Dine Brands, the parent of Applebee’s and IHOP, has some experience developing virtual brands.
Applebee’s has already been through two iterations of a delivery-only chicken wing concept. What started as Neighborhood Wings later became Cosmic Wings, which is now offered at about 1,000 locations.
But when Dine’s other concept, IHOP, decided to launch its own virtual brands, the company looked outside the organization for help. It partnered with virtual brand provider Nextbite to create two delivery-only concepts, Thrilled Cheese and Super Mega Dilla, which launched last month across 50 locations.
IHOP may be the first restaurant chain to develop a virtual brand with a partner. One reason it took that approach: Creating a virtual brand by yourself is a lot of work.
“It was a huge undertaking to launch Cosmic Wings,” said Jessica Jackson, director of strategy and innovation for Dine, during a panel on virtual brands at the Restaurant Leadership Conference this week. Even at a company with as many resources Dine, “you don’t realize the cross-functional amount of teams and work that goes into doing it.”
She compared it to launching an LTO. “But think of it as launching a whole new menu and redoing everything from scratch,” she said.
Even after the brand is created and launched, the work is not done. It’s an ongoing project that requires management and marketing, which will naturally take time and resources from other things, she said.
It’s a tradeoff that all restaurants should consider when thinking about adding a secondary brand, said Meredith Sandland, panelist and co-author of “Delivering the Digital Restaurant.” Virtual brand economics are marginal by design, she said, and restaurants’ investment in them should follow suit.
“If you take marketing money from the mothership and give it to the little tiny virtual brand … you’re going to lose sales on the mothership,” she said.
That’s why Dine Brands has taken a low-risk, test-heavy approach to its virtual brands, Jackson said.
Thrilled Cheese and Super Mega Dilla serve grilled cheese and quesadillas, respectively, and can be prepared on the same griddles IHOP uses to make its pancakes. The chain purposefully avoided breakfast with the brands, not because it didn’t want to compete with itself in its core daypart, but because it’s already so busy in the mornings. A majority of its 1,650 restaurants have a second kitchen to handle the breakfast rush.
“We are already to the max at capacity on our back lines” during breakfast, Jackson said, so adding more orders to the mix just wasn’t feasible.
Instead, IHOP hoped the brands would help drive business during slower times, and that seems to be working so far. The bulk of sales have come from 9 p.m. to 5 a.m., Jackson said, noting that there’s real demand for late-night options in some markets.
“[They] have really given us coverage on that daypart where we really had labor that was there and had no use for the labor that was there, but they had to be there,” she said.
Indeed, restaurants and virtual brand developers seem to be dialing in their strategy based on latent capacity and unmet demand.
“It’s not just about the ability to generate incremental revenue,” said Carl Orsbourn, panelist and co-author of “Delivering the Digital Restaurant”—it’s also about the ability to create niche brands that target specific cuisines and dayparts.
Jackson said IHOP is currently “slow rolling” its brands across the system to monitor their performance.
“We’re figuring it out as we go,” she said. “And that’s what you have to be able to do.”
The Restaurant Leadership Conference is presented by Winsight Media, the parent company of Restaurant Business. Click here for more takeaways from the annual event.