Silicon Valley began funding delivery-only startups in 2016, but it wasn’t until 2019 that virtual restaurants started making waves. With the advent of COVID, the trend has taken off with some of the largest concepts, like MrBeast Burger, generating $100M in revenue across 1,600 virtual kitchens in roughly 15 months.
With that level of success, it’s no wonder restaurant brands of all types are seriously thinking about launching one of their own. But there’s a lot to consider—from unique offerings and packaging to competition, location, and marketing.
To help you determine if a virtual restaurant is right for your business, we’ve compiled a guide of opportunities, challenges, and best practices based on our experience launching over 75 virtual restaurant brands.
What is a Virtual Restaurant?
A virtual restaurant is a delivery-only concept with a full menu that exists solely online and is often listed on third-party marketplaces, with no traditional, brick-and-mortar restaurant space.
Virtual restaurant brands can operate out of an established restaurant or a ghost kitchen. While the terms are often used interchangeably, a ghost kitchen (aka a dark/cloud kitchen) is a shared commissary space without a dining room that one or more virtual restaurants can rent to prepare off-premise meals.
Guests can place an order for delivery via a virtual brand’s website or a third-party marketplace.
Some virtual concepts are spinoffs of traditional brands, such as Cosmic Wings (Applebee’s), The Burger Den and The Meltdown (Denny’s), and Thighstop (Wingstop). However, there are also a variety of non-restaurant-affiliated virtual brands like Mariah’s Cookies and Nascar Refuel.
Pros and Cons of Virtual Restaurants
While virtual restaurants have proven to be a worthy venture for some brands, there’s plenty to consider before diving in. Here are just a few of the potential opportunities and challenges of launching a virtual brand.
- Minimal Overhead: Without a dining room and front-of-house staff, there are fewer ongoing expenses, such as utilities, equipment, salaries, etc.
- Additional Revenue: Virtual brands can be a valuable source of incremental revenue for established brands with underutilized kitchen space.
- Flexibility to Test: Brands can iterate on menu favorites or repurpose ingredients to create new dishes.
- Less Food Waste: By leveraging delivery data to make food preparation decisions, as well as splitting and reusing ingredients within a shared kitchen space, virtual brands can minimize food waste and help the environment.
- Reach New Guests: Established businesses can breathe new life into their brand—or reinvent themselves altogether—to reach new demographics.
- Quick to Set Up: Without a brick-and-mortar location or a large staff, standing up a virtual brand can be far less intensive than a traditional restaurant.
- Room to Expand: If successful, a virtual concept could seamlessly transition into a traditional restaurant or even be absorbed by a parent brand, just as Wingstop incorporated Thighstop into its permanent menu.
- High Partner Commissions: To drive sales, many virtual brands are reliant on third-party marketplaces, which can charge commission fees as high as 30%.
- Harder to Form Relationships with Guests: Building trust and long-term loyalty can be difficult for virtual brands that have fewer ways to interface with guests.
- Brand Building: Virtual concepts that don’t have an established parent brand have to build everything—from an audience to branding and marketing—from scratch.
- Quality Control: Quality can suffer if kitchen staff have to juggle orders from multiple concepts. And if third-party providers are entirely responsible for delivery, brands have less control over order accuracy and customer service.
- Reputation Management: Reviews can make or break any restaurant’s reputation, but virtual brands are especially vulnerable since they operate entirely online.
- Inaccessible Data: Unless virtual brands take orders directly through their website, guest data can be difficult to access and leverage when owned by third-party marketplaces.
- Staff Burnout: Brands run the risk of overwhelming staff if they’re unable to effectively manage the flow of orders from a virtual concept and their typical restaurant operations.
Virtual Brand Best Practices
In the process of helping dozens of virtual restaurant brands get off the ground, we learned a thing or two about how to set a concept up for success. Keep these tips in mind for a strong debut and sustainable growth over time.
- Well-Researched Business Plan: You wouldn’t open a brick-and-mortar restaurant without a solid business plan—a virtual concept should be no different. Thorough market research, competitive analysis, budgeting, a comprehensive marketing plan, business structure, and financial projections are critical.
- Small, Focused Menu: Winning virtual brands have unique but simple menus. They’re straightforward, optimized for quick conversion, and accompanied by mouthwatering imagery.
- Professional Branding: Every guest touchpoint—from your website to packaging, and marketing—should be uniquely branded to help generate awareness, provide a consistent guest experience, and establish trust.
- Direct Ordering: Marketplaces can be a powerful tool for driving first-time orders, but to build an actionable database and deepen guest relationships, a direct ordering restaurant website and/or app is critical. That’s why Virtual Dining Concepts leveraged marketplaces to garner interest in MrBeast Burger alongside social media and giveaways encouraging people to download its branded ordering app.
- Know Your Audience to Grow Your Audience: While some brands, like Wingstop, have successfully tapped into an existing fanbase to find an audience for their virtual concept, others have teamed up with celebrities to generate buzz. Mariah’s Cookies, for example, targeted Mariah Carey’s 10 million-plus followers on Instagram to build awareness across 30 major U.S. markets. Ultimately, brands should play to their strengths and pursue strategies that appeal to their target market.
- Multiple Delivery Service Providers: Since virtual restaurants need fast and reliable delivery to be successful, brands should consider enabling multiple delivery service providers.
- Retention Campaigns: To keep guests coming back and ensure they become more valuable over time, virtual brands need to prioritize retention campaigns (e.g. direct online orderers to download your restaurant app for quicker service; encourage email subscribers to sign up for SMS messaging for insider perks; give weekend regulars a reason to order during the week, etc.)
- Engage With Reviews: Restaurant reputation management is paramount for virtual restaurants. Brands can make guests feel heard and appreciated by responding to online reviews—good and bad—promptly.
- Test and Adapt: Successful virtual brands continuously refine their strategy based on what’s working and what isn’t according to guest data and feedback.
What’s Next for Virtual Restaurants?
It’s estimated that virtual restaurant brands will become a $1 trillion industry by 2030, but it’s important to remember that the trend is still in its infancy. Many virtual brands are actively trying to figure out their niche and the key to earning repeat business.
According to research from Datassential, the future of virtual brands is mainly dependent on consumer education and transparency. While the research firm estimates that more than 13,000 virtual brands are operating in the U.S., it found that half of restaurant-goers had virtual brand awareness and just 34 percent have ordered from one.
To establish trust with consumers and gain a loyal following, virtual brands must prioritize quality, consistency, transparency, and exceptional service. By following the best practices above and teaming up with a knowledgeable tech partner, virtual restaurants can be a lucrative venture for traditional brands and startups alike.
To learn more about best practices for virtual brands and how Olo can provide support, contact us today.
Main Photo Credit: Tima Miroshnichenko from Pexels