We explore how virtual brands and dark kitchens are benefitting franchise hospitality businesses.
Imagine running a franchise with 20 locations - COVID has driven online and delivery sales, but you still have excess capacities in your kitchens. There’s a new food concept you have been wanting to get off the ground, and you see online and delivery as the perfect channel. How do you take advantage of this opportunity?
Virtual brands seem to be flavour of the moment in the world of hospitality. But what is a virtual brand, and why the explosion in popularity? Should you be considering a virtual brand for your hospitality business and if so, what are the benefits for your franchise?
What is a virtual brand?
A virtual brand is one that exists digitally, but with no physical presence. No physical restaurant, not even a bricks-and-mortar pickup outlet. A virtual brand offers food that is available via delivery only.
It might be run from the kitchen of an existing restaurant or outlet, or the food might be prepared in a ‘dark kitchen’ - that is, a stand-alone kitchen that is not attached to any form of shop-front.
Virtual brands provide an opportunity to expand your offering by harnessing the extra capacity in your kitchen. So, you decide to run 4 virtual brands from each kitchen, complementing your 20 physical sites with 80 virtual companion sites – 100 in total. Wow!
The benefits of virtual brands
Virtual brands offer multiple, very real benefits that are likely to see their continued growth long after the world is allowed back into restaurants:
- Additional income stream - virtual brands allow you to run more than one brand from the same kitchen, potentially increasing your revenue with little or no cost for additional staff or equipment. Even without a pandemic, it can be hard to keep the customers coming through the doors. A virtual brand can help you generate incremental orders when in-restaurant dining is down.
- Capitalising on a growing trend - the food delivery market is growing, and having one or more virtual brands means being positioned to take advantage of this growing phenomenon. Franchises will be able to do this at scale, across multiple locations.
- Rapid, lower cost, lower risk set up - compared to a restaurant, or even a take-away outlet, a virtual brand has minimal set up costs. With no physical outlet to find and fit-out, delivery-only brands are the perfect way to rapidly try new concepts without the risk and cost of a restaurant. The successful virtual brand could be a launching pad of a new physical franchise brand.
- Maximise ROI for both franchisors and franchisees - if you have an existing restaurant, with premises, equipment and staff, a virtual brand can help to make the most of your investment. Inevitably there are times when your kitchen is not at capacity and a virtual brand can help maintain volume in the kitchen.
- Reduce food waste - making efficient use of ingredients has long been an issue for restaurants. Having a virtual brand, which uses the same ingredients for dishes on delivery-only menus can help to use excess ingredients and reduce waste.
- Test new ideas - if you have great ideas for new dishes, flavours and cuisines, launching them via a virtual brand gives you the opportunity to diversify, whilst still protecting your current brand’s market position. As a franchisor, you can run these across limited locations to learn quickly, then adapt your established system to a new food concept, minimising the risk of establishing a new physical brand.
- Tailored to customer demand - if there is a gap in an area for a particular cuisine, you can tailor your brand offer to exactly what that market needs.
- Focus on the food - a successful restaurant needs so much more than just its menu - décor, atmosphere, location, wait staff, wine list. A virtual brand allows you to focus solely on what you do best - food and flavours.
What are dark kitchens (aka ‘ghost kitchens’)?
A dark kitchen is one that exists to prepare meals for delivery only. No option to eat in, no customers coming to collect take-away. Just the cooking staff and the delivery drivers.
Dark kitchens, so called because there is nothing from the outside to show that it is a kitchen, are facilitated and sometimes even owned by 3rd party delivery services such as DoorDash, Menulog, Deliveroo and Uber Eats. Dark Kitchens also weave in their own online ordering sites, offering pick-up and white label delivery services such as DoorDash Drive or Uber Direct. Customers order online, the dark kitchen preps the food and hands it over to a delivery service, or perhaps a customer at a pick-up window.
What are the benefits of a dark kitchen?
For restaurant operators, there are certainly benefits in the growing trend towards dark kitchens - here’s the top seven reasons they might want to consider this new approach to food prep:
- Low cost way to expand reach - if you want to expand into a new area, a dark kitchen is a lower cost, lower risk way of doing so. For dark kitchens, it’s more important to be close to where people live than a city centre. So rather than buying or renting premises in (expensive) areas with plenty of footfall, you set up a ‘no shopfront’ premises in a residential or industrial area.
- Faster ROI - the lower setup costs of a dark kitchen enable you to return a profit more rapidly.
- Low barrier to entry - If you’re a start-up, the rapid set up and lower costs of a dark kitchen make it easier for you to get into the market, and gives you a stronger chance to compete against established players.
- Lower overheads mean that you can spend more on things that make a big impact on sales and customer experience - like marketing and ingredients.
- Total focus - running a restaurant with the competing priorities of dine-in, take-away and delivery is challenging. With a dark kitchen, you can focus on doing one thing - delivered meals - and doing it really well. In a dark kitchen, with workflow optimised for delivery orders, preparation time can be cut by as much as 10% and operators can focus on the customer’s home dining experience, with, for example, specialised packaging to keep food hot and fresh.
- Market intelligence - when all your orders are placed online, you can capture information about your customers, which you can then use for targeted marketing. This is especially true for customers that reach you through your online ordering site or ordering food through Google. You can use their purchase preferences to send recommendations, offers, etc.
Whilst dark kitchens and virtual brands are relatively new in the Australian market, evidence from overseas would suggest that they will continue to grow. The pandemic has increased consumers’ demand for good food, delivered to their home rapidly and efficiently. And whilst dine-in is a much appreciated treat, especially after lockdown, the likelihood is that the restaurant landscape will continue to accommodate both virtual brands and dark kitchens.