How virtual brands matured from curious idea to pandemic life saver

Doors shuttered and “closed” signs dotted the windows of every establishment as far as the eye could see in the normally bustling Midtown Manhattan, home to some of the busiest restaurants in the city. COVID decimated this neighborhood and in neighborhoods just like it across the country, causing thousands of restaurants to close.

For many, staying alive was all about getting creative. And that group found a life saver in virtual brands.

“It's been quite an emotional roller coaster to watch the restaurant industry shift so dramatically in such a short amount of time,” said Alex Canter, CEO of virtual brand developer Nextbite.

“We had these predictions over the next 10 years … and it just all got accelerated into a couple of months,” he added.

Nextbite, which originally launched as online ordering provider Ordermark, had dabbled in virtual brand innovation before the pandemic. But the company rapidly accelerated that innovation once COVID hit and restaurants were left with open kitchens and unusable dining rooms.

“Pre-pandemic, [we knew] that already 90% of restaurants have excess capacity in their kitchen to make more food, and we wanted to create this turnkey process very easily in a non-disruptive way,” he said.

Indeed, in a restaurant industry that was rapidly going digital and relying on mobile ordering and third-party delivery, virtual brands were already seen as a natural evolution that could help restaurants maximize their space for incremental revenue. And the pandemic essentially provided a proving ground for the virtual space, one that blew virtual brands up into the hottest niche within foodservice.

However, it’s not as easy as it sounds to simply start a successful virtual brand. Nextbite, for example, works to fill holes in the market, according to Canter. That can mean selling breakfast burritos because they both travel well and were missing from the market.

“There's a huge learning curve getting it right,” he said. “There's so many investments that need to be made to get it off the ground in the right way, from high-quality photos, to setting up the menu correctly, to opting into the right promotions on these delivery apps and the direct-to-consumer marketing side and the social media strategy.”

Nextbite uses existing restaurant kitchens to create new brands like its latest collaboration with IHOP for two new virtual brands: Thrilled Cheese and Super Mega Dilla. These brands, though cooked out of IHOP kitchens, are delivery-only and not served at the restaurants where they’re cooked.

But Nextbite isn’t alone in trying to create a virtual brand empire. There’s also Virtual Dining Concepts, the Robert Earl-founded company that partners with celebrities to create new concepts like the record-breaking MrBeast Burgers, a launch with a YouTuber that ignited an audience of millions across the country in a matter of hours.

Last year, Virtual Dining Concepts — known for collaborating with celebrities like Mariah Carey and Tyga — created a brand based entirely off viral TikTok trends.

“I think that after a year or two of learning, and fabulous success with MrBeast, we understand the important issues of how to stay interesting to the consumer, how to constantly change [and] how to keep up awareness, and TikTok as a platform answers all of that,” Earl told Nation’s Restaurant News at the time.

Virtual Dining Concepts named its first CEO last week, making the move to name someone other than the founder as the leader for the first time in company history. On a recent episode of the Extra Serving podcast, Nation’s Restaurant News editors spoke about what that could signal for virtual brands as a segment.

“What this could represent for Virtual Dining Concepts is going in the direction of maturation,” said NRN editor-in-chief Sam Oches. “If virtual brands can mature to where they take a step back and say … let’s take a second to develop some really thought-through, delicious food … and then go to market with that, I think that would have to be the next step.”

The new CEO at Virtual Dining Concepts, Stephanie Sollers, comes to the company from DoorDash, highlighting many things that Canter said in earlier statements about being able to know how to work the system as a virtual brand.

But there are brands that aren’t ever going to go all in on virtual brands, no matter their performance. Take Brinker for example. The launch of its brand It’s Just Wings was a smash hit and brought the company more than $170 million as of Oct. 2021.

“We don’t have an untapped ceiling [for virtual brands],” said Wade Allen, Brinker’s senior vice president and head of innovation, during a panel at Nation’s Restaurant News’ in-person CREATE: The Future of Foodservice event last year. “It’s not [like] you can put 50 brands into an asset. You have to protect the core asset.”

While the launch opened the door for Chili’s to open a delivery-only brand in New York in 2022, it doesn’t mean the brand is ever going to exceed its own capacity.

But that capacity could change, according to Canter. He predicts that restaurant layouts could change entirely because of the ride in virtual brands.

“What we're expecting over the next few years is an exact flip of [present kitchen spaces],” he said, “[to being] 70% kitchen, 30% front of house, with lots of restaurants that are just opening up specifically designed to service the off premises world.”

Read more:
MENU: Two years after the pandemic started, menus are leaner, smarter — and often better
OPERATIONS: Sustainability moves up priority list after COVID’s shut-down lessons
SERVICE: Consumers will want to choose their own experience in a post-pandemic world
COMMUNITY: How foodservice philanthropy rose to the occasion in unprecedented crisis

Contact Holly Petre at [email protected]