Virtual restaurant brands have seen their fair share of challenges lately. Uber Eats introduced a series of reforms this spring that cut nearly 8,000 concepts from the platform. NextBite was sold off to the CEO of a former competitor after multiple rounds of layoffs this summer. Not long after that, Jimmy Donaldson (aka MrBeast) said he was moving on from MrBeast Burger due to quality issues. The conflict sparked dueling lawsuits between the YouTube star and partnering company Virtual Dining Concepts.
That’s just a taste of the turbulence. It doesn’t necessarily spell doom for the category, but delivery-only concepts are adjusting to a world where they’re no longer a critical lifeline for operators just looking to stay afloat. Still, leaders in the space say there is plenty of room to grow for brands that are positioned correctly with the right menu.
“Twenty-four months ago, this segment wasn’t even defined yet,” says Wow Bao president and CEO Geoff Alexander. “We’re in the second inning of a nine-inning ball game.”
It’s no secret that virtual menus fail when they require too many ingredients and too many steps in the kitchen. That’s even more true now that in-store traffic is rebounding and dining habits are normalizing. Success increasingly hinges on streamlined menus and low operational complexity.
Alexander says that’s how Wow Bao grew its virtual footprint to over 700 locations in just four years. Products are shipped frozen to operators via a broad-line distributor and made available to consumers via third-party delivery through the company’s dark kitchen initiative.
The virtual menu features a trimmed-down lineup of bao buns, rice bowls, egg rolls, cream cheese rangoons, and other Asian foods that are prepared using only steamers, flat tops, and fryers.
“Number one, there has to be ease of execution when it comes to the menu,” Alexander says. “Number two, it has to fit the brand. Number three, it has to travel well. It also has to have proof of concept. We don’t just add something in distribution. We practice it in our stores for six to eight months to make sure we figured out all the intricacies and address any hurdles.”
Those same principles apply to virtual concepts that are only available through the units of the company that developed them. That’s the route Dog Haus took when it launched The Absolute Brands, a collection of virtual concepts developed for franchisees to operate. Co-founder André Vener says that decision stemmed from the way third-party platforms were set up.
The founders realized that few online customers were ordering anything besides hot dogs and burgers, despite offering items like Nashville hot chicken, because the delivery providers only allowed for a small number of food items or styles in their restaurant descriptions. That led to the creation of multiple virtual menus centered around those overlooked categories. Its Bad Mutha Clucka chicken sandwich serves as the anchor for a brand with the same name. There’s also Badass Breakfast Burritos, Big Belly Burgers, and several other concepts that focus on chicken, hot dogs, and plant-based products.
Each brand uses the same equipment, processes, and mostly the same ingredients as the brick-and-mortar brand. The only new SKU required for Badass Breakfast Burritos—a brand that does north of $10 million in sales, according to Vener—was a flour tortilla. The eggs, proteins, cheese, sauces, and other fillings already existed in the restaurants.
Strong branding is another important part of the equation. Convincing a consumer who’s never heard of a brand or seen a store in their neighborhood to place an order can be a challenge, especially in a crowded platform filled with undifferentiated brands.
“If you go to New York or San Francisco and open Uber Eats, you’ll see hundreds of Chinese restaurants that we have to compete with,” Alexander says. “We definitely have an advantage in smaller markets, though, where you might only have a handful of Asian concepts to scroll through. That’s one of the reasons we were able to scale so quickly.”
Dozens of virtual brands have leaned on celebrity partnerships to generate buzz, perhaps too heavily. Many have mixed reviews that call out less-than-stellar food and high prices. Others, like Dog Haus, leverage their existing brand equity to give their virtual concepts credibility and generate trial.
“From day one, we’ve always put ‘powered by Dog Haus’ right under the new brand’s logo, because we want people to know who it’s coming from,” Vener says. “Whether it’s press releases, ribbon cuttings, or going to events and handing out swag, we market each concept as if it is a restaurant, while also trying to give them the same DNA and similar personalities.”
Those types of marketing tactics could signal what’s in store for the segment as the dust settles on a whirling couple of years. Virtual concepts that have fine-tuned their model with simple menus and strong branding are exploring opportunities to reinforce their position by fostering customer interactions that go beyond placing an order.
Wow Bao became the first virtual restaurant brand to offer a rewards program when it debuted “Bao Bucks” last year. It followed that up with the launch of “CollectaBaos” and “Hot Buns Club,” which use web3 technology to pair the rewards with a full-service loyalty platform. It also inked a deal with Walmart to expand its CPG presence and is rolling out hot vending machines that serve up bao and dumplings at hospitals, hotels, airports, and other nontraditional locations throughout the U.S. and Canada.
Dog Haus is going to turn Badass Breakfast Burritos into a bonafide brick-and-mortar restaurant. It also plans to bring the rest of The Absolute Brands portfolio beyond the confines of third-party delivery.
Vener envisions a future where ghost kitchens aren’t tucked away in discrete buildings but in visible locations with pickup spots for customers and walk-up branding.
Dog Haus also is part of an initiative with Kroger and Kitchen United that puts restaurants inside of the grocery store. The “virtual food hall” has a single counter serving multiple concepts with screens that tell shoppers when their to-go order will be ready. It also serves as a hub for third-party delivery.
“I think the word ‘virtual’ should go away at some point,” Vener says. “They’re digital brands. They’re online for digital ordering, but you can go somewhere to pick it up. You’re going to go to a grocery store, or a Kitchen United food hall, or a Dog Haus restaurant, and the brands are going to be visible. They’re not going to be hidden away anymore.”