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A Savvy Investment in the “Next Generation of Restaurant Franchising through Ghost Kitchens”

Dave Jackson Dave Jackson, Stockhouse
1 Comment| July 8, 2021

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Since before the COVID-19 pandemic, practical, alternative solutions to in-restaurant dining have been growing into a huge economic boom. Case in point ghost kitchens – sometimes called a virtual or cloud kitchen – a restaurant without a dining room, operating strictly for delivery.

JustKitchen Holdings Corp. (TSX-V.JK, OTCMKTS: JKHCF, Forum) is an operator of ghost kitchens specializing in the development and marketing of proprietary and franchised delivery-only food brands. It features advanced food preparation taking place at larger or virtual ‘Hub’ kitchens, with final meal preparation done at smaller ‘Spoke’ kitchens located in areas with higher population densities.

The company combines this operating model with online and mobile application-based food ordering fulfilled by third-party delivery.

Stockhouse Media’s Dave Jackson caught up with company CEO and Co-Founder Jason Chen to get shareholders and investors completely up-to-date with all things JustKitchen!


SH: To start with, can you tell us a little bit about yourself and the history of the company?

JC: We started in December 2019.I grew up in Canada and sort of relocated back to Taiwan in 2014. That is whenI got involved in the F&B business, the food and beverage business. I was initially justan investor in a company that owns 28 restaurants across Taiwan,China, Hong Kong, and Singapore. I, later on, became more involved and was invited to join the board and now I'm the vice-chairman of that company. That's where I kind of gotmy first taste of the food and beverage business and learned sort ofwhat economics it needs to be profitable. Then it was shortly from there we got to studying the ghost kitchen segment and noticingthe erosion of the diningbusiness as far back as 2014 and that's the spawn of the idea for JustKitchen.

SH: Can you update our investor audience and your JustKitchen shareholders on any new company developments, especially in the wake of COVID-19?

JC: Of course. We have been building steadily since March 2020. We've been growing at an average of one new kitchen every month. Right now we're at 18 kitchens in Taiwanand opening our first kitchen next week in Hong Kong. With COVID,this businesshas been growing, as I mentioned sort of double-digit online delivery platform, consumer food ordering since 2014 but propelled in 2020. Unfortunately, it's causeda lot of businesses tocease to operate. Space availability became a big advantage for us. We're able togain access to a lot of leases, a lot of kitchen spaces for us. That's certainly one development.Last year in Taiwan, it was very fortunate, we were basically lockdown-freewhile the rest of the world was in lockdown, but this yearthere have been flare-ups with COVID. Restaurants were closing down this year in Taiwan. We're able to pick up a lot of spaces or go into a lot ofcollaborations with big businesses thatwant to utilize their empty spaces and at the same time, let their employees feel that they'restill gainfully employed, andit keepstheir staff going andtheir staff morale high. That's whata little bit of contributionwe've been able to contribute to here with theshutdowns and obviouslywith dining enclosures a lot of restaurant brands are reaching out to usto join ourdelivery platform.

That's something that's taken off and, you know,we trytopick and choose the right brands that are fitted to our business strategy for our expansion and our growth strategy. That's been adevelopment that's happening a lotduring COVID. We primarily do hot food delivery, but we have a vertical in our business called JustMarket as well and that's a grocery type of delivery. We have about 120 SKUsof items in JustMarket and that's kind of taken off over the last two monthswhile there have been some closures. The business has really, really propelledfrom the wake of COVID, unfortunately for the situation, butit's pushed our business ahead.

SH: Jason, the online food delivery industry is one of the fastest-growing markets today, estimated to reach 1 trillion dollars by 2030. How is JustKitchen positioned to ride and profit from this wave?

JC: We built this business based on international sort of scalability, international expansion. The growth has been focused in Asia, where it's been experiencing a lot ofthis online food delivery growth. One of the countries wherein plans of expanding into is the Philippines. From 2021 to 2025, I believe their compound annual growth rate is estimated to be 16% just for online food delivery. That's some of the highest in the world. In Taiwan here, we're about 12% for that same period. Compared to North America, you know, it's a very big market, big mature market, but the growth rate there is about 6%.

The double-digit growth rate here in Asiaputs us in a good position to be expanding throughout this region. We're in Taiwan now, we've got Hong Kongopening up next week and wehave further expansion plans within Hong Kong.From there onwe've got boots on the ground inSingapore. We've got people hired in Singapore and we've got a partnership expansion plan in the Philippines as well. I think we're in a very good position to take advantage of this hyper-growth. It's so earlyin this category the runway is very longand very large ahead of us.

SH: I’ve mentioned the term ‘ghost kitchen’ and you have too. Jason, what exactly is it and how does it operate?

