COVID-19 has proved to be a tragic and exhausting season for the restaurant industry. But there have been some rays of hope to emerge as well, and perhaps the brightest is the digital innovation that has allowed operators to expand through new growth channels, particularly off-premises channels powered by the virtual marketplace.
Wow Bao is one brand that has capitalized on this in a big way. The Chicago-based fast casual launched its Dark Kitchen platform earlier this year, in which it sets up resale agreements with other operators, who purchase frozen product and a few pieces of equipment and become ghost kitchens serving Wow Bao buns via third-party delivery.
The 10-unit brand started testing the platform pre-pandemic, but formally launched in April. By the end of 2020, it expected to have 150 restaurant locations around the U.S. serving its product. Wow Bao CEO Geoff Alexander says there could be as many as 500 locations serving Wow Bao for delivery by next year.
Alexander gave QSR an update on how this innovative platform has been working and what it means for Wow Bao’s future growth.
How exactly does this Dark Kitchen program work?
We had this idea a year ago, in November 2019. Why couldn’t another restaurant sell our product out their back door—third-party delivery as a way to grow topline sales? We thought about hotels who do room service and have people sitting around because no one’s ordering inside the hotel; we thought about catering companies or coffeehouses without the third daypart, ice cream shops in the middle of winter. We thought this was a way we could help them to grow their topline.
This could be something that is really going to take off on a level that we’ve never seen, in a time frame that I don’t know if anyone’s ever matched. We could literally go from 0 to 200 in less than a year. The advantage that we offer is we’ve found a way to have our product get to the operator through distribution channels in which they can service it inside their existing restaurant and equipment, through third-party delivery platforms, to the consumer.
Early next year, we plan to figure out how to launch customer-facing where you can order from a third-party app and just pick up from the restaurant.
It almost seems like the pandemic was the best thing that could have happened for you.
I don’t want to say that, but look, we created this for the operator who was just breaking even or not making enough money. That’s what we created it for, and during the pandemic, with the fact that dining rooms are shut down and the fact that you have restrictions on how you can service the customer, everybody needs sales. We have created a way for all operators to grow their topline and significantly increase the bottom line.
Is it working like you thought it would?
Our goal is for every operator to hit $2,000 a week. In Minnesota, a partner had $9,000 in one week, and they’ve been running with us for 32 weeks. An operator who launched in Indiana, it’s been open for four weeks, and for three straight weeks it’s been over $5,000 each week. We are seeing incredible numbers, and it’s really coming down to two types of operators: one who believes in it and is pushing for it to work, and one who’s a little hands-off.
We have an operator who has five locations and of the five locations, four of them are in our top 10 every week, and they’re doing about $4,000–$6,000 per location. You take that run rate, call it $5,000 weekly times five to six locations, and that’s $250,000, $300,000 per year per store. They’re making about $1.2 million topline sales. They’re dropping about a half a million dollars in cash. I have another operator who has five stores, and they’re in the bottom 10 every week. And the difference there, I think, is that the operator sees the benefit, but it’s not communicated down to the store level the importance of what this could do for that business.
How is customer engagement going? What does marketing look like?
I was very hesitant about, would people buy Wow Bao without seeing a storefront? Does everybody understand what a dark kitchen is, or a ghost kitchen? No, I don’t think they do. If you go to our website right now, it lists all these locations, but you can’t see any of them. How do we really present it to people that we partner with vetted operators, trustworthy operators? We have given these people the secret sauce to make our food, and you should trust that it’s going to be the way you’re expecting it to be.
We spend a lot of time in the digital space promoting photos of what we’re doing and trying to be a part of the conversation. We learned a valuable lesson on how important it is to be listening. We’re really paying attention to the conversations that are happening in those markets to be a part of the community. That’s what I think helps the reputation of the brand and allows the acceptance of the consumer.
How might takeout work with this platform? Isn’t it weird to pick up Wow Bao at someone else’s restaurant?
