How Virtual Brands Attract Real Customers

In February 2021, a new restaurant appeared in Steubenville, Ohio. Its name: Wings on Wheels. The menu featured what you might expect: chicken wings, soft drinks, sides of ranch and blue cheese dressing. Everything was rather typical about the place, except for one thing: There were no booths or servers—let alone a building. Wings on Wheels, you see, was a virtual brand, meaning the only way customers could get food was to order it through an app or website, then wait for it to show up at their front door. The delivery-only concept did not sit well with some of the 116,000 people living in the Steubenville metropolitan area. Who, exactly, was doing this? And where? “The phone calls and the messages and the Facebook comments were very hectic to keep up with,” said Frankie DiCarlantonio, chief executive officer of the Scaffidi Restaurant Group, the family-owned company behind Wings on Wheels. “The questions were far outnumbering the orders.” To help clear up the confusion, Wings on Wheels updated its name and logo to Scaffidi’s Wings on Wheels about a week after debuting. The move associated the virtual brand with the company’s other businesses, Scaffidi's Catering and Scaffidi's Restaurant and Tavern, which were recognizable to residents. It was a tough but necessary lesson for the Scaffidi Restaurant Group, as it joined a growing community of fellow restaurateurs looking to expand beyond their brick-and-mortar beginnings. According to a DoorDash spokesperson, thousands of conventional restaurants run virtual brands on its platform alone. Virtual branding has become a not-so-secret weapon for both burgeoning and legacy eateries looking to cultivate excitement around certain menu items, and its execution can yield anything from the above cautionary tale to immense success, including a dedicated clientele, more orders and a higher profit. As more restaurateurs explore the possibilities of digital expansion, they're also determining how they can create a winning strategy that won’t upset consumers due to a lack of transparency, leaving a bad taste in their mouths. The virtual boom Virtual brands—that is, non-physical restaurants listed on food delivery apps offering items prepared in the kitchens of diners, hotels, stadiums and special spaces designed for this very purpose (often called dark, ghost or cloud kitchens)—have been around for years. Their numbers, however, proliferated during the pandemic. Brick-and-mortar establishments needed ways to recoup lost revenue from declines in foot traffic. Meanwhile, more people were using food delivery apps. In April 2020, for example, U.S. consumers spent 138% more on services such as Grubhub, DoorDash and Uber Eats than they did during April 2019, according to research firm Earnest Analytics. Although demand has decelerated since then, dollars spent on delivery apps remain higher than prior to the Covid-19 outbreak. On a similar note, figures from market intelligence company Sensor Tower show millions of people around the world continue to download food delivery apps each quarter. Uber Eats had around 3,000 virtual brands on its platform in 2019. “That’s exploded to tens of thousands now,” said John Mullenholz, who leads work on U.S.-based virtual brands at Uber Eats. Smaller establishments aren’t the only ones setting up shop in the virtual market, either; it’s become a go-to strategy for big-name brands looking to expand into different consumer markets. One such restaurant, Southern cuisine chain Cracker Barrel, created the online-only brand Pancake Kitchen when it noticed a limited number of all-day breakfast options on delivery apps. “We are known for our all-day breakfast, and we already had a strong presence on third-party delivery sites,” said the brand's vp of marketing communications, Julia Perry. “We thought that developing a brand that really emphasizes that part of our offering makes it stand out on a very cluttered platform full of lots of tempting options.” Something on the side Ultimately, restaurants—regardless of scale—create virtual brands to expand their presence on food delivery apps and emphasize the versatility their menus can offer, thereby attracting new customers who may exist outside of their base demographic. Adults looking to have pizza for dinner, for example, probably wouldn’t consider ordering it from the kid-friendly Chuck E. Cheese. That’s why, in 2020, the restaurant chain’s parent company, CEC Entertainment, made the more mature-sounding digital spinoff Pasqually's Pizza and Wings (based on Pasqually P. Pieplate, the brand's drum-playing Italian chef), which operates out of more than 400 Chuck E. Cheese kitchens across the country. On the flip side, Cracker Barrel saw Pancake Kitchen as a chance to connect with younger consumers, a slight departure from its slightly older fan base. “We wanted to take a little bit of a chance and see what would happen if we paired what we thought was a fun opportunity with [Pancake Kitchen], with