How Two Restaurant Groups Navigated Virtual Kitchens

Over the last decade, Michael McHenry has carefully built up the Michael McHenry Group, a major restaurant portfolio in the Salt Lake City scene. 

But at the beginning of the pandemic, he, along with the entirety of the industry, was forced to pivot. McHenry’s solution? Leverage his current kitchen space and launch new virtual restaurant concepts to catch the eye of the stay-at-home diner.

Toronto-based Kinka Family followed a similar game plan, leaning not on their portfolio of stalwart ramen bars, raucous izakaya or coffee shop concepts to survive.

Instead, they opened four new virtual restaurants. 

These decisions paid off exponentially, allowing the two restaurant groups to diversify income with dine-in revenue non-existent while building a new and expanded consumer base.

Both groups went full throttle on standard takeout and delivery at each venue, but their existing concepts were not enough to keep revenue at pre-pandemic levels. “Students in particular, who are one of our largest customer bases, were away from campus where many of our restaurants are located,” describes the group’s director of marketing Stella Yu.

So Kinka followed the draw of a virtual kitchen. “Much of the appeal that came with launching virtual kitchen concepts was that most of the elements needed to operate successfully already existed within our physical restaurants,” says Yu. As pre-existing restaurants, the group didn’t have to go through the usual rigamarole of opening a restaurant. “Existing infrastructure, like the kitchens, health and safety reviews, were already in place,” she continues. “Our relationships with delivery apps, suppliers and web hosts were already well established.” These factors helped produce “a relatively seamless launch.”

For McHenry to execute a virtual concept, he could rework existing menus and concepts to “simplify the supply chain to keep costs down and cross utilize between concepts, improved packaging, and implemented online ordering.” His new concept, Southside Pizza Co, would help him target a millennial demographic he wasn’t currently engaging with. 

Both Kinka Group and McHenry’s new concepts operate with menus built specifically for takeout and delivery. With this structure, there are no additional storefront costs, labor costs or front-of-house costs. “Each virtual concept needed to resonate with our existing communities while also attracting customers that may have not had the opportunity to engage with our brand before the pandemic,” says Yu.

“Our team spent months identifying gaps in the market, testing recipes, as well as packaging to ensure that the concepts would offer the same quality, value and fair prices that customers have come to expect from us,” Yu describes. The goal was to identify and build a restaurant concept that could appeal to customers virtually, and develop a menu that would retain its integrity through the delivery process.”

Four concepts were born out of this R&D; two sandwich concepts, a hot dog shop and a Japanese pasta bar. Locations of Kinka Izakaya, Kinton Ramen and other venues under the company’s portfolio can output all of these concepts, giving the brands an expanded presence across the city and the ability to house many brands (and therefore, revenue streams) under one roof. 

Though the terms are often used interchangeably, ghost kitchens and virtual restaurants are different. Ghost kitchens are (generally) third-party-run professional cooking facilities, often that house several different brands at once. One in my neighborhood houses seven different restaurants in one room, including Cheesecake Factory, Cinnabon and Ben & Jerry’s. 

Virtual brands are food concepts typically run by existing restaurants and housed in their existing brick-and-mortar locations. These new concepts are often more transferable to take-out than the existing concept.

Ghost Kitchens and virtual dining concepts have taken off over the pandemic period. Companies like Virtual Dining Concepts offer restaurants the opportunity to generate revenue via delivery-only concepts in their existing locations. Restaurant owners can double their revenue by offering their kitchens to the likes of Pauly D’s Italian subs, Tyga’s Tyga Bites snack line, Mariah Carey’s cookies or Lil Yachty’s diner concept.

“This digital-only brand provided us the unique opportunity to remove some of the complexity and capitalize on the sharing of already fixed costs of the existing restaurant and pass this savings on to the guests,” says McHenry. He notes pursuing a digital-only concept can help a restaurant brand scale up, expand offerings and find new target demographics, all with little overhead or additional expenses. 

But it’s not without its challenges. “Establishing relevance in the digital-only world takes great branding, consistency, digital strategy and resources. There’s no such thing as a captive audience in the digital world. It’s endless. However, who doesn’t like a business with endless opportunity and consumer base, you just have to contend. Smartly, swiftly and with unwavering pursuit” 

Hope Neimen helps restaurants pursue these digital endeavors with her company, Tillster. Over the pandemic period, Tillster enabled nearly 50 million digital orders. “We offer the added dimension of integrated marketing and data mining so that restaurants can realize more orders, more often, more ways. Often, this meant building a brand-specific website to support both direct delivery and delivery through third-party partners.”

Specifically, Tillster worked with Rick Bayless to bring his Tortazo concept to life at the start of Covid-19. Neimen and team built out secondary branding riffing on parent restaurant Tortazo’s existing identity with a corresponding website, complete with third-party integration. The highly automated system created ccepts orders through a digital ordering platform, seamlessly integrates them into the restaurant’s POS system and dispatches the delivery service provider’s driver to pick up the order and deliver it to the consumer.

Ghost kitchens and virtual concepts offer restaurants a way to pivot with minimal overhead, but they are not without hurdles. 

“Building trust in a new brand with no physical space for customers to interact with can be challenging,” says Yu. “With most new restaurants, there is an added benefit of a physical space for people to meet at, and systems in place to ensure the customer has the best possible experience. With a virtual kitchen, several factors make this experience more challenging. ”

She points out that there isn’t an established relationship between brand and customer like there is with their pre-existing restaurants. 

Plus, with delivery, many variables are out of control. “Multiple elements can affect how a customer enjoys our virtual kitchen offerings at home. This can include how long a meal takes to get from our kitchen to the customer, how their food is stored on the trip and how long the customer waits to eat it upon arrival.”

“Furthermore,” continues Yu, “if a customer is unhappy with their meal, complaints are dealt with online rather than in-person with a server.” Unlike in a restaurant, servers cannot visually notice when a customer is unsatisfied and remedy the situation. Most of the time, dissatisfaction comes in the form of bad reviews, which will further negatively impact a restaurant’s future. 

That said, Niemen has found the increased reliance on digital has helped her customers build connections. “Digital ordering helps restaurants build loyalty, gain repeat visits and insights into customer behavior. A strong digital game can help you know when to reach the right customer with the right message at the right time. with a brand-specific website, restaurants can more easily re-market and help ensure they are keeping their customers away from competitor efforts found in third-party apps and in other ways looking to acquire a customer.”

With a strong digital presence, a virtual kitchen concept gives a brand freedom to shapeshift. Case in point, Kinka Family recently retired JapoSando & Co to focus on its Neo Coffee Bar concept, though menu items will live on at other concepts. 

“In 2021, we’ll be reviewing each concept and assessing its success,” describes Yu. “Based on our assessments from customer feedback, to sales and potential for expansion, we may choose to discontinue or change the menus to align better with what our customers are looking for, or we may choose to introduce entirely new concepts.”

“We developed these virtual kitchens for our customers,” she continues, “and they will decide if we carry forward with these concepts.”

McHenry has found customers are sticking. “We have experienced an almost entirely new demographic and guest participation. This was by plan, as we have targeted a younger, more price and convenience focused consumer than we already built dining, takeout and delivery customer.”

Moving forward, “All of our opportunity brands will stick around so long as it best serves our guests. When you are laser-focused on what the guest wants and not just surviving conditions, you’ll see that digital brands and creating greater access and convenience to your craft, is absolutely necessary.”