That’s why we haven’t done it to date. We are exploring with our marketing team how to make it not weird. What I don’t want is I don’t want you to walk into a restaurant and go to a POS and order, because that is weird. The cashier has to understand it. The host has to understand, the server, the bus boy, the food runner—everyone has to understand it. That’s complicated. And then, do you order Wow Bao and a steak? Do you order Wow Bao and a hot dog? Now you’re getting really weird. Instead, I just want it to be where you can order from the app—Uber Eats, DoorDash, Grubhub, whoever—and just go pick it up. You’re dealing with one person who’s literally handing you a bag.
How can you build an emotional connection between Wow Bao and fans when they don’t have any of that brick and mortar to see?
I think that is the missing piece of the puzzle that everybody is looking to understand. I think we have a little bit of an advantage because we are a brand name. We didn’t create ourselves during COVID, and there’s a back story. At the end of the day, people want to have good food. They want value for their money. If you’re ordering off of a phone, I don’t know if you’re realizing it’s not a brick and mortar.
We’re opening in Fargo, North Dakota. The only way I can reach anybody in Fargo is by making an ad. I can’t just put something randomly on Instagram and hope somebody sees it. But how do you cater to what’s important to the people of Fargo? That’s what has to be done. It’s not simply “if you build it, they will come.”
How do you innovate with the menu through this model?
We’re going to start carrying our Impossible Bao, and we’re going to start carrying our Cheeseburger Bao as a test, and if they both work well, add them to the menu. We’re not throwing the menu down operators’ throats. We only gave them 30 percent of our menu. We have a whole remaining part of our menu that we can bring in for LTOs or specials. Our goal is eventually to create specials for that region of the country. We have nine or 10 locations in the state of Texas right now; I want to create a Brisket Bao. On the East Coast, we’re in Philadelphia, New York, New Jersey; I want to create a Philly Cheesesteak Bao.
What are the weaknesses of this model?
There’s only one weakness that I have with this model, in my mind. Let’s say we tell our operators, “We think you should run 20 percent off on the third-party app now. We know that’s going to give you a 4X boost in sales. We have the data it will do that.” Well, what if they do that for their own brand instead of doing it for Wow Bao? A smart operator would do it in both places. The operator has a main business where they created the concept, blood, sweat, and tears. What is preventing them from taking any idea that we have and putting it to that business?
The way the world is dining is different. If they opened up restaurants tomorrow to full capacity, there are a lot of people who won’t go. And if they do go back to work tomorrow because all the offices are open, they’re still going to order delivery. What we’ve created is a way that does not disrupt the main business and allows the operator to grow their sales without impacting negatively their blood, sweat, and tears business.
Does Wow Bao have a brick-and-mortar future at all?
I think so. We have company-owned stores. We have airport locations. We absolutely plan to continue to grow the airports. This could lead to franchising. This could lead to markets we were never considering.
What’s your impression of the broader ghost-kitchen space? Does it excite you or scare you?
Well, first off, REEF is one of our partners, and we value the relationship. I think they’re great operators. And we’ve had a relationship with Kitchen United. I’m blown away by their set up. We were actually inside Cloud Kitchen back in 2017 in L.A., and have a lot of respect for what they’re doing. So I think it’s all good.
The hard part is, many people are just trying to get into the space, and they’re creating a brand but the brand has no soul, it has no history. There are great talented chefs out there who can create something on the fly and it will have soul. But I think there are operators out there and other groups that are just trying to create a bucket of brands, that one-stop shop, like, “Call me up and I’ll give you 10 restaurants tomorrow.” I don’t think those have soul. I think the people behind those need to invest some in creating a story.
I feel terrible for the industry. I feel terrible for my friends and my colleagues. I feel terrible for my own people about what we’re going through right now. It’s a scary time, but I’ve said it before and I’ll continue to say it: The restaurant industry is the most resilient industry there is, and we always get impacted the most. But we always come out stronger and better because the industry is made up of entrepreneurs and innovators. I don’t know what it will look like seven months from now or 10 months from now, but I know right now you’re seeing people trying to make the best out of a terrible situation, and a lot of us are finding ways to make it work.