JC:Ghost kitchens are made for delivery only. So, there'sno dine-in, there's no front of the house. Usually, ordersare done through a mobile app or online. The advantages areyou're outfitting a kitchen, but you're not outfittinga dining area. There'sconstruction, you save a lot of economics there. There's no wait staff, so there's a lot oflabor advantage savings as well and, for the most part, you need to be in a high-density area where a lot of orders are being generated onlinebutyou don't need to be on the front street. Rent, Iwould say that's where most of the economics are gained.

You're notin the front street,you're not in malls, so you're not paying typical “occupancy” as we call it,for rent in the F&B business. Typically they run anywhere from 15 to 25%, depending on the country that you're in but in our situation,we're inhigh-density areas, but our rent is typically around 2%. As you can see,we pick up a lot of the economic efficiencies from thereandghost kitchens operate indifferent models. Typically, people think of ghost kitchens as a ‘WeWork type’ of model.It's a large kitchen that's subdivided into40 individual units and then from there,they're rented out to tenants. That's where we are a little bit different. We completelybuild our kitchens and self-operate them. We don'tco-share, we don't rent them out and we provide all the content within. We doall the cooking ourselves. We do everything from order generation, all the way up to delivery. The delivery, as you mentioned earlier, we do rely on third-party delivery partners. That's the only part of theprocess that we don'ttake care of ourselves.

SH: You’ve recently launched the opening of a number of ghost kitchens in luxury and business hotels. This may be news to many investors. Can you unpack the benefits of it?

JC: You know, hotels typically have very large F&B kitchens, you knowthey have room service, they have usually multiple restaurants. In the current sort of COVID situationthat Taiwan is in, it's in what we call here, level three. All the dine-ins are closed and they're all just for take-out only. We'vebeen able to partner with the likes of Marriott and Madison hotels, very great establishments here in Taiwan. They have very largegreat kitchen facilities that arenot being utilized. We came together, and we thought this would be a great collaboration where we can come in and use their kitchen space to do our delivery-only model at the same time as they're able to keep their staff working andpaid.

It's a great morale-booster for the partners as well becausein this environmentthere areso many unknowns ahead thatif they were to go on it would lead to no paid leaves and things of that sort. People just don't know how long this is going to last forright. Hopefully not very long, butin these collaborations we're able to do our little part in helping people sort of stay employed, stay busy and at the same timecreate an economic benefit for our partners.

SH: You also just announced the closing of a bought-deal public offering of $17.5 million led by Beacon Securities along with Canaccord Genuity, plus a $4 million-dollar private placement, as well. Can you expand on this initiative for our investor audience?

JC: Yeah, sincewe've only been in existence for a year and a half, but opportunities have come up justover and over and over. We only went public on April 15th andwith that round, we raised through a non-offering prospectus $10 million. We were well-financed tobuild out Taiwan but as we became public and as we sort of gained traction in Taiwan and the exposure that we'vefortunately had, a lot of opportunities came up,a lot of opportunities as I mentioned earlier in Hong Kong, in Singapore and the Philippines and also in the United States. These opportunitiesare opportunities we want to take advantage of andbe able to get into the businessbecause this category is still so early, and we want to make sure thatwe'rein the space andbeing able to build out these regions very quickly.

With the great support of Beacon Securities and Canaccord Genuity, they were very supportive in our fundraising and also with our coverage.To get coverage from Beacon Securities this early on wassomething that wasa great surprise to us, butit was a great advantage was as well. You mentioned that $4 million private placement. We've got a lot of early-stage investors that've been with us since the beginning like Sparklabs, an international accelerator, for example. Theybelieved in us, and they saw our growth, so they wanted to participate every round, and some management didn't want to get diluted so we're able to put together the other $4 million together as well. With the $20 million, we're able to really accelerate our growth plans in Southeast Asia, and then we've had a lot of discussions with North American partners as well and that's something that we're looking to enter into the market in 2021. It just speeds everything up for us. Southeast Asia,we're looking at Japan and we're looking at Korea. We want to bein multi geographiesby the end of this year.

SH: The Company looks set for strong growth in 2021. How are you placed to expand operations beyond Taiwan to meet this demand?

JC: We built this business and we're technology-enabled. We want to be able tomake it into almost a turnkey solution as we go into other countries. Having the technology stack that we've built, some off-the-shelf and some we've built ourselves, enables us to do that. Everythingfrompoint-of-sales from the beginninginto integration, into our ERP system and our content management as well as our order management.We feel we can modularize our businessand take it beyond Taiwan and be able to monitor itfrom our head officeto be able to see what inventory levels are in Hong Kong, to see what brands are being deployed in Singapore, to see what brands are doing well, what brands are not doing well and how much discount we give.

So really,it's having this technology that's enabled usto be able to do that scaling, and then, of course, there's alwaysthe thought ofthe 3.0 model of getting into franchising. Once we prove out the economics of one of our brands, two of our brands, three of our brands, and we have a large brand portfolio, once we've proven out the economics ofhow all these things work, the idea is to sort of be able to plug-and-play each brand into each geography that's most suited. The economicswould be in a position where it would be favorable to franchising.I thinkthat's down the road, but we do have plans and ideas about that, as well.

