Online ordering company Olo has the stated goal of achieving "digital entirety" for its restaurants—converting every single one of their transactions to digital.
That mission happens to dovetail with one of the biggest trends in the restaurant industry: virtual brands.
The delivery- and takeout-only concepts that exist solely online will inherently make Olo's path to 100% digitization a lot easier, CEO Noah Glass said on the company's first quarter earnings call Tuesday.
"These virtual brands demonstrate that Olo's total addressable market is not bounded by the current number of restaurant locations," Glass told investors on the company's first such meeting since it went public in March.
While virtual brands have been hot, they've also been the subject of scrutiny as the industry emerges from the pandemic and people start returning to restaurants. Some have predicted that shift will spell the end for delivery-only concepts. Glass is not one of them.
"I expect the restaurant industry to slingshot out of this much stronger than before, with the huge gains in off-premise transactions and the return of on-premise transactions, and I think [off-premise] is not cannibalizing on-premise," he said in an interview with Restaurant Business. "It’s a different use case."
Instead, takeout will take share from grocery as consumer habits move toward prepared food, he said. They might order dinner from a virtual brand one night and go out to eat the next, for instance.
And he expects the number of those virtual brands to continue to proliferate, not shrink.
"I think that there will be many more of these," he said. "They are an economically successful model." In the first quarter, Olo launched two celebrity-backed virtual brands—Goop Kitchen, with Gwyneth Paltrow, and Guy Fieri's Flavortown Kitchen—and also powers the popular MrBeast Burger concept.
Not only will there be more virtual brands, but Glass believes the additional, profitable channel could allow restaurants to wean themselves off of the costly third-party marketplaces and market directly to consumers. That's an idea that runs somewhat counter to the idea of virtual brands designed to work hand-in-glove with third-party apps. After all, how else is a consumer supposed to find out about a brand that doesn't physically exist?
"I have certainly seen virtual brands that are built initially just for the marketplace," Glass said. "But I’ve also seen a lot of virtual brands that are building their direct-to-consumer platform on top of Olo.
"Maybe they’re using the marketplaces driving customers to place their first order from the virtual brand as almost like a food-in-mouth kind of trial, and then trying to convert that customer to order directly in the future," he said.
That push into direct ordering—which would of course benefit Olo's transaction-based revenue model—will require a whole new skill set for an industry that has long relied on traditional marketing tactics, Glass said. He has been fielding lots of calls from CEOs and headhunters in search of people with experience in digital marketing and customer acquisition.
"We will see the restaurant industry starting to hire more marketers that have that skill set and experience than ever before," Glass said.
In the first quarter, Olo saw revenue increase 125% year over year to $36.1 million. Its number of active restaurant locations increased 42% to about 69,000, with notable additions including Culver's, Nando's U.S. locations, and an expansion of its partnership with Union Square Hospitality Group. Olo posted a net loss of $26.5 million compared to a loss of $3 million a year ago, driven largely by general and administrative expenses related to becoming a public company, executives said.
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