CHICAGO— At the height of the pandemic, some restaurants began seeking virtual brand partnerships or developing their own digital-only concepts as a band-aid for lost revenue. But virtual brands have a lot more potential — and require a lot more thoughtful precision — than the bolt-on side hustle some operators think these concepts are, Nextbite chief growth officer Geoff Madding told Restaurant Dive at The National. Restaurant Association Show.
“[Virtual brands were] definitely a lifesaver, and that’s great. We were happy to help with this. But we really believe the industry is moving in that direction,” Madding said.
Nextbite, which is powered by online ordering platform Ordermark, creates turnkey digital brands that can be applied to a wide range of restaurants based on their latent capacity and headcount. Many of the company’s concepts are built around celebrity ambassadors, including chef Tom Colicchio’s “Wichcraft” sandwich concept and Wiz Khalifa’s Packed Bowls, which were announced last week.
Nextbite can easily scale virtual brand innovation with enterprise chains like IHOP, which launched Thrilled Cheese and Super Mega Dilla in March, thanks to available funding, supply chain and marketing capabilities, Madding said. . But half of the company’s customer base are small operators, and independents also have the ability to grow virtual brands on their own, he said.
To get started, operators need to answer a few key questions.
“Is there unmet demand in the market by the consumers you are trying to satisfy? Will this be an operational adjustment, so not disruptive to your kitchen? Madding said. “Then, if you take it as seriously as your physical business, you will succeed. If you don’t, you probably won’t,” Madding said.
Forty-one percent of independent restaurants already operate virtual brands, according to a January report commissioned by Grubhub and executed by Technomic, and 68% of those respondents say their concepts are permanent additions. Looking ahead, 46% of independents plan to open three or more virtual brands in the next year.
For restaurants looking to embark on virtual operations, Madding explains what to consider before investing and what opportunities the future may present.
This interview has been edited for clarity and conciseness.
RESTAURANT DIVE: I see a lot of virtual brands that are very focused on current trends. Do these concepts become LTOs?
Geoff Madding: It might look like this operationally – you have a new product, you need to do some new marketing, maybe you’re trying to capture a specific trend or season. At its core, it always starts with consumer expectations, meeting or exceeding them, plus food of a certain quality, plus an experience that is delivered one way or another. It’s not a small amount of work to do. Do you understand the math behind this? Will it be profitable for you? Do you use virtual branding to generate excitement around your own brand?
I like to think virtual marks can be more of an extended LTO, where as opposed to a few months you might have a few years of success with it. The good thing about this approach is that trends change. If you build a virtual brand that works great for three to five years and then you change the name, there’s not a lot of sunk cost and it’s pretty easy to pivot.
To deliver a compelling experience, do virtual brands need a hook like a celebrity partnership?
BAIT: I think in a way you’re going to have to stand out because it’s become a very crowded market. So the question is How? ‘Or’ What do you stand out? It can be done by associating with celebrities, which we have done, by associating with celebrity chefs, which we have done. Existing brand equity can help. And you can stand out by pitching interestingly, marketing interestingly, and finding pockets of unmet demand.
For example, some of our breakfast concepts are our best-selling brands, and not too long ago it was thought that breakfast delivery wouldn’t work. But we’ve seen a ton of demand, and there’s not enough supply for that. So what you can do is be the first to market in those areas and start building a consumer base, so when it’s busy – if you’ve done a good job – consumers will always come to you because they trust you.
What does a restaurant need to be successful with a virtual brand?
BAIT: The most predictive thing for us, for the success of our partners, is that we have a good concept that corresponds to what they do because it must integrate with their operations. But it has to be really incremental to their existing market or occasional use, and we can’t cannibalize the business. It is therefore very important to find the right concept or concepts. It’s number one.
Second, our partners need to view virtual brand deployment as strategic and not as an aside that they can do halfway. They really need to train their staff on this, we really need to build quality, we need to monitor it closely, and they need to be very invested in this process. If they are, they literally always succeed.
Let’s zoom in on that. What nuts and bolts are needed?
BAIT: It starts with overcapacity. And what I mean by that is do you have kitchen staff on site on certain days and times that are not as busy as they could be? If the answer is yes, you are probably a good candidate. Everything else is what you are a good candidate for for. For example, you might be a sandwich shop with limited equipment, but you have a panini press. Then you could do our virtual brand ‘Wichcraft’, especially if you tend to be busier at night, as this brand is busier during the day. It’s the kind of match you need at the start when we’re looking at this.
Then it almost becomes a math problem. What equipment do you have? What SKUs are you already bringing? What kind of food do you prepare? When are those slower days? And then for us, we see if we have brands that look like that. For our larger partners, we can’t do that, and then we can build brands for them. We take a very close look at who their customers are; when these people command; when there are not so many people; how to get additional reach on different occasions for those existing customers and how to acquire new customers.
It can be done by any company. If you’re a small business, you can. It’s easier for us because we have a lot of data. We have lots of resources. It’s not impossible for small businesses, but it’s hard… You can’t just have something that consumers want, and you can’t just have something that works in your operations. You must have both.
There have been discussions about how virtual brands could provide a gateway to Web3. What opportunities do you see?
BAIT: It will clearly be a technology that will massively disrupt our space. … We always try to think, ‘If something crazy happens, how are we going to be able to play in this world?’ The advantage of having virtual brands is that you don’t have the serious capital investment issues, and also potentially some of the cost issues, that you have with physical locations. So you are able to pivot very quickly as we see new technologies and new avenues emerge. It’s not like we’re flying an aircraft carrier. We have a speedboat that you can quickly turn around and enjoy things as they go… We’re in a space where if we can think of something, we probably can do it… But Web3 doesn’t have to get around Restaurants. Restaurants can take advantage of all these other channels and do all these other things to enable them to do business. So that’s what excites me.
How do you see the virtual brand space maturing?
BAIT: I think we’re going to have to grow for a while – eventually we’ll mature. But we have plenty of fun for toddlers and teenage years ahead of us. I think we’ve barely scratched the surface of what’s going on, because people are only are starting to take virtual brands seriously. They just start leaning on them. We’re getting some really smart people starting to focus on that. Whenever that happens, that’s when things really start to get fun.