Modern-Day Mystery Meat

On the surface, the restaurant industry seems to have flooded food-delivery apps with a lot more options recently. They offer chicken wings, pizza, burgers, and many other culinary options.

But a number of these restaurants aren’t new at all—many are just the kitchens of your local chain cooking up simple staples under new online-only names.

In a trend that is sweeping the food services industry, established chains, including Applebee’s, Outback Steakhouse, and Red Robin have created phantom brands with different menu items that exist only on food-delivery apps. It’s a COVID-era digital update of a classic marketing tactic—creating new brands or extensions targeted at a different customer base—that’s designed to help restaurants financially ravaged by the pandemic. The goal is to attract younger consumers, who aren’t as keen to sit down for an appetizer, main course, and dessert as much as their parents.

So far, it’s working. One analyst projects virtual restaurants could grow to a $1 trillion business by 2030. But the fact that these virtual restaurants exist in name alone and are, in fact, often part of larger corporate chains risks alienating customers who are looking for more transparency in the food they eat and the companies they patronize.

Make no mistake: many restaurants are in a battle for survival. The industry lost $240 billion in sales, laid off nearly 3 million people, and closed about 100,000 restaurants last year, according to the National Restaurant Association. “There’s only so much share of stomach restaurants can compete for,” says Caren Fleit, a managing director and leader of Korn Ferry’s Global Marketing Officers practice. With physical locations closed or capacity capped at 50% or less in many areas, Fleit says virtual brands are another pandemic-era innovation, similar to curbside pickup, that caters to diners’ shifting behaviors. “At-home delivery is way up, and people eat differently at home than in a restaurant,” Fleit says.

Legacy companies creating a new brand to attract a different audience is a marketing staple of the physical world, of course. Retailers have long developed private labels or offshoot brands that extend beyond their core customers, branching out from women’s clothing to men’s or creating higher-end lines for more affluent shoppers and discount lines for younger buyers, for instance. Streaming services and consumer products firms do the same thing. Brick-and-mortar restaurant chains divide their eateries by food, ambience, and price points to try to cater to any appetite at any time.

The potential downside of the shadow kitchens is in unknowingly misleading their customers, says Ayana Parsons, a senior client partner in Korn Ferry’s Consumer practice. She says customers could misconstrue virtual restaurants as being an independent, homegrown local eatery, for instance. “Proponents of the ‘eat local’ trend may view corporate chains as being disingenuous with their customers with these virtual brands,” Parsons says. One way to avoid such accusations is to include a “brought to you by” tagline for greater transparency, sort of like how big beer brands have appended their corporate names onto the bottles and cans of craft brewers they’ve acquired.

Perhaps the biggest risk, however, is the cannibalization of customers from the main restaurant. The entire idea behind virtual brands, after all, is to create new revenue streams without the overhead needed for extra staff, equipment, or kitchen space. If the virtual brand isn’t distinct enough, it runs the risk of siphoning off customers—essentially shifting rather than growing revenue.

To be sure, Parsons says rather than a short-term solution, virtual brands could become great incubators for restaurant operators. “I could see in the longer term building new brick-and-mortar footprints out of the more successful concepts,” she says.