🍗 Salivating with MadEats

Today, we speak with Mikee Villareal, CEO and Co-Founder of MadEats, a cloud kitchen startup based in the Philippines.

Hi Mikee, tell us a little bit about yourself and your love for food!

My co-founders and I have been working in the traditional F&B space for four years now. Fresh out of college, we were tasked to conceptualize and run several F&B concepts. We managed global brands including Din Tai Fung to local premium restaurants like Wildflour Cafe and Bakery in the Philippines. During the pandemic, we were forced to put all these brands online, as everything was closed. I remember how crazy it was to wake up one day to a text from my old boss, saying that we had to create a website right now. I wasn’t an engineer, but we had no choice but to turn all our storefronts and restaurants into online delivery-first businesses. That was personally eye-opening because when I came out of college, I was tasked with opening several physical stores for brands like Din Tai Fung and Ooma. It was challenging, yet rewarding for me to turn these experiential spaces into delivery-only concepts. For example, I had to convince people to buy food online via apps, which wasn’t easy especially if the ordering process wasn’t as seamless.

Besides COVID-19 driving the adoption of delivery-only models, what other pain points have you discovered when creating MadEats?

When you create a restaurant concept, the first thing you think about is how do you get people to eat and dine in at your store. Restaurants are experiential in nature, a place to celebrate and share memories. A key difference between cloud kitchens and traditional restaurants is that there’s a lot more investment in how the experience is supposed to be. In a dine-in restaurant, there’s a lot of consumer touchpoints, in which the customer experience is premised around service and physical attributes including the menu, seating arrangement and aesthetics. It’s easier to sell the dining experience. However, the real downside boils down to overhead costs like rent and salaries.

A delivery-only model has a different cost structure, especially since its concept is premised on the kitchen layout themselves. Unlike traditional restaurants, you must convince people to buy your food online and maintain a healthy retention rate in doing so. Since there’s no physical space, maintaining and investing into brand perception is quite important.

How many employees would you need to hire in a typical restaurant vs. a cloud kitchen?

When I worked at Din Tai Fung, there were 100–200 staff members, depending on how big the space was. Din Tai Fung is a global brand with many locations. If you scale down and look at fast casual restaurants, you’ll typically have up to 50 employees, which would include line cooks, waiters and cashiers. In a cloud kitchen, the headcount is a lot smaller. At MadEats, I have four brands. We have 10 line cooks, 2 coffee baristas and 4 dispatchers on shift; that’s half the number of hires you need at a dine-in restaurant. Hence, we double down in our investment in packaging and delivery experience.

Like many ghost kitchens, our line cooks are trained for several cuisines. At Din Tai Fung, the cooks were trained for one particular brand, with around 200 SKUs (varies depending on size). In our kitchen, we hit around 20 SKUs per brand (80 in total). They all have condensed menus, which make it easier for consumers to choose what they want. All our staff are trained for all these brands. Due to the plug and play nature of ghost kitchens, we can move our cooks between kitchens as we open more stores in the future.

How do you decide on which brands to create?

Besides the fact my co-founders and I are foodies, we were trained to understand food trends, especially since we were responsible for opening new concepts. We were trained to not only open and introduce existing concepts into the Philippines but build new brands as well. It comes down to figuring out the hunger journey of the consumer, understanding what they crave for during what time of the day and in which location, and the frequency of the use case.

A great use case is coffee. In the Philippines, people drink coffee frequently, some around 3–4x a day. It’s not uncommon to find a coffee mug in your hand after lunch. We knew that there was so much opportunity for this product. When we consider creating new brands, we look at its potential use cases, differentiate the product in terms of branding and proposition and iterate it according to consumer preference. For example, Starbucks has a major presence here in the Philippines. Due to their success, we knew that second-wave coffee was a hit. To challenge Starbuck’s offering, we created Dot Coffee, a concept predicated on speed, quality and reliability. It’s a unique value proposition to the consumer, given that we’re serving high-quality coffee, which is stronger than your typical Starbucks cup, at much more affordable prices.

