In another bid of shifting retail landscape, online food delivery app, Deliveroo has opened its first brick-and-mortar restaurant, located in Hong Kong. If all goes well, the startup valued at $2 billion, will expand the concept globally.
Deliveroo Food Market will serve as both a kitchen for delivering online orders, as well as a consumer-facing storefront where consumers can choose from 15 dining concepts.
"We find there is an opportunity to bring our online to offline model to our customers," Brian Lo, General Manager of Deliveroo told CNBC. "Hong Kong is one of the most expensive rental prices, so the pressure on restaurant operators is very high and this model works very well for them."
Deliveroo Food Market is an extension of its "Editions" program, which are kitchens that host more than 100 restaurants globally to prepare food in a shared kitchen space. The kitchens are located in strategic neighborhoods to allow restaurants to operate strictly as 'virtual kitchens', without the burden of consumer-facing operational costs.
Lo said its restaurant partners in the Hong Kong neighborhood of Wanchai generate margins that are high for the food and beverage industry, ranging between 10 to 15 percent.
Not only does Deliveroo hope its Food Market will allow restaurant groups to expand their delivery sections with lower costs, but it could also double as innovation centers, too. In Hong Kong, it is home to five restaurant groups that collectively offer 15 concepts.
"This is a location we can have a closer touch with the residents nearby and understand their dining behavior. It allows us to test our new brands," said Wincy Cheung, Assistant Marketing & Communications Director for Chinese restaurant chain, Crystal Jade.
The restaurant will test out new restaurant concepts in the kitchen, both online and in-store. "If we opened a physical store, we'd have to consider a lot of things. This delivery platform allows us to reach more customers at a location that we're not already in," added Cheung.
Pizza Express, meanwhile, will use part of its kitchen at Deliveroo to test out a pasta concept.
"The Pasta Project, as a virtual brand, gives us the opportunity to be more adventurous and try riskier things," Liam Collette, Pizza Express' Managing Director of International said. "Restaurants are not going to be eliminated by delivery and we're going to continue to expand, but it is a key part of the dining scene, so we need to lead into that."
Deliveroo, grew by 116 percent globally in 2017 and operates across 13 markets. It will add a second Food Market location in Singapore next year.
Recently, e-commerce giants Amazon and Alibaba made their way into brick and mortar. Alibaba has opened more than 100 Hema grocery stores throughout China since last year. The store serves both customers doing in-store shopping as well as a fulfillment center for online orders.