Thighstop is a Wingstop virtual brand – Photo: Wingstop
Restaurant chains roll out virtual brands to reach new customer groups
Restaurants are finding unique advantages in launching “virtual brands” to draw in new groups of customers or to test out new menu items.
Restaurant chains as disparate as Hooters and Wingstop have joined the list of restaurants adopting the virtual brand model, CNBC reports. A virtual brand is a restaurant that exists only via a third-party delivery app and has its menu items made in the kitchen of a restaurant owned and operated by the virtual brand’s parent company.
For instance, Bloomin’ Brands, owner of Carrabba’s Italian Grill, launched a virtual brand called Tender Shack that makes its delivery-only chicken tenders and sandwiches in Carrabba’s kitchens despite having no official public connection to the main brand. Hooters has three virtual brands all under the name “Hootie’s” demonstrating that a restaurant with an established main brand audience might be able to do business with a different demographic through “virtual” means. Wingstop, on the other hand, has used its chicken thigh-focused virtual brand Thighstop to demo a product that it intends to roll into its main brand menu.
Another illustration of how far restaurants are straying from the traditional notion of a restaurant with a physical presence offering a single menu can be found in a new Canadian multi-brand QSR concept named Ghost Kitchens.
Ghost Kitchens allows customers to purchase menu items for carry out from dozens of major QSR brands, such as Quiznos, Nathan’s Famous and Cheesecake Factory. The menu items are all prepared in the same kitchen, according to an article in Food and Wine. Walmart recently announced a partnership with Ghost Kitchens and has introduced the restaurant in one location in Rochester, NY, with plans to expand to at least four more U.S. states in the coming year, if not sooner.
Kroger has been experimenting with a similar setup via a partnership with start-up Kitchen United, according to another CNBC report. The in-store operation will allow customers to order products from six local, regional or national restaurants made in the same dark kitchen and available for pickup or delivery only. The first location of the partnership is slated to open in a Los Angeles Ralphs.
Discussion Questions
DISCUSSION QUESTIONS: Do virtual brands represent a good way for restaurants to appeal to customer bases they wouldn’t normally do business with? Do you see many virtual restaurants eventually establishing physical locations?
Poll
Loading …BrainTrust
Melissa Minkow
Director, Retail Strategy, CI&T
Raj B. Shroff
Founder & Principal, PINE
Restaurants that have successfully created new personas that appeal to certain consumers are brilliant. Not only does it extend their brand reach, but it also offers a new personal connection with customers.
I foresee this trend continuing well into the future — with or without physical locations. Just as Kroger and Walmart expand their commitment to ghost kitchens, it makes me wonder how creative other retailers will become. Mini-brands with very focused messages and product offerings may bring new life to otherwise “irrelevant” brands. I love to see such innovation in action.
Virtual brands are an excellent way to test the viability of new concepts and menus. They are extremely low risk and potentially high reward. Customers benefit from new choices and variety, and if the connection to the parent brand is not readily apparent, when customers don’t respond to a new choice, it can simply disappear with no damage done to the parent brand.
Well stated, Dave. I agree 110 percent!
Ensuring quality, taste and a good delivery or pickup experience will be pivotal for the success of virtual restaurant brands, since there is no service element to immediately offset any potential issues a customer may have (say for example a missing dipping sauce). Virtual brands can be successful, with low costs if they are operating out of existing or combination kitchens, and can potentially help brands appeal to different customers. A different focus on marketing and driving brand awareness will be needed to capture interest, skills that many restaurant chains will need to develop.
I know this shouldn’t be about semantics, but I’m not sure why this is discussed as “virtual.” It’s brands looking for brand extensions. Growth and market share opportunities. And instead of new restaurants or pop-ups, they are going digital to reach new customers. Sounds like a smart and efficient way to test-market new menu ideas to new customers. It’s a leveraging of existing assets. An Italian grill exploring a delivery-only business of chicken nuggets. That just sounds damned creative and like a growth opportunity that might have been explored just a short while ago.
Virtual brands are a great way to test new concepts without worrying consumers that the original chain is changing. Across all retail sectors, online channels present strategic opportunities to pilot catering to alternate demographics or offering different assortments. If a virtual restaurant does well and reveals a key indication that a different offering or consumer is a profitable white space, that concept should eventually establish a physical location. Retail can always learn from the QSR space, and this is a prime example of an approach to be inspired by.
I think this is a great way to test new products and to attract customers in a fiercely competitive environment. I expect that this will gain traction in the near future. Digitally savvy consumers have new outlets, they can have access to more personalized products. Restaurants have access to a platform where they can quickly pivot with new ideas without having to invest in physical changes to locations to implant new ideas. I think it’s a win.
The concept of ghost and dark kitchens has been around a couple of years, but the pandemic clearly accelerated its popularity and business model. Whether it’s shopper pickup or third-party delivery firms completing the last mile, you’ll see this trend continue to grow and evolve over the next couple of years. For companies like Walmart and Kroger — it’s almost a risk-free way to test all kinds of ideas and see what sticks. It’ll be interesting to see how many grocery/restaurant chains enter the fray.
I think the idea is fine if those restaurants can pull it off. They are doing whatever it takes to survive, especially as food delivery explodes.
But part of me thinks it’s a distraction from their core businesses. And if their brands have great equity, why not tap into that equity? They can do consumer testing before going through the expense of creating these “new” brands. Real innovation seems stifled across all industries; part of me thinks this is an excuse to just throw things out there and see what sticks. Is that good business? I guess we’ll see.
This makes ultimate sense for the operation of QSRs. I see it expanding with the logical operational separation of delivery (ghost kitchens) and in-store (restaurants).
The big challenge is going to be ensuring quality and the possible lack of expected quality from the ghost kitchen. Who cares more, the employee of the restaurant making a Big Mac or the employee of the ghost kitchen making a Big Mac? Who cares more, the employee of the restaurant interacting with real customers or the employee of the ghost kitchen?
I don’t think it’s coincidence that every name mentioned here was QSR, because this strikes me as having an appeal for brands that aren’t very strong, or to be more precise, that aren’t really known for anything in particular. To me the whole point of a brand is to be able to offer something that no one else can, and the idea of “ghost kitchen” preparing meals for a multitude of chains make all too clear this isn’t the case. Of course this is (meant to be) behind the scenes, so I guess my perception of its values hinges on the ability to keep it some dark secret.
There will be some pushback about virtual brands not being authentic among restaurant enthusiasts, but I think it is the wave of the future for customers who are hooked on delivery anyway. Margins are small in the delivery business so any way to innovate and test new menus is a place. Whether some of these brands can “go physical” will be similar to how some food trucks turned into sit down restaurants as they become more successful. Basically, previously the testbed for restaurants is food trucks, now it is delivery through ghost kitchens.