We also look at booming F&B categories and see if we could create a product with a unique proposition that resonates with the consumer. For example, fried chicken in every country is huge and the Philippines is no exception. Hence, we created Yang Gang with a twist: it’s Korean fried chicken that’s served with highly addictive Cheese Crack sauce. Although there’s plentiful of competition in the space, coming from incumbents like Jollibees and McDonald’s, fried chicken in the Philippines is vast enough that taking a small piece of this market is already worth hundreds of millions of dollars.

Lastly, we look at niche categories where we feel like there’s no dominant players. Just look at fried rice. It’s frequently eaten by the average Filipino consumer. People would eat it for breakfast, lunch and dinner. There are many food concepts here that serves fried rice; however, you often don’t hear it being the ‘hero of the menu’. Therefore, we created Fried Nice as a key offering.

How big is the market for cloud kitchens in the Philippines and in the overall Southeast Asian landscape?

Last year, when the pandemic hit, the food service industry in the Philippines earned $228 billion in revenue. That’s pretty big for a pandemic-stricken country that has a way lower GDP than Indonesia. This is also evident from the brands we previously worked for. Din Tai Fung has 4 shops in Manila and earns $20 million in sales annually from these stores alone.

Naturally, in the Philippines, people are willing to spend money for food, from takeout to dine-in. The domestic online food delivery market has been growing 48% year-over-year, which is, in fact, larger than Indonesia’s. It’s expected to grow to $4 billion by 2025.

Many restaurants were forced to go online and the adoption of cloud kitchens accelerated in the region. How do you compare your mission to other companies breaking into cloud kitchens?

Part of the beauty behind creating ghost kitchens lies in its business models.

There are ghost kitchens that onboard traditional merchants and power their delivery, and there are ghost kitchens that create their own brands and rely on major delivery platforms. At MadEats, we control the full spectrum of the value chain because we understand the power of the ghost kitchen model. We don’t want to limit ourselves to our own food brands, so we strive to create the best delivery experience for everyone, regardless of what will happen to our food brands in the future. For example, if we dive into a B2B model where we’d onboard traditional merchants, we want to be able to optimize and power their products for delivery. Our initial infrastructure was created and designed with this in mind so we can leverage our tech-enabled platform to address all the operational challenges we see in a typical ghost kitchen. That is why we’re big on R&D. Products will change and adapt and must be optimized for logistics.

What is your team dynamic like? What brought your co-founders and you together?

My co-founders and I all have similar backgrounds and worked in the same department prior to MadEats. Regardless of our job titles, we had our foot in every position around a traditional F&B establishment. We were tasked to train staff, grow the business, paint the walls, you name it! The job and training itself was heavily revolved around brick-and-mortar.

When we started MadEats, we were able to dive into areas we were passionate about. For example, as CEO, I don’t only speak with investors and work on fundraising. My job also consists of opening ghost stores, supporting operation managers and working with the head and R&D chefs.

Keisha is our Chief Product Officer, who previously worked as a senior experience design officer. She was tasked to improve the dining experience (food +ambiance) for the customer. At MadEats, she translates this into conceptualizing, iterating and improving our packaging and ordering process.

Andie is our Chief Growth Officer, who was previously tasked with growing new concepts. In her previous job, she helped bring one brand, Mo’ Cookies, to life. As the name implied, the entire menu consisted of just cookies. During the day of its launch, the brand generated the same sales as those of Din Tai Fung. All in one day. It was a small pop-up shop in a mall in Manila.

