The coronavirus pandemic changed a lot of people's dining habits. When case numbers were really high and vaccines weren't yet available, many people stayed out of restaurants and stuck to takeout and delivery orders instead. And restaurants have, in the course of the past 19 months, adapted to that trend.
Some have partnered with delivery apps to pump out orders at a larger scale. Others have hired more staff to increase their own delivery capacity without having to seek outside help. And now, a growing number of restaurants are going virtual in an effort to reach more customers.
Will virtual restaurant brands start to dominate?
Virtual restaurant brands don't welcome diners into an actual establishment. Instead, they make meals available to diners through third-party delivery apps. Virtual brands use existing restaurant kitchens to fulfill orders, and they tend to be more common among cuisines that lend well to delivery, like pizza, burgers, and wings.
Virtual brands were becoming more popular even before the pandemic began. But ever since the COVID-19 outbreak exploded, they've really taken off.
One such example is Applebee's, which partnered with Uber Eats earlier this year to introduce a virtual brand known as Cosmic Wings. The brand was slated to expand its partnership by teaming up with DoorDash, but then a chicken shortage erupted, which slowed those plans temporarily.
Meanwhile, Hooters launched its own virtual brands to not only capitalize on the delivery trend but also expand its client base. (Not shockingly, the name Hooters doesn't exactly read as family-friendly.) Now, it offers Hootie's Burger Bar, Hootie's Bait and Tackle, and Hootie's Chicken Tenders, each of which comes with its own menu.
Finally, Denny's introduced two virtual brands earlier this year. The Melt Down specializes in handcrafted sandwiches, while Burger Den focuses on Denny's classics and new signature dishes.
Now those familiar with the restaurant space may know that over the past year or so, ghost kitchens have really taken off. Virtual brands fall in line with this concept -- there's no dining room that guests can gather in -- rather, food is pumped out in shared kitchen space and eaten off-premises. Due to the success of ghost kitchens, it's fair to assume that virtual brands will also continue to shine.
The impact on real estate
Many restaurants were forced to shutter during the pandemic, and some are still very much operating in recovery mode. Virtual brands could serve as a key source of revenue for restaurants, thereby enabling them to thrive and survive the blow the pandemic dealt them. That alone would be a good thing for real estate investors, as it could mean fewer closures and more rental revenue.
But if restaurants increasingly go virtual rather than open new storefronts, that could hurt real estate investors. This especially applies in an age when retailers are increasingly closing stores and commercial landlords need to be vigilant about sourcing replacement tenants.
It'll be interesting to see if the demand for delivery orders stays strong once the pandemic really comes to an end. But if that happens, virtual brands could be a major source of revenue for restaurants -- and a cost-effective one at that.