At this point in the evolution of ghost kitchens and virtual concepts, new realities are as difficult to ignore as a dentist’s drill hitting a nerve.
No, they’ve not faded away as the pandemic recedes in memory, but there’s no denying the crisis was their heyday. Places that turned their kitchens into production facilities for brands that existed only in cyberspace now need that capacity back, a decidedly good thing for them. But for the businesses that sprang up to exploit the boom, these are not days they’ll commemorate in their calendars with a smiley face.
Yet there is one sector where those trend jockeys have found firm footing. The stalwarts of the traditional family-dining market—the full- and counter-service breakfast specialists still trying to win customers at lunch and dinner—have turned their narrowing industry splinter into a haven for the alternative operations.
This week, IHOP revealed that 960 of its 1,700 restaurants now serve as ghost kitchens for at least one virtual brand. The disclosure came in an announcement that the array of virtual concepts available to franchisees has been expanded to three sanctioned options. It’s not known how many stores might have gone rogue with their own ghost-kitchen arrangements.
The host chain has been on a quest to boost its dinner, lunch and late-night business virtually from the time its first flapjack hit the griddle. Toward that end, it hatched two virtual concepts in collaboration with Nextbite, a digital-brand incubator: Thrilled Cheese, a grilled-cheese-sandwich venture, and Super Mega Dilla, as in “quesadilla.” Then Nextbite ran into financial trouble and changed hands, and IHOP dropped its affiliation with those brands.
But it gave franchisees three new options this week through an affiliation with Virtual Dining Concepts, the stable of digital brands curated by Planet Hollywood and Earl of Sandwich founder Robert Earl. His best-known brainchild may be MrBeast Burger, though that partnership has been considerably strained, with lawyers having already been dispatched.
Through a deal with VDC, IHOP is producing the signature products of Earl’s NASCAR Refuel Tenders & Burgers and MLB Ballpark Bites in the kitchens of 400 stores, with another 150 planning to add the delivery-only menus. A third VDC virtual concept, Pardon My Cheesesteak, is using 960 IHOP kitchens, up from 500.
IHOP is hardly the only family-dining chain pursuing a deeper relationship with virtual brands and ghost kitchens. Denny’s added two virtual ventures, Burger Den and The Meltdown, during the pandemic. It more recently rolled out a third, called Banda Burrito, and disclosed plans last year to offer the menu from at least 90 stores.
It struck a deal in January with Franklin Junction, a company that matches brands with restaurants willing to serve as ghost kitchens, that will turn 250 Denny’s into production facilities for Junction brands.
Frisch’s Big Boy also has a deal with Franklin Junction.
The list of family restaurants extending or deepening their roles as ghost kitchens goes on and on. It’s easy to see why. Few other segments have as much variance in kitchen output from one daypart to the next, starting at a high point in the a.m. and then tapering off as the business day progresses. Many are open 24 hours, with their kitchens having particularly light duty late at night.
Their menus are also packed with platter-type items, from pancakes to pot roast, which tend not to travel well. (IHOP designed a new package specifically for transporting pancakes.) Virtual concepts provide menus that travel better and are often a stronger lure for off-premise business.
Those signature characteristics of the segment are not going away. However ghost kitchens and virtual concepts may fare in other channels, they’ve found their niche in family dining, even as the market’s count of traditional outlets continues to erode. In recent months, reports have surfaced of segment stalwarts like Cracker Barrel, Denny’s and Frisch’s pruning their systems of units whose markets have aged out. Their customers have moved away.
But there is a curious additional dynamic to the situation.
Virtual brands and ghost kitchen arrangements have helped the old guard offset the loss of customers to dashing new fast-casual operations and casual chains sporting flashier, more contemporary menus.
The other trend that has helped the segment stay alive has been the rise of daytime dining, the subsector that offers only breakfast, lunch and brunch. Concepts like First Watch, Snooze, Ruby Slipper, Effin Egg, Another Broken Egg and a slew of others typically fire down their grills and ovens mid-afternoon, completely forgoing dinner.
Those challengers have been so effective in winning daytime business that a number of the big conventional players in family dining have poked a spatula into the market. Denny’s, for instance, bought Keke’s Breakfast Cafe, and Cracker Barrel purchased Maple Street Biscuit Co.
The concepts in that fast-growing new wave of breakfast and lunch specialists would make ideal ghost kitchens. After all, their kitchens are cold and vacant by dinnertime.
Yet few have taken the plunge. Indeed, segment-leader First Watch has said it’s less than enthralled with to-go or delivery in general, since off-premise business doesn’t deliver the distinctive experience of dining in one of its restaurants.
Why not seize the opportunity and put those unused kitchens to work as sources of new revenues?
The pat answer from players in that new subsector: They don’t need to. They draw enough sales from 5:30 a.m. to 2:30 p.m. to keep everyone contented.
They’re leaving ghost kitchens and virtual concepts to the older set.