September 1, 2020

Virtual Brands, a long-anticipated restaurant update

A surge in demand for online food delivery due to shifting customer behavior and evolving taste preferences has paved the way for establishing a new global F&B market. Enter the new kid on the block: Virtual Brands

What are they?

Virtual brands are online-only and delivery-centric food concepts. They tend to have a fail-fast approach to provide restaurateurs with the ability to generate additional revenue. This results in creating new, cost-effective brands and new menus to keep up with unpredictable customer demands. The current global pandemic has also rapidly accelerated the rise of virtual brands, as restaurants look for ways to weather the storm. And of course, consumers have swapped their ritzy restaurant reservations for the obvious safer option: ordering in. 

The predictions are in. The global online food delivery market is expected to grow at a CAGR of 7.5% between now and 2024, reaching approximately $182 billion.

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As the uptake of online food delivery grows, brick & mortar restaurants with poor delivery capabilities will continue to struggle with high overhead costs by overspending resources on delivery orders. Here's an excellent example of these undesirable unit economics. The Financial Times estimates that "traditional overheads" would account for about 60% of the iced Starbucks cappuccino cost you've just ordered. 

On the other hand, virtual brands provide restaurateurs with the ability to generate additional revenue by leveraging existing supply chains and making better kitchen space use. Customers have been receptive to these trends. A whopping 84% of customers who ordered from a virtual brand noted that they haven't previously done so from the original restaurant. 

THERE ARE MORE THAN 4,500 VIRTUAL BRANDS AVAILABLE ON DELIVEROO AROUND THE WORLD. 

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The operational structure of virtual brands varies, but here are three of the most common models:  

CLOUD KITCHEN OPERATOR-LED

Brand establishment & menu creation  

Cloud kitchen operators may acquire rights to specific brands or partner with restaurateurs to create virtual brands and their associated menus. 

Access to customers  

The brand markets to customers through food delivery aggregators partnered with the cloud kitchens or through direct online ordering channels.  

Food preparation

The staff of the cloud kitchen operator prepares food. 

Delivery

The delivery aggregators' fleet or third-party providers deliver food. 

 

AGGREGATOR-LED

UBER EATS HAS LAUNCHED AROUND 2,500 VIRTUAL RESTAURANTS AROUND THE WORLD.

Brand establishment & menu creation  

The aggregator itself may create a virtual brand based on insights gathered from data collected. The aggregator may also obtain franchising rights from brands operating in other countries and create menus according to set guidelines.

Access to customers  

The food delivery aggregator exclusively offers brands to customers.  

Food preparation

The aggregator's cloud kitchen prepares food (if applicable) or outsourced to fully-fledged cloud kitchen operators.   

Delivery

The food delivery aggregators' fleet delivers food orders. 

RESTAURANTEUR-LED

Brand establishment & menu creation  

The restauranteur creates the food concept based on existing resources, supply chain capabilities, and knowledge of upcoming trends.

Access to customers  

Typically offered across the restaurateurs direct ordering channels or food delivery aggregators.  

Food preparation

Also known as micro-cloud kitchens, restaurants may leverage their staff and use inactive kitchen resources, hotels, or other commercial properties. 

They may also rent out spaces from cloud kitchens operators, with or without food preparation services.    

Delivery

Depending on the virtual brand's channel selection, restaurateurs will either opt for their private delivery fleet, use third-party providers or food delivery aggregators.  

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VIRTUAL BRANDS OFFER SIGNIFICANT COMMERCIAL BENEFITS, IRRESPECTIVE OF THE OPERATIONAL STRUCTURE ADOPTED. THESE BENEFITS INCLUDE THE ABILITY TO:  

 

  • Analyze data and identify trends. By existing solely online, virtual brands have the advantage of being able to collect data effectively, allowing them to analyze customer behavior and recognize emerging trends.

  • Test new food concepts. Virtual brands can adopt a fail-fast approach by quickly acting on trends and cost-effectively testing new food concepts and menus. Restaurateurs can also react to changing customer behaviors and make rapid adjustments. 

  • Expand geographical reach. Restaurateurs can easily cater to a broader customer base by creating new concepts and tailoring menus based on customers' preferences and trends. 

  • Reduce costs. Leveraging resources, supply chains, and underutilized kitchen spaces, restaurateurs can significantly improve their unit economics.

 

Digitization and delivery-focused capabilities have become a prerequisite for any future-proof F&B operation. Increased competition, continuous innovation, and the need for agility is proof that virtual brands are here to stay.  

grubtech plays a critical role in digitally transforming restaurants and facilitating the accelerated activation and scaling of virtual brands. Essential grubTech products such as grubONE, which enables bi-directional integration with food delivery aggregators, alleviate the often cumbersome multi-food aggregator onboarding process. Coupled with grubKDS (a multi-brand kitchen display system) and other solutions such as integration with third party logistics providers, the software equips restaurateurs to streamline operations and effectively manage and track orders made.  

About grubtech:

We work with restaurants and cloud kitchens to rapidly launch and scale brands across multiple locations and streamline processes end-to-end.

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