Are There Too Many Virtual Restaurants?

Chowly CEO Sterling Douglass provided some shock value when he suggested there could be 100,000 or so virtual brands operating on third-party apps. That was in August 2020, and the movement has hardly slowed.

Uber Eats recently estimated the number on its platform tripled last year to north of 10,000. According to the aggregator, 15 percent of restaurants operated one pre-COVID. It soared to 51 percent by 2021.

In July, on a Euromonitor virtual webinar presented by the company’s Global Food and Beverage Lead Michael Schaefer, the company said ghost kitchens alone might lead to a $1 trillion global opportunity by 2030. Cheaper, faster, and more reliable delivery could enable the sector to grab 50 percent of drive-thru service (good for $75 billion), half of takeaway ($250 billion), 35 percent of ready meals ($40 billion), 30 percent of packaged cooking ingredients ($100 billion), 25 percent of dine-in ($450 billion), and 15 percent of packaged snacks ($125 billion).

Nobody can say for sure what the overall virtual tally looks like today, only that the pandemic cracked open the floodgates. It’s created a segment with sub-segments. Host kitchens, like Franklin Junction. Ghost kitchen facilities, such as Kitchen United. The rapidly scaling platform of REEF. C3. Kitopi. Currently, you have restaurant chains with scale rebranding corners of their menu as entirely different concepts to get in front of third-party audiences (like Chili's and It’s Just Wings). And then you have brands engaging with macro-partners to host concepts as a delivery-only model. Think Nathan’s and its more than 250-unit digital footprint that’s allowed it to meet demand through a network of multiple providers. Or how some, including Wow Bao, are enabling everyone from independents to brands with extra kitchen space to add their product as an incremental revenue source.

And while there are established concepts playing in this space, there are also virtual incubators like Robert Earl’s Virtual Dining Concepts, the home to a bevy of celebrity-driven brands, including MrBeast, and Alex Canter’s Nextbite, which spawned (among many other concepts) HotBox by Wiz.

All told, there’s a relatively stark divide forming between “opportunistic” concepts emerging out of third-party delivery’s COVID rise, and those looking to use virtual networks to spread established brands. Which path has more lasting power? What are the benefits and pitfalls of each? And are we headed for a shakeout where the strong will survive?

Those are questions surrounding the “virtual wars” as brands continue to recover from the pandemic.

Smokey Bones has been among the most successful chains in the space, adding virtual operations inside 61 locations across 16 states. The company’s “The Wing Experience” relaunched with 50 flavors in November. It features dedicated packaging, new boneless wings, a dedicated online ordering and delivery platform, and a category-leading diverse lineup. Smokey Bones’ virtual burger concept, The Burger Experience, also revamped its menu in April.

“The pandemic has changed the way customers interact with restaurants with guests now increasingly relying on curbside, carryout, delivery, and third-party delivery apps,” CEO James O’Reilly said. “We believe many of these changes are going to be permanent and now is the time for us to innovate and invest.”

O’Reilly will join Food News Media Editorial Director Danny Klein for a candid chat on the state of virtual brands on October 15—how to build one successfully, where the sector goes from here, are there too many concepts, and, simply, how can you stand out in a crowded field?

We’ll take questions and sort through the noise of one of the hottest movements in foodservice right now.

Sign up to join the free webinar here and reserve your spot. We hope you join us! If you have any questions, please email Danny at danny@foodnewsmedia.com