Delivery-only restaurants, once pandemic winners, face doubt
On a recent afternoon, the kitchen inside a Denny’s in the Jackson Heights neighborhood of Queens in New York City was bustling.
Employees placed burger patties on a grill and pulled fries out of the vat of hot oil. Some orders were whisked away to customers sitting in booths, while others were boxed and set aside for pickup. The takeout orders were mostly from the Denny’s menu, but some were from the Burger Den and the Meltdown, two delivery-only brands that the chain owns.
The strategy of maximizing kitchen resources blossomed during the coronavirus pandemic, when restrictions shut down indoor dining, and customers ate more meals at home. As their kitchens sat idle, many restaurants across the country, desperate for revenue, switched to delivery mode.
The result was an explosion in the growth of the so-called ghost kitchen and its close cousin, the virtual brand, or a restaurant that has no physical space and operates online only. Seemingly overnight, catering venues and restaurants alike turned into ghost kitchens, offering foods and meals for delivery only. At the same time, celebrities, influencers and others created their own virtual brands. Mariah Carey offered cookies, George Lopez put his name on tacos, and Wiz Khalifa’s menu included bowls of chicken nuggets over macaroni and cheese.
Investors plowed billions of dollars into the space, and startups and established companies made plans to expand. Some Kroger stores had ghost kitchens, and Wendy’s announced plans in 2021 to open 700 delivery-only locations. That year, the commercial real estate company CBRE predicted ghost kitchens would account for 21% of restaurant sales by 2025.
But as the pandemic subsided and customers returned to dining inside restaurants, large chains found themselves squeezed by overtaxed kitchens and rising customer complaints, forcing them to reconsider their delivery-only strategy. Wendy’s has pulled back from its plans, and Kroger shut down its ghost kitchens last year.
“Consumers are going out to eat at restaurants again and craving that relationship with the brands themselves,” said Dorothy Calba, a senior research analyst for food service at Euromonitor International. “Virtual brands just did not have that connection with consumers.”
During the pandemic, Brinker International, which owns the Chili’s Grill & Bar and Maggiano’s Little Italy restaurant chains, created two virtual brands: It’s Just Wings and Maggiano’s Italian Classics. Both were embraced by hungry Americans who were tired of cooking at home.
But as more diners sought to share mozzarella sticks in person, the company’s restaurants became overwhelmed with orders, making it difficult for its kitchens to juggle the brands. As a result, Brinker shut down Maggiano’s Italian Classics last year and has pared It’s Just Wings, instead putting some of the fan favorites on its restaurant menus.
“Everyone thought if you have the labor and the equipment, it would be easy to run virtual brands, but the reality is, most of the delivery times for virtual brands transact during busy times for the regular restaurant,” said Kevin Hochman, Brinker’s CEO. “It was too much to have a busy dinner rush with an influx of virtual orders coming in, too.”
But an influx of orders during the dinner rush is not the only challenge restaurant chains face. Customers using delivery apps like Uber Eats and DoorDash sometimes wondered where, exactly, their meals were being made or would have issues with the quality of the food. Uber Eats removed 8,000 “storefronts” from its listings last year over complaints of poor quality, inaccurate orders or duplication, meaning multiple, nearly identical restaurants were operating out of the same location.
But restaurants say one of the lessons learned during the pandemic is to stick with what they know. Pizza restaurants should not start making burgers and vice versa, they say.
During the pandemic, Chuck E. Cheese created Pasqually’s Pizza & Wings, a virtual restaurant that was featured on delivery apps like Grubhub and DoorDash and offered more grown-up versions of the pizza served for children’s birthday parties in the restaurants.
“We were in the pizza business already, so we’re not serving something that’s foreign to our kitchens,” said David McKillips, the CEO of Chuck E. Cheese. “It’s in our DNA.”