. There are several types of shared kitchen companies. Some of these companies only rent kitchen space to delivery-based restaurants, while others augment that with a training program that helps F&B entrepreneurs with menu development and marketing strategy. The two are called delivery-focused shared kitchens and incubator shared kitchens, respectively. There are a variety of additional services that can be tacked on, such as food delivery and lining up online and offline sales outlets.

Shared kitchens first appeared in 2015 with a program called Youth Training Restaurants (operated by the Ministry of Agriculture, Food and Rural Affairs and the Korea Agro-Fisheries and Food Trade Corporation) that helped university students and young people with dreams of opening a business to build experience. Local governments and other public institutions have hopped on the incubator bandwagon since then, and there are currently more than ten shared kitchens that are mostly funded by public institutions, including Winner Chef (jointly funded by large companies and public institutions), Seoul Startup Hub and Mokpo LH Shared Kitchen.

Some of the flagship companies in the private sector are My Kitchen, Kitchen Seoul and Monthly Kitchen. On Jan. 15, the Hankyoreh stopped by We Cook, a shared kitchen company in the Gongdeok neighborhood of Seoul’s Mapo District. We Cook offers both open kitchens and individual kitchens (at its second branch, in the Sajik neighborhood) and trains entrepreneurs through seminars run by experts. The open kitchen can be used as long as clients desire at a rate of 9,800 won (US$8.70) per hour. This is typically used for shooting videos while cooking, designing new menus or using social media for sales, catering services or food truck sales.

The individual kitchens can be used exclusively for a fee of 1.75 million won a month (US$1,554). We Cook also provides tenant companies with the systems and training it needs to operate an F&B business, including marketing, product development, branding and restaurant management training. The company also represents a kind of platform that plugs its clients into an online and offline distribution network and connects them to logistical services.

Simple Kitchen, which opened its first branch in the Yeoksam neighborhood of Seoul’s Gangnam District this past May, is a delivery-focused shared kitchen. The company provides nine separate kitchens that range in size from 13 to 16 square meters and are available 24 hours a day. Businesses can move in for a 1.6 million won (US$1,420) a month with a deposit of 9 million won (US$7,992). The fee of 1.6 million won also covers a range of services, including registration as a delivery business, advertising, marketing, sales and accounting. Simple Kitchen has currently added a third branch to its operations.

South Korea’s number one delivery app service Baedal Minjok (“Delivery People”) also launched a shared kitchen called Baemin Kitchen in 2016. Uber’s restaurant delivery service “Uber Eats” announced this past November that it would soon be experimenting with kitchen sharing in South Korea.

S. Korea’s delivery infrastructure and dynamic restaurant industry behind shared kitchen boom

What’s driving the trend for shared kitchens in South Korea? One of the reasons cited by experts is the country’s well-developed food delivery infrastructure. For the most part, companies that only use kitchens without an actual storefront rely on a delivery model for their sales. Kalanick himself said the reason he’d chosen South Korea as his second base of operations is because it has the world’s top food delivery infrastructure and a large-scale industry to boot. Other likely causes of the shared kitchen trend are the fact that 20% of workers in South Korea are small business owners and that the restaurant industry is widely regarded as the easiest one to start a business in.

South Korea has the largest number of restaurants per capita in the world, at a rate that’s seven times higher than the US. Each year 180,000 new restaurants open, while more than 20% are doomed to go out of business (the closure rate was 23.8% in 2016). One reason for the low rate of success among new restaurants is the intense competition, but another problem is the cost of the upfront investment. When the location premium, initial deposit, interior décor and kitchen equipment are factored in, the initial cost tops 100 million won (US$88,806), and that’s the low end. And once a restaurant fails, the capital loss is high and the chance of recovery is low. Shared kitchens are considered one way for F&B entrepreneurs to cut down on these fixed costs.

Fresh Code, a salad delivery company, prepares its salads at a shared kitchen without a brick-and-mortar store. The business started out in a space of 23 square meters, but in just a year, its sales had increased fivefold, forcing it to move to a bigger kitchen. Fresh Code opted for a shared kitchen.

“Building a large kitchen of your own requires a huge amount of facility investment, but we were able to meet our customers’ needs by just paying monthly rent at a shared kitchen. For small businesses such as ours, a little additional cost can be a deal breaker, and a shared kitchen has helped us save on our fixed cost,” said Jeong Yu-seok, president of Fresh Code.

When expanding a business into a new area, opening a new branch is much simpler when the company only needs to send employees to a shared kitchen in the area in question. The shared kitchens also handle time-consuming paperwork, filling out all kinds of registration forms and calculating taxes. Business fees are handled as follows: the proceeds from all tenant companies’ product sales go directly into the bank account of the shared kitchen, which then deducts the cost of ingredients, utilities, taxes and (in the case of some companies) a commission before returning the remainder to the tenant.

One of the problems with open kitchens, however, is that they’re bound to get crowded around meal times, when there’s a rush of orders, which can lead to a shortage of equipment and facilities. Even when clients have a dedicated kitchen to use, they may not have access to the requisite tools. A fried chicken restaurant and a bakery require different tools after all.

“Regardless of the type of food being prepared, the optimal equipment placement and kitchen layout are similar. We install whatever other equipment the tenants need before they move in,” said Lim Tae-yun, president of Simple Kitchen.

Interference from the Food Sanitation Act

There are quite a few problems that can only be solved through deregulation. According to the Food Sanitation Act, manufacturers of foods and food additives and restaurateurs must be in possession of facilities that meet certain requirements. Restaurants that use shared kitchens aren’t able to get a business license because they’re not recognized as having such a facility. Therefore, they have to make a contract with the kitchen sharing company to register the business on their behalf. Since these restaurants aren’t able to register on their own, they can’t deduct expenses from their taxes.

The processed foods created in the shared kitchen are distributed under the name of the shared kitchen company. Under this system, it’s not the food vendor but the shared kitchen company that’s held responsible if a food safety incident occurs. According to contracts in place at We Cook, products that are made by companies renting an open kitchen are sold under the name of We Cook, with the companies reimbursed later. The individual kitchens at We Cook and the kitchens at Simple Kitchen are separated by walls, which means that companies operating there are able to register as separate businesses.

“For a while, startups in South Korea were focused on IT, but recently an increasing number of startups have been trying new things in the F&B sector. There’s going to be even more demand for shared kitchens moving forward. Shared kitchens can function as a mid-level entrepreneurial course or startup academy for would-be business owners so they can gauge market response at a relatively low cost before jumping in,” said Mun Jeong-hun, a professor at Seoul National University’s Department of Agricultural Economics and Rural Development and the Food Biz Lab.

“The relevant regulations need to be revised so that businesses can be registered based on the businessperson, and not the place of business,” Mun added.

For a while there was a popular joke that, no matter what job a person chooses, they will ultimately end up running a fried chicken restaurant. Can shared kitchens provide a new way for reducing the burden on the self-employed? While the outcome remains uncertain, it seems clear that something new is cooking in the small business sector.

By Shin Ji-min, staff reporter

Please direct comments or questions to [english@hani.co.kr]