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Virtual Brands Boost Restaurant Revenues 30–50%, Expert Says

A recent webinar featured experts from Denny’s, Kitchen United and Lettuce Entertain You dissecting the viability of the booming ghost kitchen trend.

Over the past few months, virtual brands have been the restaurant industry’s hottest new trend. Virtual brands are restaurant concepts with no physical storefront or dining space. Instead, they serve delivery-only or mobile order-only food cooked out of ghost kitchens,, usually in conjunction with third-party delivery providers. 

Last week, The Food Institute and DMA hosted a webinar that featured executives from Denny’s, Kitchen United and Lettuce Entertain You, to examine the potential impact these concepts will have on the restaurant industry. 

“For a lot of our existing brands, when they have a primary brand where they have a brick-and-mortar store as well, when they launch a secondary, virtual brand, we’ve seen it bump their revenues anywhere from 30 to 50 percent,” Joy Lai, the COO of Kitchen United, said during the webinar. 

The Rise of Virtual Brands

Whether it be legacy franchise brands launching new concepts or celebrities using their star power to enter the ghost kitchen space, virtual brands have been popping up left and right in the restaurant industry.

Last week, Dine Brands Global Inc. announced a new, Cheeto-flavored fried-chicken virtual brand Cosmic Wings, which launched in 1,300 Applebee’s stores across the U.S. 

In December 2020, famous Youtuber MrBeast launched MrBeast Burger with 300 stores across the country, which Restaurant Business Online’s Jonathan Maze called the “most important restaurant concept in the U.S. right now.” 

Denny's also recently announced two virtual brands — The Burger Den and Melt Down. During last week’s webinar, Denny’s CEO John Miller said younger generations have been particularly receptive of the chain’s virtual brands as the COVID-19 pandemic increases demand for food delivery and take-out.

Why Virtual Brands Appeal To Franchisors 

As restaurant franchisors find creative ways to save on costs while generating revenue during the pandemic, virtual brand franchise concepts have become an increasingly common strategy thanks in part to the minimal initial capital investment required.

“I think what [operators] like about virtual brands is it’s cheap to test,” Lai said during the webinar. “So, they can turn something on, see if the consumers like it, get the feedback, and tweak where needed. For smaller operators … maybe a good [virtual] brand is doing $5,000 a week. And, when you compound that with three or four brands, you get meaningful revenue.”

As delivery-only concepts that operate within existing locations, the ghost kitchen model can significantly bring down rent, operational and staffing costs. By starting virtual brands, franchisors can focus on growing off-premise market share while diversifying their consumer offering across several concepts. Plus, virtual brands are a quick and affordable way to expand a franchisor’s footprint without needing to sign new franchise agreements or build new locations.

Why Experts Remain Skeptical About the Future

Since delivery only accounts for a small fraction of the restaurant industry as a whole, the longevity of these concepts remains uncertain. Many industry experts predict that the demand for off-premise dining will fade as indoor dining resumes.

“I think some of those [virtual] brands may go away,” Lai said during the webinar, predicting that many consumers are eager to return to brick-and-mortar restaurants. “You would expect that with the brand-development cycle.”

Still, if the early success of these virtual brands continues well into the future, it could signal a massive shift in the restaurant industry as franchisors avoid traditional brick-and-mortar locations in favor of ghost kitchen concepts.