The value of diversifying service channels beyond the standard brick-and-mortar operation has never been more critical to success. And franchised brands have started to adapt to this new reality by offering franchisees the ability to diversify their portfolios in a way that anticipates future trends.
Many brands are innovating in the virtual space, and for good reason; according to a study from management consulting firm McKinsey & Company, 21 percent of American consumers have tried a new digital shopping method since the beginning of the pandemic.
Dickey’s, which is 95 percent franchisee-operated, started offering virtual kitchens to its franchisees in August, despite historically expanding through its brick-and-mortar locations. Now, along with storefront and food-truck options, franchisees can also open ghost-kitchen locations that operate through off-premises only.
Dickey’s CEO Laura Rea Dickey says that for the most part, franchised virtual kitchens are similar to brick-and-mortar locations. Franchisees receive the same support, infrastructure, and even technology for virtual spaces compared with the storefront counterparts. But virtual kitchens offer their own advantages, like lower labor costs and the ability to reach otherwise hard-to-enter markets.
“I think what’s nice about the virtual kitchens is that it allows operators to have lower overhead and lower expenses that might have been cost-prohibitive in markets with real estate at different costs,” Dickey says. Citing Chicago as an example, Dickey says the heavy delivery market allows a virtual kitchen to thrive, especially since the kitchen can operate outside of the city proper and still reach downtown diners.
This isn’t the first time the barbecue brand has had to pivot in response to an unprecedented crisis. Dickey compares the company’s pandemic pivot to a similar change it made after the 2008 recession, when the restaurant industry had to learn how to rethink the space it occupied.
“That was an opportunity that came out of that challenging time, where we were getting much more creative about working with important technical design, architecture, and the physical space,” she says.
Dog Haus has also responded to the pandemic by rethinking existing brick-and-mortar space as an avenue for revenue. The fast-casual chain has integrated a ghost-kitchen operation into its franchise model, where franchisees have access to Absolute Brands, a virtual restaurant group launched by the Dog Haus founders, and can serve food for delivery from one of several virtual concepts out of their kitchens.
“Absolute Brands was created for virtual restaurants only. When the pandemic happened, we had all these brands all ready to go to the virtual kitchen,” says Dog Haus cofounder André Vener. “We were going to do it in the brick and mortar in 2021 sometime. But we decided, hey, let everybody have a chance to do it [during the pandemic].”
Vener says franchisees have enthusiastically embraced the Absolute Brands opportunity. He adds that some stores have completely turned around their operations because of the virtual concepts.
“There’ve been some franchises who were on a brink of closing, that quickly rose to among the top 10 performing locations because of the Absolute Brands,” Vener says. “So that’s how big the swing has been for some of these franchisees.”
For salad concept Coolgreens, offering Coolgreens Markets—the brand’s “smart fridge” concept that acts like a salad vending machine for nontraditional areas—to franchisees has been a great way to alleviate concerns of brick-and-mortar failure.
“On the franchisee side, [Coolgreens Markets] still attract the entrepreneurially minded individual who wants to start a business, but maybe is not ready to just jump into the deep end with weights on and do a full brick-and-mortar store,” says Coolgreens CEO Robert Lee. “It has been really cool to see the excitement through that.”
Because of the short shelf life of food in a Coolgreens Market concept, items have to be changed three to five times a week to ensure freshness. But Lee says one facet of the refrigerator that franchisees enjoy is its customizability. Through the smart fridge’s technology, franchisees can check the popularity of products and restock accordingly. Lee says the ability to utilize such data is attracting a younger demographic of franchisees, who are more used to the quick moving and connected nature of the product.
Coolgreens launched its smart-fridge concept prior to the pandemic, in the early months of 2020. Then, in the pandemic, the brand saw demand from office buildings and hospitals that wanted an easy way to reach healthy food. At the same time, franchisees who were previously looking at a brick-and-mortar store had trouble justifying financing one. As a response, Coolgreens developed a portfolio of development options for franchisees: a traditional storefront, a ghost kitchen, a Coolgreens Market, a 1,200-square-foot drive-thru-only space, or a combination of all franchising options as an area representative.
Despite the trend toward off-premises business, Lee doesn’t want to completely let go of the brick-and-mortar footprint.
“I think there’s a lot of opportunity on the ghost kitchen and the Coolgreens Market side, and there is a lot of opportunity that is not going to last forever on the real estate side right now,” Lee says. “Really, [it’s] allowing those experienced operators the time to go and take advantage of the real estate that’s available. I hope it lasts for the next 24 months. That way we could continue to expand in a good way.”