How many virtual restaurants are out there?
While most people are familiar with Software as a Service (SaaS), it seems many are understandably unfamiliar with Restaurant as a Service (RaaS). And at Chowly, we want to change that.
We recently spoke at the industry trade conference, Food On Demand, and there was a lot of discussion surrounding virtual kitchens. Yet many people were shocked when I shared that we are nearing 100,000 of these concepts across the country. This number is not a shock for us at Chowly since we help our restaurant partners grow said concepts each and every day. It seems as an industry, everyone is familiar with the idea of virtual brands powered by companies like Cloud Kitchens, Zuul, and Kitchen United. However, they are equally as unaware that there are many, many more virtual concepts running out of normal restaurants that already exist.
There is an extremely profitable, and easy-to-implement virtual kitchen solution that has been flying under the radar that needs to take center stage. That concept is Restaurant as a Service (RaaS). We’re talking about a brand that exclusively serves guests through a digital storefront while being run out of an existing brick and mortar restaurant (not necessarily the big commissary kitchens that have been eating up the headlines the past few years).
Who is leading the RaaS space?
Concept collector and a friend of ours, Robert Earl, started bringing the Restaurant as a Service idea to the mainstream a couple of weeks ago with the introduction of Virtual Additional Concepts (VACs), which is a pretty good descriptor for his new venture.
Earl’s new business is basically a Restaurant as a Service. It provides VAC opportunities to existing restaurant operators, generating more sales for restaurants in a time when they need it more than ever.
The deal is if a restaurant operator has the equipment, the staff, and the space to meet a VACs requirements they can add that concept right in their restaurant. An example of this is the new celebrity-backed, Tyga Bites. To bring this virtual nugget brand to your kitchen, you simply need to meet a few standards.
While commissary kitchens like Kitchen United can provide a good space to launch a Virtual Additional Concept, the true scale for VACs is going to come by leveraging the existing 600,000+ kitchen spaces across the U.S. The pandemic has been catastrophic for on-premise sales and restaurant owners. Many of them are independent operators who are now searching for ways to fill that revenue gap.
By adding on a VAC, a single location operator who’s been making their own pizzas for 20 years can now use their excess kitchen capacity to bring in an additional $10k to $20k a month from that concept. That amount of revenue couldn’t support itself as a stand-alone business (which is a big reason the initial boom of virtual restaurants fizzled out a couple years ago) but when it’s supplemental to a restaurant’s existing business, it makes adding on VACs a no-brainer.
And Robert Earl isn’t the only one doing this. There are multiple restaurant as a service solutions out there that are spinning up concepts every day, constantly tweaking recipes and pricing strategies to serve various demographics. RaaS providers often connect their brand with a celebrity to lift the concept to relevancy in the digital world (see Tyga Bites or Pizzaoki).
The third-party marketplaces have been somewhat acting in the restaurant as a service role for a couple of years now. Marketplaces have been creating virtual concepts by leveraging over-indexed search results in their app to know what foods customers are looking for. They then reach out to restaurants in those zip codes and collaborate with them to create a specific menu subset. In fact, these types of concepts alone reportedly represent over 15,000 of the virtual restaurants in existence today.
Brinker’s announced that their virtual concept, It’s Just Wings, is projected to gross over $150M this year. Dickey’s BBQ announced that they’ll be offering virtual concepts as a bonus to their franchisees. Chuck E. Cheese pulled off one the most brilliant moves by launching Pasqually’s, their virtual pizza concept with much success.
It’s the independent operators that can reap the benefits of VACs
The opportunity for restaurant as a service companies is huge right now. While the big chains may seem more suited to create and launch these virtual concepts themselves, it’s the independent operators (which still represent half the restaurant space) that can reap the benefits of an additional, digital-only restaurant concept. And it’s the RaaS solutions that will help prop independent operators up on this digital journey.
“When we see the emergence of a real value-providing concept like RaaS solutions, it makes us hopeful for the future of our industry.”
The catastrophic events in the world have created seismic shifts in the restaurant industry. The business model for restaurants has changed in a big way. And like almost every other industry these days, the change is that it’s going virtual.
At Chowly, our mission is to simplify technology for restaurants. When we see the emergence of a real value-providing concept like RaaS solutions, it makes us hopeful for the future of our industry. We’re looking forward to seeing the impact VACs make on a restaurant operator’s business success and on a larger scale how technology is leveraged to evolve our industry.