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Virtual Brands

Delivery-only initiatives have captured much attention over the last few years. It seems that a good chunk of the conversation has been debating what we're going to call delivery-forward locations: ghost kitchens, cloud kitchens, shared kitchens, etc. For what it's worth, I use ghost kitchen.

There's also been substantive conversations about the possibility and potential of virtual brands - concepts that only serve delivery from ghost kitchens or other existing foodservice establishments. This conversation has greatly accelerated during the coronavirus pandemic as we've seen several notable instances of virtual brands from large chains. And this post will focus on two examples that have left us with questions about the future of virtual brands: Pasqually's Pizza & Wings and It's Just Wings.

Chuck E. Cheese quietly rolled out its Pasqually's brand via third-party apps near the beginning of the pandemic. The brand soon went viral over someone's complaint that, despite ordering from Pasqually's, they received what they thought was a Chuck E. Cheese pizza. Nevertheless, this hasn't slowed down the concept, which has so far continued to expand through third-party delivery apps.

For a restaurant chain like Chuck E. Cheese, having a virtual brand makes a lot of sense right now. The concept, more so than just about every other restaurant brand around, was built on the idea of bringing guests into locations. It didn't have, nor did it really need to have, an off-premise strategy for so much of its existence. But that strategy has been flipped on its head. Simply put, Chuck E. Cheese needed a strong delivery program, fast.

But this story ultimately begs the question of whether operating two brands is ideal, especially when there's an overlap of what is offered at the two concepts (to be fair, Pasqually's pizza is slightly different than Chuck E. Cheese's, but broadly speaking both serve pizza and wings).

In other words, would it be better for a location to have one concept that appeals for both on- and off-premise occasions, or to have separate concepts specialized in on- and off-premise occasions using the same kitchen? Opting for two brands allows operators to better speak to the specialization of each, which is valuable. But it brings a host of challenges. In general, successfully adding new items or service formats is not an easy task.

Eatertainment and full-service brands, such as Chuck E. Cheese, may be tempted by virtual brands due to long-established associations between their concepts and dining at locations as opposed to ordering delivery. But if you were to launch an eatertainment or full-service brand following the pandemic, which would you choose - an omnichannel brand or separate brands for dine-in and delivery? However, I'm not sure how many people are planning new eatertainment brands at the moment.

Perhaps noticing some of the initial pushback to Chuck E. Cheese's silent roll out of Pasqually's, Brinker International was a bit more upfront about its new virtual brand, Its Just Wings. It sells what the name suggests from Chili's and Maggiano's kitchens, and quickly expanded to 1,000 "locations". To put this into perspective, this instantly puts the concept among the six largest limited-service chicken brands in terms of locations.

To look at it another way, Wendy's ability to grow to 1,000 units in 100 months was historic in the 1970s, and it would have been historic in the 2010s as well.

This new ability to instantly scale a virtual brand, seemingly overnight, is undoubtedly exciting. But how sustainable is it? The combination of Brinker's Its Just Wings and Applebee's Neighborhood Wings dramatically increased the supply of chicken wing concepts available through third-party delivery apps at an unprecedented pace. And these aren't the only chicken concepts growing quickly. Tyga Bites, a virtual chicken concept from Robert Earl and Tyga, launched at 30 kitchens and aimed to be in 500 by the end of August. The partnership is a truly interesting strategy, bringing a celebrity into the mix. It has the type of star power that can elevate a brand on social media, which is important these days.

According to Restaurant Business Online, only 5 chicken chains had more than 1,000 locations in 2019. Asking how many virtual chicken brands will surpass that number is perhaps not a fair comparison as virtual brands don't need to make the same amount per location as brick-and-mortar stores to be successful. But the segment will eventually saturate at some point, we just don't know when. Though if virtual brands are growing historically fast, it makes sense that saturation could come quickly as well.

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