Operations

The Changing Shape of Today’s Virtual Restaurant Brands in 2022

Do you remember the days when you knew where your food was coming from when you ordered takeout or delivery? It didn’t seem that long ago that a brick-and-mortar restaurant was where we went to grab some food and take it home after a busy day. No cooking, little clean-up, and we could even get in a few episodes from our latest Netflix series.

Takeout, of course, is going as strong as ever. In 2020, many consumers ordered takeout and delivery for the first time. Now, it’s become a part of their lives, with Toast reporting that 50% of adults believe these services are essential. Online delivery orders are expected to increase by over 12% in 2022.

Today, however, where we get our food is changing as more restaurants turn to the virtual model to increase revenue and their footprint. So, let’s take a look at this segment in 2022, including who’s entered this digital space and the challenges and rewards they’re finding.

The Virtual Players

While it’s difficult to put a number on total virtual restaurants, it’s safe to say that the floodgates opened during the pandemic and the tsunami of restaurants entering the segment is not slowing down. Smokey Bones is one of the most successful in the segment, and TikTok is, well, odd.

A few other chains that have turned to virtual brand operations include Applebee’s, Red Robin Gourmet Burgers, Denny’s, Cracker Barrel, and Brinker International, the parent company to Chili’s Grill & Bar and Maggiano’s Little Italy. Brinker expects its virtual brand, It’s Just Wings, to generate $150 million in annual sales.

Bloomin’ Brands started Tender Shack in its Carrabba’s Italian Grill locations. Ultimately, more than 750 restaurants made their food. CNBC reported that as dining rooms reopened, Tender Shack sales softened, and they’re ramping up marketing to bring customers back to their virtual offering.

Smokey Bones Bar & Fire Grill

Smokey Bones has created two virtual brands—the Burger Experience and the Wing Experience. They’re offered out of 61 of their locations across 16 states. They have lowered costs by staying in their wheelhouse and offering similar products and ingredients as found in their brick-and-mortar locations. The main cost associated with their virtual brands is the dedicated packaging.

In 2021, they revamped their virtual burger brand, lowering the price point and adopting smaller and simpler burgers. Smokey Bones had a stake in the virtual game before the pandemic made it a popular pivot. Their virtual brands launched in 2019, and by 2020 40% of their revenue came from off-premise business.

TikTok

At the end of 2021, TikTok announced a partnership with Virtual Dining Concepts, the same brand that made MrBeast Burger a household name. About 300 TikTok restaurants are expected to launch, and more than 1,000 may be operating by the end of 2022. Their brick-and-mortar partners include Virtual Dining Concepts’ Buca di Beppo and Bertucci’s, and the menu will be based on TikTok’s viral food trends.

Does a Virtual Brand Have to Rely on Third Party Delivery Apps?

Marketing these brands presents a unique challenge. Additionally, utilizing third-party partners like DoorDash and Grubhub mean double-digit commissions. These platforms, however, are, in many cases, how these virtual brands are discovered and their orders fulfilled, making driving sales on these crowded platforms key.

In an interview by Nation’s Restaurant News, Smokey Bones’ CEO James O’Reilly reported that third-party delivery sites help acquire first-time users. However, as the virtual arena becomes more crowded, gaining placement on third-party delivery sites becomes increasingly costly.

The trick, O’Reilly said, is getting those first guests to order directly from the virtual brand’s platform when they return. This strategy dramatically improves margins but requires brand awareness.

Smokey Bones partnered with an e-commerce provider to create a direct-to-consumer platform that provides online ordering, delivery, and takeout for its virtual brands. This strategy also enables them to gain direct customer data. In 2021, Brinker announced its plans to make menu items from It’s Just Wings available via Chili’s takeout, circumventing third-party fees.

In January 2022, Chups announced launching the first online marketplace that connects restaurant kitchens with virtual brands. Customers can order directly from the restaurant, sidestepping third-party app fees. Virtual brands buy restaurant capacity through Chups, who sells their menu in that market. Both restaurants and virtual brands gain access to customer data.

Of course, the question everyone is asking is if the field is becoming overcrowded and at what point oversaturation occurs. As with most segments in the restaurant business, there will undoubtedly be those that fall by the wayside and others that use marketing and technology to their advantage.

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