05/04/2021 | Press release | Distributed by Public on 05/04/2021 15:03
Twenty years ago, if a concept wanted to launch a new brand, it would take a year or more to develop and cost hundreds of thousands of dollars to get off the ground. Worse yet, if people hated the idea, restauranteurs were left holding the bag. Today, virtual brands can be launched in as little as a few weeks in anywhere from a converted warehouse space to a kitchen inside of an established restaurant, or even in a storage container.
Brands can quickly test new styles and concepts on audiences across a wide array of cities, launching and killing brands without a huge cash investment. Central kitchens, typically established in parts of cities and towns where real estate prices are lower, are great for digital restaurant brands because there is no brick-and-mortar storefront to deal with. Without the overhead cost of establishing a brand in the physical space, concepts can save money on initial start-up costs and quickly get to work making food.
It's important to keep in mind that virtual brands can operate in several different ecosystems, each with its own risk of investment. Some delivery-only brands operate within the kitchens of existing concepts, as is the case with spin-offs of already established brands, and only need to hire a small number of cooks and drivers, along with employees to promote the brand. They can operate at a much lower cost while generating a high profit margin, and with a strong online presence and good reviews, can enjoy low customer acquisition costs.
Other virtual brands operate in rent-a-kitchens or purchase low-cost real estate in less desirable parts of town and outfit the space to meet their needs. These concepts cost more because they factor in the price of the property and equipment on top of the costs already mentioned. Even with the additional costs, these kitchens still present a somewhat good business opportunity for brands looking to branch out into a new segment, expand their footprint into new communities, or quickly launch a new concept.
Of course, every rose has its thorns, and the case is no different with restaurants choosing to operate as a virtual brand. Because the business only operates online, concepts can't benefit from curious passersby stopping in to try the latest menu item. In addition, unlike traditional restaurant storefronts that can attract people with window signs, colorful takeout bags, and an inviting experience, virtual brands are 100% online. These restaurants essentially live and die by their online presence, so they need to focus on providing guests with a high-quality online ordering experience and receiving as many good reviews as possible.
Consider this: according to a 2016 Harvard Business School report, a one star increase in a Yelp rating for a restaurant was tied to a 5-9% increase in revenue. Digging deeper, BrightLocal found that about 40% of buyers will refuse to buy from a business if there are too many negative reviews. A poor online presence and bad reviews can be a death knell for a virtual brand, as it only takes a few negative reviews to torpedo their concept.