Technology

Virtual brands are getting a little physical

Once reserved for the internet only, virtual brands are making their way onto in-restaurant menus and even their own brick-and-mortars, and seeing good results.
TGI Fridays Krispy Rice
The virtual brand Krispy Rice is on the menu at some TGI Fridays locations. | Photo courtesy of TGI Fridays

Virtual brands—the online-only restaurant concepts that spread like wildfire during the pandemic—have historically been allergic to brick and mortar.

Low startup costs and minimal overhead are essential to the virtual business model. Rather than build their own restaurants, concepts like MrBeast Burger and Wow Bao have been content to slide into the kitchens of existing operators, where they can set up shop on third-party delivery apps and act as an additional revenue stream for the host.

Of course, that limits their market to the growing-but-still-relatively-small business of online food delivery. And as demand for virtual brands has slowed, the online-only philosophy is starting to change. Virtual brands are increasingly jumping from delivery apps onto restaurants’ physical menus and even opening brick-and-mortar locations in an effort to reach more customers and round out their identities.

“We're looking more and more how we can get involved with the physical storefronts,” said Robbie Earl, co-founder of Virtual Dining Concepts (VDC), the parent of MrBeast Burger and other virtual brands. 

He acknowledged that virtual brands have faced a number of challenges, including issues with food quality and a perceived lack of transparency. He said that bringing online brands into the real world could help on both fronts.

“We were never trying to hide anything” as it relates to the true source of a virtual brand’s food, he said on last week’s edition of Restaurant Business’ A Deeper Dive podcast. “If anything, we want to bring customers back into [restaurants’] doors for all of those great IPs and talents that we've talked about.”

The idea has had some success so far. For instance, VDC’s recently acquired Man Vs Fries loaded fries concept is available online but also on the in-restaurant menu at a handful of full-service Mexican chains like On the Border. Opening that second channel has increased Man Vs Fries’ sales by 100% to 150% in those locations, Earl said. “We've really doubled [weekly sales] almost overnight by moving more into the omnichannel world.” 

Others have taken the same approach and promised similarly impactful results. TGI Fridays last year said it planned to add items from the virtual sushi concept Krispy Rice to the regular menu at more than 140 locations. At the time, it said it expected the move to generate an additional $68.5 million in incremental annual revenue, which would have accounted for about 30% of its total 2023 U.S. sales.

Krispy Rice is one of the dozens of brands owned by C3, the virtual restaurant company founded by hospitality mogul Sam Nazarian that has long had a physical component to its business model.

C3 operates a number of food halls that feature its brands, for instance, and in March acquired ghost kitchens formerly owned by Kitchen United, adding a significant brick-and-mortar element to its network. It was unclear what exactly C3 planned to do with those properties, but it said in a press release that it wants to give its virtual restaurants a bigger physical footprint.

Wow Bao, which began as a chain of restaurants and then transitioned into a largely virtual enterprise, has also been growing its presence in the real world. It has seven locations in airports and several on college campuses, and it sells its bao in packaged form at more than 4,000 retailers, with plans to reach 10,000 this year. "We are indeed growing our physical locations as well as our virtual business," publicist Angie Sell said in an email. 

VDC is also toying with the idea of opening actual restaurants. Its lone physical outpost—a MrBeast Burger at the American Dream mall in East Rutherford, New Jersey—has been successful, generating around $8 million in sales in its first year, Earl said. Not only that, but the high-profile outlet also doubled as a billboard for the brand at large. After it opened, MrBeast Burger’s digital locations saw a 15% to 20% sales lift, according to Earl.

There likely won’t be more actual MrBeast Burger restaurants anytime soon, as VDC remains locked in a legal battle with the brand’s namesake, YouTube star Jimmy Donaldson. But it could be a possibility for other VDC brands, such as the popular Pardon My Cheesesteak, Earl said.

“We are looking at taking some of the other concepts into the realm of the physical world to both help amplify the portfolio and also give it a content sounding board for some of our larger creators and groups,” he said. 

However, he emphasized that any brick-and-mortar locations would be only a strategic compliment to VDC’s core delivery business.

“People keep coming for delivery and it keeps going up and to the right,” he said. “We're very much betting on the future and we're helping [restaurants] capitalize on this trend early so that you're perfectly positioned.”

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