Almost every kitchen that’s remained open during COVID has, at some point, operated like a virtual restaurant with little to no customer contact and a steady stream of drivers picking up delivery orders. But as restaurants continue to shape-shift, adapt and look to the future, a growing number of owners are launching virtual-only concepts from their existing restaurant real estate.
Though the terminology has not yet been settled, these businesses are distinct from the ghost kitchen commissary model, where a chef runs one or more delivery-only concepts from a large commercial kitchen, or in some cases, contracts out all the cooking, packaging, and logistics to a mega ghost kitchen entity.
Contributed by Caroline Hatchett
Instead, an operator taps his or her own existing kitchen and staff to execute a wholly separate concept available (almost always) exclusively online. Chili’s was an early adopter and launched Just Wings from its restaurants in June, and Chuck E. Cheese caused a stir in May when diners realized the kid-friendly pizza chain was behind the online-only Pasqually’s Pizza & Wings.
Virtual concepts are booming
In February, SBE, a hospitality management group that works with chefs like Masaharu Morimoto, Dani Garcia, and Katsuya Uechi, launched a virtual-only venture called C3, and it anticipates opening 200 locations by the end of 2021— 60% of which will run from existing kitchens and the remaining evenly split among ghost kitchen commissaries and new spaces that require a kitchen build-out.
The growth is dizzying, especially as independent operators explore the model. This fall, Nick Leahy launched delivery-only Chicken Out with wings, shawarma, fried chicken, and more to feed Atlantans within the delivery radius of his neighborhood restaurant, Nick’s Westside. It took a month from ideation to opening, and Leahy says he spent less money on Chicken Out than he did to winterize his patio.
“On our busiest days, Chicken Out is a significant additional revenue stream, and even on days we’re not busy, it pays for labor that’s here already,” he says.
It’s an enticing proposition for restaurants running at partial capacity due to COVID—and in a market increasingly driven by delivery. When Bill Kim first opened Urban Belly in Chicago, he didn’t want to offer takeout, let alone delivery. But now, “I tell everyone to do delivery. It’s how people want to eat,” he says. Kim, whose restaurants are part of Cornerstone Restaurant Management Group, dipped his toe into the ghost kitchen business in early 2020, but when the pandemic hit, Cornerstone decided to experiment with virtual concepts run from their own kitchens instead.
In just four weeks, Kim and his team were running CBK Pizza & Parm from Michael Jordan’s Restaurant in Oak Brook, Illinois, along with CBK Ramen Bar out of The Table at Crate, also in Oak Brook. As with any of the group’s ventures, they ran a pro forma to determine how to operate the concepts profitably — despite having to hand over hefty percentages to third-party delivery apps.?
Franchising is an option, too
Alp Franco launched The Local Culinary this year to help restaurants open and manage the logistics of virtual kitchens. The business operates on a franchising model, and Franco and his team work with restaurants to select one or more of The Local Culinary’s 55 concepts to add to their operations.
To make sure concepts are a fit, they take into consideration kitchen equipment, competition, consumer data, and more. “We check with the chef and team. If they have a smoker, amazing salad prep, or a sushi station, we see how we can adapt it,” says Franco. The Local Culinary consultants help run labor and food costs and provide shopping lists from national distributors. They also customize menus to better fit individual restaurants and their cities.
“Culinary preferences are local. In San Bernardino, we have to have a spicy burger. In Manhattan, we have a classic burger. You adapt the prices accordingly, while trying to maintain a standard for product quality,” says Franco.
So far 13 restaurants have signed up to license The Local Culinary’s brands, paying a 10% royalty fee to do so. Franco says the math still works in the restaurants’ favor: “Let’s say the owner is doing US$1,000 a day from the concept. Discount US$250 for food costs and packaging. Take US$250 out for delivery apps. Pay our 10% royalty fee, and they still make US$400. The line cook is paid. Rent is paid. This is the first time of my life I can see a business model where everybody is happy. The owner is happy. Third party delivery is happy. We are happy, and the diner is happy.”
Utilizing hotel kitchens
The Local Culinary is one of several emerging virtual franchising models. There’s also Nextbite and Virtual Restaurant Consulting. SBE’s C3 operates its own concepts, including Sam’s Crispy Chicken, Krispy Rice and Plant Nation, but the group also works as a consultant.
“Our model is flexible in that we can take over on-site food and beverage in hotels, maximize utilization of a restaurant’s existing infrastructure, or scale local brands through our already-established national footprint,” says Dale Amler, C3’s senior director of marketing.
The hotel kitchen — large, well-equipped and often underutilized — seems particularly ripe for virtual concepts, and C3 will soon roll out delivery-only brands from hotels across the country.
“In addition to elevating the overall dining experience for guests, and catering to their rising interest in private experiences (i.e., elevated in-room dining), it’s also sourcing additional revenue and better serving the surrounding community through delivery and pickup offerings,” says Amler.
McRill believes the virtual model is in a nascent phase. “What people are doing right now is bringing something online without a lot of investment,” he says. He also thinks having a brick-and-mortar hub, in his case the 7,000-square-foot The Post, helps “differentiate us from anonymous concepts. You have to think, what’s going to make the concept sticky? How do you build a connection?”
There’s a lot to learn and a lot of room for experimentation and low-cost failure. Kim likens running virtual concepts to driving a new car without paying for it. “Yesterday, we sold 120 ramens to go. It’s gravy. You’re taking everything you have and adding revenue without incurring more expenses.”