The 3 Dangers of Virtual Restaurants

With the food delivery market expected to grow to $365 billion globally by 2030, restaurateurs—be they franchisees or sole proprietors—have been eagerly searching for ways to capitalize on the delivery boom, both because it is operationally prudent, but also because customers are demanding it. Third-party delivery platforms, like Uber Eats and DoorDash, have only accelerated this growth, so much so that an entirely novel type of restaurant has been increasingly popping up in major cities—delivery-only or virtual restaurants.

These virtual restaurants, complete with delivery-only menus and quick turnaround times, offer what seems like a one-size-fits-all solution to both the delivery boom as well as the staff turnover woes that operators grapple with on a daily basis. They mitigate overhead costs, since they don’t have a dine-in option, by limiting the number of employees and real estate necessary to operate. Additionally, these ghost kitchens create a treasure trove of data on customer behavior.

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Seems too good to be true, right? Why not open a virtual restaurant tomorrow?

While virtual restaurants certainly offer some obvious benefits, below outlines three very real dangers that any restaurant operator should be wary of when considering whether to dive into the delivery-only restaurant game.

Third-party delivery platforms eat brands

Uber Eats, GrubHub, DoorDash and other third-party delivery platforms have taken off exponentially in recent years. Around 44 million U.S. smartphone users will use third-party food delivery apps by 2020, representing a 6 million increase compared to 2019. Positioning themselves as a flexible and convenient way for restaurants to provide delivery services without having to directly manage a delivery-force while also providing marketing and discovery services that many restaurant operators simply can’t afford, the platforms offer an appeal that is admittedly difficult to pass up.

While this all may seem grand, the fact is these third-party delivery services have as much regard for a restaurants brand as they do the rules of the road. Building a brand for a restaurant is an agonizingly difficult thing to do. Each menu item is painstakingly considered. The logo, colors and brand aesthetic are poured over with a keen eye. And the customer experience is honed on a daily basis. So, why would someone who put that much time, effort and investment into the brand toss it out the window by enlisting a third-party service that only cares about the volume of orders to pad its bottom line?

Personal touch matters

“Please and Thank You” and “The Golden Rule” are staples of the child-rearing process for a reason – personal interactions are the foundation of reputation and relationship building. In a restaurant, the importance of personal interaction is heightened, as a good or bad experience can mean winning a loyal customer or poisoning the well of a person’s network. This same ideal lends itself to virtual restaurants and last-mile delivery. If a customer only views a restaurant as an interchangeable place on a delivery app, there is little to no room for meaningful interaction. And by not having a dine-in option, a virtual restaurant loses its opportunity to put a proverbial ‘face to the name.’ Furthermore, by outsourcing delivery to a third-party service, a restaurant cedes control of the customer experience and necessary personal touch that might lead to a repeat customer.

‘Hands off my data’

Virtual restaurants certainly offer a lot of flexibility and convenience by being online-first. And while an operator may be able to discern what items are most or least popular based on aggregate order history, there’s a major disconnect in the data they do have versus what they should. By being reliant on third-party platforms for both discovery, ordering and delivery, virtual restaurants lose a huge advantage to restaurants that manage delivery in-house – data! We live in the era of data, yet virtual restaurants are throwing away storerooms of data to these third-party services that they might otherwise use to connect with their customers, devise new marketing campaigns and ensure safety and trust with their hard-won customers.

While there is no denying that delivery is here to stay, restaurateurs have a crucial decision to make in terms of what their brand means to them, the value they place on customer experience and how much control they want to have over the customer data—both digital and anecdotal. Virtual restaurants will undoubtedly continue to pop up on the third-party apps, but the real question is how long they will last without taking into account these three critical factors?

Don’t be surprised soon to see some well-known brands embrace the virtual approach as a way to lower expensive real estate and construction costs bit still accelerating their brands and customer engagement.