Hey, remember when the world was going to be loaded with ghost kitchens and virtual brands, as a delivery-fueled restaurant industry led to a revolution in the creation and operation of restaurant chains?
Yeah, about that.
Restaurant Brands International, the owner of Burger King, Popeyes and Firehouse, closed its KYLO Food Hall digital food hall in Miami, according to a posting on its website, despite generally strong ratings.
Nextbite, one of the bigger names in virtual brands, laid off a number of staffers last week, including Co-President Denny Post. It is the third round of layoffs within the company in recent months.
That follows other issues with some pandemic-era boom companies. Wendy’s, which at one point planned to open 700 delivery-only locations inside Reef Kitchens, has pulled back on that idea. Some existing ghost kitchens, meanwhile, appear to be shifting to something that looks an awful lot like food halls.
Even established brands that housed virtual concepts appear to be pulling back. Brinker International last year started shifting development spending away from its virtual brands and back into Chili’s. This year it opted to end its Maggiano’s Instant Classics virtual brand, as part of an effort to simplify restaurant operations, but also due to reduced demand for virtual concepts. Brinker also noted a “reduced reliance on our virtual brands” last quarter.
Virtual brands and ghost kitchens were a welcome addition to the restaurant industry for multiple reasons. Virtual brands enabled struggling restaurants to put unused capacity to work and provide some ancillary income for struggling restaurants at a time when many didn’t have it. They also represented a rare opportunity for a brand to emerge quickly and prove itself with few upfront costs.
Ghost kitchens provided a testing ground for startup concepts and gave established chains a method for breaking into new markets.
They also represented an important shift in thinking regarding the traditional restaurant model, not a bad thing given the capital costs required to open one, which often leads many brands to turn to franchisees to provide the capital for expansion.
But these ideas also had issues. Both ghost kitchens and virtual brands relied entirely on delivery, which despite its recent popularity remains a tiny overall percentage of the restaurant industry. That limits the potential for these ideas, particularly as delivery slows in the post-pandemic era.
Ghost kitchens have had operational challenges of all kinds as they’ve ramped up. Some brands work inside them, while others do not. It’s also worth noting that, without the benefit of a true storefront, it’s difficult to know they exist. There are ghost kitchens remaining, to be sure, but some of them, like the mysterious CloudKitchens, have had issues of their own, as my colleague Joe Guszkowski has reported. Many of them also struggled to lure workers who don’t necessarily like working in those types of facilities.
Virtual brands are another thing altogether. Those brands are, by their nature, relegated to a secondary status within the restaurant, a small piece of revenue that could be easily dismissed as operations grow challenging. While they addressed capacity issues, they also made kitchens more complicated at a time when labor was difficult to come by. Operators are intent on improving operations, and improving operations often means ditching low-revenue business that slows service or frustrates operators.
The ideas still have potential. Virtual brands would have been smart to quickly establish brick-and-mortar locations, much like some local food trucks find success as traditional restaurants. Ghost kitchens could become food halls.
But, it appears, these delivery-only ideas are struggling now that the pandemic is not providing the operating environment that enabled them to get off the ground in the first place.