When I was managing brands, I was tasked to train Keisha and Andie for one of our previous brands called The Mess Hall, which was a smaller in-house brand from The Moment Group. That’s where the magic all started. We started with that small project back in 2017 and became close. During the pandemic, we stayed in touch after my departure from The Moment Group. Although we parted ways, we all knew we wanted to work together someday. The day I thought of this idea, I knew they were the ones to call and it didn’t take long for us to start working on our first brand. We launched it within a month, whereas for a larger restaurant concept, it often takes a year.

We have our CTO Raffy, who has been building our front-end and back-end tech, and our head of R&D Lica, who was a MasterChef Asia finalist. You can thank her for making our chicken extra, extra crispy!

What are some of your recent successes?

Couple months back, we were trying to figure out how to grow each brand individually. As a ghost kitchen, you have the freedom to launch (and remove) a brand quickly at low cost. You’ll find brands that resonate strongly with customers and brands that need further iterations.

Through our brand Chow Time, we experienced what happens to dishes that either don’t work out or require improvements. When we first launched, we didn’t realize how difficult it would be to create a successful Chinese food brand. Our gross margins were flat earlier this year, and scaling wasn’t going to be easy. People crave Chinese food all the time, but when it comes to kitchen operations, there’s a lot that happens behind the scenes that require more time and effort. Our takeaway? Chinese food is a hard business to start from scratch.

For the brands that do work, we’re able to figure out how to further scale them. For example, Filipinos love dessert, especially if it has ube. By integrating ingredients like ube into our existing brands like Yang Gang, we can further grow our sales. The process of trying is super fun because we get to do R&D and become taste testers ourselves!
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In the past couple months, we’ve been growing in terms of revenue by 40% month-over-month. 90% of our sales comes from our own platform, despite being available in major delivery platforms. Most ghost kitchens rely on delivery partners like GrabFood and foodpanda for logistics, yet we don’t view them as a major threat. Surprisingly enough, because we’re able to double down, iterate from feedback and insights and focus on the delivery experience itself, majority of our customers come from our platform.

Another breakthrough: coffee! We launched Dot Coffee two weeks ago, and the surge in demand literally broke our kitchen. We were hitting record sales for the brand everyday since launch. It’s great to see people that love our product, but this unexpected hit made us realize that ghost kitchens need to be optimized to serve all products.

Thanks to the success of Dot Coffee, we’re based in my house, which now serves as one of our main hubs for day-to-day work and R&D!

Have you experienced any recent shortcomings, something you were able to overcome or are able to learn from that influenced your journey?

Naturally, you’ll face a lot of rejections, either from your customers or investors. We were fortunate enough to get rejected from YC the first time because it taught us what to do next. At the time, we were two months in with one brand and little traction. However, our vision was solid, and it pushed us to get to the next level. We focused on getting the products right while reflecting on ways to improve everything from operations to customer experience.

No matter what, we always dedicate 110% of our energy on converting a bad experience into a good one.

What key lessons would you like to share for those who may be interested in entrepreneurship and/or F&B?

Don’t be afraid of failure. When you choose to be a founder, accept that failure is normal. If you believe in something and stick with it, things will fall into place. However, know that sticking to an idea requires much quality feedback and acceptance towards change. Because consumers will inevitably change overtime, your idea must adapt accordingly.

Our job is to iterate and give what the customers want. If we were to deliver soggy fries the first day, we will walk the extra mile and make them extra crispy the next day.

What 3 startups should we know about?

Luis Sia, Edwin Lacierda, Francis Plaza, and Jaime Hing III @ PayMongo: PayMongo is a payment processing startup that provides a payments API that can be integrated into mobile apps or websites.

Dexter Ligot-Gordon & Alexis Collado @ Swarm: Swarm is an invite-only freelancer network where members ideate, strategize, and form freelance teams around startup founder projects.

Adarsh Kumar @ On Demand Deals: On Demand Deals helps brands go on demand by building both the digital and physical infrastructure for on demand e-commerce.

This interview was conducted by Jeffrey Dong. Jeffrey is an INSEAD candidate currently working within the investment team at Golden Gate Ventures.

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