Five years ago, “virtual brands” was a term typically associated with fashion and apparel powerhouses such as Nike, Adidas, and Ralph Lauren—only a few optimistic entrepreneurs dreamed of bringing these digitally-native concepts to restaurants. Today, virtual brands are disrupting the foodservice industry, with celebrities, YouTube stars and influencers helping them go mainstream.
Spurred by the explosion of off-premises and delivery during the pandemic, virtual brands offer many benefits to both brands and consumers. These business models are rising in popularity as restaurant brands that wish to scale realize how to include them in their growth strategies.
Virtual brands are often confused with “ghost kitchens,” and while they do have similarities, they are completely different business models that require unique approaches.
What’s the Difference between Ghost Kitchens and Virtual Brands?
The terms “ghost kitchen” and “virtual brand” are often used interchangeably, resulting in confusion among operators and consumers. In digital terms, ghost kitchens (also known as “dark kitchens”) are like hardware: they are the on-site locations from which either established brands or virtual brands physically prepare food orders. These spaces are only used to prepare food for off-premises consumption; there is no dining room, curbside pickup or drive thru, which means operators can get by on skeleton back-of-house (BOH) crews.
Virtual brands are like software: they do not have any brick-and-mortar locations and operate solely out of ghost kitchens, existing restaurants or “host kitchens.” Ghost kitchens may house virtual brands, but they may also house satellite locations of brick-and-mortar favorites like Wingstop, Denny’s, and Red Robin. So, while a ghost kitchen can operate independently from a virtual brand, virtual brands at least need a host kitchen. Launching virtual brands helps established restaurants engage new customer segments in several ways—from breaking into new dayparts to testing new products and geographical markets to driving incremental sales—and there is plenty of room in the space for newcomers, too.
Breaking Into New Dayparts
One popular application of virtual brands is to help established concepts increase ROI and maximize real estate and labor costs. One way to do this is by breaking into new dayparts. For example, Denny’s, a chain often associated with breakfast, launched its virtual brands Burger Den and The Melt Down (which focuses on hand-crafted sandwiches with fresh ingredients) in 2021. Conversely, the Dog Haus—known for its gourmet hot dogs and hearty sandwiches—launched virtual brand Bad-Ass Breakfast Burritos to grab a share of the breakfast segment.
Connect with New Audiences and Test New Products
Virtual brands are also a fun way for established brands to connect with new audience segments and experiment with branding. Red Robin, for instance, is associated with gourmet burgers that highlight chef-driven flavor combinations. Via their delivery-only concepts Chicken Sammy’s, The Wing Dept. and Fresh Set, Red Robin can maximize its buying power and reach new customers in markets that wouldn’t support a brick-and-mortar location.
Virtual brands can be especially useful in testing new menu items and mitigating supply chain challenges. Case in point: demand for chicken wings skyrocketed during the pandemic, resulting in wholesale prices doubling in many markets. In an effort to mitigate these costs—and get one step closer to the brand’s long-term “whole-bird strategy”—Wingstop debuted Thighstop in 2021. The virtual brand’s influence has led to the inclusion of Thighstop menu items at Wingstop’s brick-and-mortar locations, too.
Micro-Niche Concepts that Cater to the Specific
Micro-niche concepts are another useful virtual brand application. Micro-niche virtual brands serve subsegments of consumers who have specific needs such as a vegan, gluten-free or paleo diet. They can also specialize in gourmet items such as premium sandwiches (Grilled Cheese Heaven), macaroni and cheese (Mac Shop) or artisan confections (Mariah’s Cookies). In this scenario, operators must walk the line of being broadly appealing enough to generate sufficient revenue to make the economic model work—but for consumers with dietary restrictions or an appreciation for the decadent, they are a great way to experiment with new dishes and flavors.
Virtual Brands are Influencer Magnets
You can’t discuss virtual brands without mentioning an important factor driving their success: influencers. One reason they are so fascinating is that virtual brands allow almost anyone to enter the restaurant game—from entrepreneurs to celebrities—without an astronomical amount of capital or experience. Tech consultant Bill Bonhirst built his french-fry-focused concept Man vs Fries to more than 100 locations across the US and Canada within a year, making it one of the fastest-scaling restaurants ever. And celebrities—always looking for a way to stay relevant—have gone all in on the idea. A-list stars such as Dwyane Wade, Guy Fieri, George Lopez, Mariah Carey, Wiz Khalifa, and Gwyneth Paltrow have all jumped on the virtual restaurant train.
Virtual brands can be a critical part of a successful digital growth strategy. In addition to offering access to new markets, they can help operators mitigate many operational issues and optimize brand reach, labor costs, ROI, and customer engagement. As the demand for off-premises dining continues to proliferate, expect to see even more innovation and key players hop on board.