In 2018, the global online food ordering industry was expected to grow at a CAGR of 20% until 2030. That was just before the pandemic brought the world to a standstill and threatened the restaurant industry’s very survival. Come 2022, the food delivery services market is now growing at a staggering 24.64%! Virtual restaurants are not only dominating this space but are also poised to fuel this trend in 2023.
Virtual restaurants were gaining popularity way before the pandemic hit. But the pandemic became an inflection point for this innovative restaurant business model.
It’s no secret that the pandemic was particularly grueling for the food service industry. Estimates indicate that 80,000 to 110,000 restaurants shut down in the US alone. That’s about 7%-10% of the restaurant businesses operating in the country. In the UK, too, 9.7% of the restaurants never made it out of the pandemic. Restaurants were hard put to go back to the drawing board and reinvent everything. Contactless menus replaced regular menus; restaurant takeaways and deliveries shot up; sanitizers were everywhere. Amidst this rapidly evolving business landscape, virtual restaurants became mainstream.
As we enter the new year, it’s clear that virtual restaurants will have the biggest impact on the restaurant industry. Here’s everything you should know about this innovation and how you can employ it for your benefit.
What Are Virtual Restaurants?
Virtual restaurants are delivery-only restaurants that exist exclusively online with no physical customer-facing operations. Some virtual restaurants rely heavily on third-party food delivery marketplaces and services like UberEats, DoorDash, GrubHub, Postmates, and so on, to reach their customers. Some other virtual restaurants choose to offer in-house delivery services and set up an in-house food ordering system to suit their operational objectives.
The operational pressures exerted by the pandemic compelled restaurants to develop unique survival strategies, and virtual restaurants are one of the many that proved effective. It’s true that virtual restaurants do not serve dine-in or takeaway customers; however, that does not mean they don’t have any physical component to their services.
Virtual restaurants can be grouped into two types depending on their physical presence. The first kind are regular restaurants that launch virtual restaurant brands and concepts.
The second type of virtual restaurants rent out the kitchen spaces and facilities of an already established restaurant, but serve their customers exclusively online. They have nothing to do with the physical restaurant’s (whose premises they are utilizing) customers and services.
Sometimes, the term “virtual restaurants” is loosely used to refer to a variety of delivery-only services like ghost kitchens, cloud kitchens, and others that use shared kitchen spaces in typical warehouse-type setups. They generally share kitchens with several different virtual restaurant brands. However, most industry observers and restaurant entrepreneurs do not strictly consider them to be virtual restaurants.
Virtual Restaurants vs. Ghost Kitchens vs. Cloud Kitchens
The meteoric rise of the delivery-only restaurant model has spawned a diverse range of concepts that are trying to find their space in this burgeoning market. Sometimes, the concepts overlap, and there’s no hard distinction between them. For practical purposes, there isn’t an industry standard or universally accepted definition for the terms “virtual restaurants,” “ghost kitchens,” and “cloud kitchens.” However, they can largely be boxed into different groups based on some characteristics. That’s what we’ll do today.
- Virtual Restaurants are delivery-only restaurant “brands” that operate out of a physical restaurant. In some cases, the physical restaurant owns the virtual restaurant; in others, the relationship is more akin to that of a tenant and landlord.
- Ghost Kitchens generally have no association with physical restaurants. They operate out of commercial kitchen spaces, often sharing them with other ghost kitchen brands, and are highly scalable business models if they find popularity among their customers.
- Cloud Kitchens turn virtual restaurants and ghost kitchens into a franchise. They “rent” out their brand and menus to other chefs, restauranteurs, and ghost kitchens. This allows the latter to focus entirely on their operations, while leveraging the cloud kitchen’s brand to reach customers on food delivery apps.
Benefits of Virtual Brands for Restaurants
Delivery-only restaurant brands offer several advantages over physical restaurants. Virtual restaurants, in particular, are riding on the demand for food deliveries while simultaneously minimizing the business and financial risks that come with launching a restaurant brand. Here’s how:
- Minimum Upfront Investment
Launching a new restaurant is a capital-intensive project. It’s estimated that restaurants require 18 months on average to break even because of the high upfront costs. Virtual restaurants utilize already existing physical infrastructure, utensils, kitchen appliances, and other resources. So, they require little investment and break even much faster, perhaps in weeks.
- Low Overheads
If you’re an established restaurant launching a virtual brand, you likely don’t need additional labor, equipment, or ingredients. You can hit the ground running without any operational overheads whatsoever.