SH: Jason, as you mentioned, you only started operations in 2020, but have seen rapid growth since the beginning. What’s the ‘secret sauce’ here?

JC: I would have to sayit's people. As I mentionedour board and our management is unique. We’re sort of almost an equal blend of culinary F&B backgrounds, like such as myselfand of course our culinary staff very experienced in that field. My co-founderthere, Kai Huang, he's in the tech space, very tech-savvy.Our COO also from an e-commerce background, so it's a blend of, I think, having a third in culinary, a third in technology, and the other third being in finance.We were able to get us public in Canada very fast and be able to havethe resources andthe ability to get usa couple of rounds of financing in a very, very early stage, and of course,for an early-stage startup company, thisputs us in a very good position to grow andexecute our business plan.

SH: Your stock has enjoyed a nice ride since you went public in April. What can you tell our investor audience regarding the current valuation of your stock and why you think it’s a good buy right now?

JC: As you knowthis ghost kitchen online food delivery space isvery hot and a lot of activitiesare being enjoyed in this space. A lot of itin the private sector, a lot of money has been raisedin 2021 to date. Something like $16 billion has been raised into the ghost kitchen space alone. A lot of activities, a lot of valuation, a lot ofhigh valued companies getting a lot of notice and a lot of ups for financial support but the companies that are publicly listed typically in our space, typically trades at a forward-looking multiple, one year forward of aboutfive to six times. Right now,if we're to takeour annual run rate nowwe're doing about $1.5 million a month Canadian.

We're looking to be at 35 kitchens by the end of next year. If we're to take that same model and we're enjoying about $1.4 million per annumper kitchenthat we open up. If you take the map and you multiply it by 35for the end of2022, we would be trading at about a 1.8 forward-looking multiple. There's a lot of room compared to our peers, 5.5 versus 1.8.I think we're well valued and well-positioned in the market.

SH: What’s the long-term strategy for the company moving into 2021 and beyond, and what should retail, and institutional investors be looking out for?

JC: As I mentionedwe're well on track to be atour development in Taiwan, we are positioned to be in22 to 23 kitchens by the end of this year, 2021, and then to have 35 kitchens in Taiwan by 2022. We know the market here, so that's growing at a very steady pace, andwe know exactly what the pipeline is and where we are going to go next in Taiwan and that's given us the luxury of focusing on the international markets. I think that is what the retail and institutional investors would have to look forward to.

It's us expanding into markets like the Philippines with16% compoundannual growth year over year, getting into the markets like the US whereit's the largest market outside of China with the population and the maturity of online delivery. Getting back into Canada, I would love to come back and establish a presence back in Canadathat's where I wasbrought up. It's the international growth throughout Asia, where we have a lot of strategic alliances. We have a lot of people on the ground here that we can deploy and then getting into the North American markets. For the next two years, I would say these are the initiatives, it's an international expansion getting intofive, six different countries. Our team's going to be busy, but we're looking forward to it.

SH: Can you tell our audience a little bit about your corporate management and board teams, along with the experience and innovative ideas they bring to the delivery-only food space?

JC: Absolutely. It was coming togetherof my co-founders that sort ofhad the idea of getting to the ghost kitchen. I've beenin the F&B businessbut on thebrick-and-mortar side, the more traditional sense. One ofmy co-founders, Kai Huang, was the creator of a game called Guitar Hero, which he sold to Activision about 10 years ago. He's back in Taiwan and he sits on our board and then our COO Kent Wu, he's been in the e-commerce business for the last 20 years. He had a business called Milk and Eggs, whichis online grocery delivery. It was very relevant to our business; he sold it off to GrubHub in 2019. It's kind of serendipitous how we all kind of met and got togetherand sort of got deep and dived intothe ghost kitchen concept and develop that model. Our Chief Marketing Officer has been in digital marketing for the last 15, 20 years. Going back to that previous question, “what was the secret sauce?”It's a combination of the talentsthat we're ableto sort of come togetherin a very opportunistic time and market segment. Our board members, Kai whoas I mentioned is the founder of Guitar Hero, and we've got three guyswho are very experienced in the capital markets.

One of ourdirectors is a former CFO of the Year in Asia and a strategic advisor to many public companies here in Taiwan. Two of ourdirectors are seasoned capital market advisors and participants in North America. We've got a great management team and a great board and very supportive of the management. It's able to allow us to execute on our vision andwith the board knowledge to support.

SH: And finally, Jason, if there’s anything I’ve overlooked please feel free to elaborate.

JC: I think it's rare that we're able to do something that's really fun, something that's innovative, and something that we enjoyand enjoy the support of the capital markets and the supportof the international trends andthe trajectory that we're experiencing.I think the market can look forward to a lot ofexciting developments to come. We're excitedto develop and execute these plans, and they share with the markets going forward.

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FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.

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