what we know about the DoorDash customer,” said Perry. To attract these potentially new brand loyalists, Cracker Barrel had to consider a separate visual identity for its newer kitchen. Pancake Kitchen pops with a bright pink background and sunny orange and purple logo, imagery that's much more eye-catching to millennial or Gen Z consumers. And now, when a pancake-craving user of any age searches the app for something to satisfy their taste buds, Pancake Kitchen—and by extension, Cracker Barrel—is much more likely to appear higher in the results due to having a name and imagery associated with its menu items. DoorDash reports restaurants can generate anywhere between 15% and 35% of incremental profit by licensing an existing virtual brand. Grubhub and the market research firm Technomic published a report in April stating 41% of independent restaurants operate virtual brands. Something must be going right, since the Scaffidi Restaurant Group introduced another virtual brand, this time focused on wine and beer, in late November. Its name: Scaffidi’s Vino e Birra. Room for seconds Food delivery apps want virtual brands on their platforms because they offer users more options. Grubhub, DoorDash and Uber Eats all have webpages dedicated to educating and encouraging merchants to create a delivery-only side hustle. Uber Eats also examines neighborhoods for gaps in supply and demand. If the company identifies a market where users are searching for sushi, yet no one is providing sushi, it will contact a local restaurant with the appropriate expertise and ingredients to explain why it might be wise to invent a virtual brand dedicated to sushi. “Using our analytics, we can tell pretty easily if there's demand for a certain type of cuisine and eaters can't find it on the app,” said Mullenholz. The opposite extreme is also bad. An enormous selection of burrito places producing meals more or less equivalent in price, taste and presentation can be annoying for hungry users scrolling through the app. “I first noticed it over the summer,” said Azad Yakatally, digital strategist and consumer. “I was jumping online just looking for a sandwich, and I literally couldn't scroll past this one bodega that had, like, 15 locations, all with different names, all offering the same thing.” https://twitter.com/AYakatally/status/1573029183298719745 Finding the balance Questions about transparency can lead to murky answers. Yakatally mentioned an instance involving burger chain Bareburger as an example, which launched The Naked Bird in 2021, a virtual restaurant focused on chicken sandwiches. The association might not be a big deal for those who research their choices before ordering, but for a person simply looking to try something new in a pinch, the tactic can feel, in his words, “bait-and-switch-y.” When Applebee's introduced a virtual brand in the spring 2020, it named the venture “Neighborhood Wings by Applebee’s.” In a similar fashion, the logos for Pancake Kitchen and virtual chicken brand Rotisserie Roast include the words "by Cracker Barrel” and "crafted by Boston Market,” respectively. Conversely, Pasqually's Pizza and Wings attracted some negative attention online when customers tweeted about feeling tricked into ordering from Chuck E. Cheese. Jenna Isken, group director of experience at Siegel+Gale, said this is where understanding a brand’s story becomes a key part of transparency. “People have become much more accepting of companies breaking into things that have really clear brand stories,” Isken explained. “There has to be a line of understanding. Where brands get into trouble is when they sometimes try to sneak it by people. It's not clear why they're doing something, and it feels underhanded.” While DoorDash discloses which restaurants are virtual brands—users might have to click through a carousel on the ordering page to find a disclaimer—Grubhub and Uber Eats do not. “We believe that a virtual restaurant is a real restaurant,” said Mullenholz. “Just like any other restaurant on the platform, the eater can see the exact location of the virtual restaurant.” Mullenholz noted user reviews and comments also help keep virtual brands honest. A chance to stand out In September, something big happened: A virtual brand went physical. MrBeast Burger—a collaboration between popular YouTube creator Jimmy Donaldson (aka MrBeast) and virtual brand creator Virtual Dining Concepts—launched in late 2020. After the digital-only fast-food joint expanded to more than 1,500 locations across Europe and North America, MrBeast Burger opened its first brick-and-mortar restaurant in New Jersey’s American Dream mall. Thousands of fans showed up for opening day during Labor Day weekend. It could be a sign of things to come as virtual brands grow up and become more sophisticated, coupled with consumer desire to dine out following quarantines and lockdowns. “I think we’re going to see more and more of these virtual brands becoming household names at the national level,” said Mullenholz.