The idea seemed so simple back in March 2020.
The pandemic had just begun, and restaurants couldn’t serve guests inside their restaurants. So they started taking existing menu items, giving them new names and putting them on third-party delivery apps as separate brands.
Operators could suddenly operate two, three, four restaurants under one roof using the same staff and equipment. It became a popular idea for driving new revenue, and the result was an explosion of what we now know as virtual brands.
Fast-forward two and a half years, and things have gotten a bit more complicated. Virtual brands are a big business with the investments and sophistication to match. But as consumers return to on-premise dining, their online runway could be shrinking.
Here are three questions virtual brands will need to answer as they begin this new chapter.
Can you still do it yourself?
The beauty of virtual brands in the beginning was that any restaurant with a DoorDash account could make one. These days, it’s not that easy.
“Creating a name and going and putting it on a third-party marketplace is not building a brand,” said Rishi Nigam, CEO of Franklin Junction, a company that licenses delivery-only concepts to restaurants, at the FSTEC conference this week. “I think it requires its own business plan, its own budget, its own websites, its own CRM.”
In other words, creating a virtual brand is like creating a whole new business—a tall order for any restaurant.
Stephanie Sollers, CEO of MrBeast Burger parent Virtual Dining Concepts, agreed that the barrier of entry for virtual brands is rising.
“It’s not just a brand with a menu and a logo anymore,” she said during FSTEC. “We will be thinking about building long-term value and emotional relationships with our customers.”
Can virtual brands work as brick-and-mortars?
It’s increasingly looking like virtual brands’ next act could include physical locations. A brick-and-mortar restaurant, after all, is like a big advertisement, and could help attract new customers or connect with existing ones.
MrBeast Burger opened its first brick-and-mortar earlier this month to great fanfare, and Sollers hinted there will be more.
“You want to make sure that [MrBeast’s] fans have the ability to access the brand,” she said. “For us that’s both virtual, that’s physical, that could be in-store, in ghost kitchens.”
MrBeast is not the only brand to try this. Dog Haus, which has multiple delivery-only offshoots, plans to open a physical outpost of its popular Bad-Ass Breakfast Burritos concept, CEO Andre Vener said at FSTEC.
Bad-Ass is currently selling 300 to 400 burritos a day as a virtual brand, he said. And with only about 20 SKUs, it’s fairly easy to execute.
“We think we can do it in a very small, 500-square-foot footprint,” he said.
The strategy adds a big dose of risk to what has otherwise been a low-risk endeavor. But if virtual brands prove they can make it in the real world, I’d expect to see more restaurants testing new ideas online before committing to them IRL.
Do restaurants even need them anymore?
Virtual brands were designed to fill excess capacity, which restaurants had in spades at the beginning of the pandemic. The return of regular business patterns has raised questions about restaurants’ ability to run multiple brands out of one kitchen.
Chili’s It’s Just Wings concept is probably the largest virtual brand in the world. It’s in many of the chain’s more than 1,200 locations and generates $150 million a year, or 4% of Chili’s total sales. It can also be a bit of a headache, CEO Kevin Hochman said at FSTEC.
“There’s the theory of excess capacity and then there’s the reality of operating a restaurant,” Hochman said. “[It’s Just Wings] customers tend to come at the same time as other customers.”
As such, the chain is looking at ways to simplify the brand—dropping its labor-intensive smoked wing option, for instance—and better pace the flow of orders into the kitchen. But Hochman hinted that most of the company’s energy will be focused on Chili’s rather than its wing brand.
“It’s a big part of our business,” he said, but “it’s not going to be the thing that I think some people think it could be.”
Companies that sell virtual brands to restaurants obviously disagree. The extra revenue provided by the brands, they said, can make restaurants more profitable—even if it means scaling back their core concepts.
“You’ve gotta find a way to make more revenue, whatever that is,” Nigam said. “That may mean trimming down your regular menus to take on more menus.”
Restaurant Business Executive Editor Lisa Jennings contributed to this report.