If you’re renting out a third-party restaurant’s kitchen space, you still only have to deal with operational costs like labor and ingredients. You can start small and scale it up depending on the market response.
By launching in-house delivery, you can even save on the commissions that food delivery marketplaces charge. Also, commission-free restaurant delivery systems like Orderlina slash your delivery order fulfillment costs drastically.
- Get More Exposure
Restaurants can reach a wider audience by launching multiple virtual restaurant brands. Having multiple restaurant listings on food delivery apps is certainly an advantage, as it gives them several times more opportunities to engage and convert audiences into customers.
- Test New Menus and Concepts
The same restaurant can introduce and experiment with several new cuisines, menus, and food items under different virtual restaurant brands. For instance, a fine-dine restaurant facing financial difficulties can launch a fast-food virtual restaurant brand as a survival strategy without hurting its own brand.
- Optimized for Success
Successful virtual restaurant brands target hungry app users who crave specific food items like chicken wings, cheeseburgers, pizza, or desserts rather than a brand. So, virtual brands with low investment and operational costs can gain a huge base of loyal customers by initially keeping their margins low.
Why Fast Food and Virtual Restaurants are the Best Combination?
Although the food delivery industry is growing at a phenomenal rate, it’s not all opportunities waiting to be grabbed. There’s intense competition brewing in this space as more delivery-only restaurants are popping up everywhere. The fast food menu offers virtual restaurants an easy option to establish themselves in this space. Here’s how:
- Fast Food is Inexpensive
Fast food is so inexpensive to prepare that fast food restaurant chains are now effectively competing against homecooked food in terms of costs. Add to it the cost of time, and fast-food restaurants become the clear winner.
- Can Be Highly Standardized
Fast food items are easy and can be automated with the right equipment. Even when you cannot invest in equipment, standardizing the ingredients, preparation, and recipes can help you deliver consistent quality reliably, as most fast-food chains do. Customers love consistency.
- Great Taste
It’s almost always the fast foods that trigger sudden cravings in consumers. When coupled with low prices, those triggers tend to translate into action, i.e., orders, because customers don’t have to think twice about the expense.
- Unmatched Variety
There are so many options when it comes to fast food. You can even target health-conscious customers with a healthy fast-food menu too. Find a way to stuff in a lot of green leafy vegetables without affecting the taste or quality, and you’ve suddenly found yourself fans among parents of young children.
- Easy to Promote
From the standard “two-for-one” promotions to the more elaborate event catering, the fast food menu gives you more room to promote your restaurant creatively.
Fast food is here to stay. Why no benefit from it?
Tips for Fast Food Virtual Restaurants Success
Launching new virtual restaurants is surprisingly easy, but ensuring their success not so much. So, here are some tips to help your fast-food virtual restaurant succeed:
- Find the Right Concept
There are innumerable fast-food options out there based on cuisine, country of origin, ingredients, and other factors. Burgers, pizza, kebabs, tacos, sandwiches, burritos, fried chicken, Chinese, and more. You can launch a menu that complements your chef’s expertise or experiment with different concepts until you find the successful one.
- Build a Delivery-friendly Menu
No soups, eggs, teas, or any of the numerous food items that don’t travel well. Not all food items maintain their appeal, integrity, and taste over deliveries. So, create a menu of items that travel well and are in high demand.
- Choose Delivery Option
Food delivery services like UberEats charge up to 30% of the order value in commission. You can save a lot of money by setting up in-house restaurant delivery. While many restaurant-ordering-software charge flat commissions on each order, there are also commission-free restaurant delivery systems like Orderlina that charge a fixed nominal monthly fee. Orderlina also offers a free plan to help virtual restaurants test out the waters without any commitment.
- Build a Powerful Brand
Once you’ve found success with your money, it’s time to double down on your efforts. Build a formidable restaurant brand – logo, website, branded food packaging materials, and the works. For food delivery ordering customers, you are a real restaurant; there’s no reason for you not to behave like one.
- Keep It Highly Scalable
Virtual restaurants are highly flexible and nimble setups. You don’t have to hire half a dozen chefs or 20 delivery people immediately. Start small. As you succeed or meet challenges, you can resize your operations accordingly. Unlike physical restaurants, virtual restaurants are not stifled by high fixed costs or overheads. So, you have more room to scale up or down as per your evolving needs.
To learn more about how Orderlina can help your virtual restaurant optimize operations, reduce costs, and maximize profits, get in touch.