Diverse of paper containers for takeaway food. Delivery man is carrying

The explosion of virtual restaurant operations brings up a key question: What is peak virtual restaurant?

According to panelists discussing the topic during Restaurant Finance Week, we aren't even close. The panel, titled The Economics of Virtual Restaurants, explored the space from a lot of different angles.

Kristen Adamowski, a strategic initiatives lead who works on virtual restaurants at Uber Eats, said there is a lot of variation between brands, markets and operators. She looks to one key metric to gauge overall how virtual restaurants, which she referred to as VRs, are working.

"Absolute volume is tricky. Just looking at Uber Eats data, what we typically benchmark against is what the small business is doing on Eats and what is the incrementality VRs bring. What we're seeing across all 8,000, VRs bring about 40 percent incremental sales on average," said Adamowski.

Adamowski said that metric also shows there is still plenty of whitespace. The incrementality has remained at 40 percent for two years.

"If we were reaching saturation, we'd watch that go down and it hasn't," said Adamowski. "I think there's always been an appetite, excuse the pun, and when it comes to creating new restaurant brands and concepts, VR is the lowest risk way to develop new concepts that could be the next big hit, so I'm really excited about the future."

At this nascent stage of the industry, the potential market looks expansive. Aziz Hashim, the founder of NRD Capital and now Franklin Junction, said the new venture is designed around pushing the margins higher for that 85 percent of virtual restaurant host kitchens.

"I think this has a long way to go, Americans don’t realize how far behind we are at delivery," said Hashim. "It's easy to build in America. In other parts of the world you have to think three times before you can build. They were forced into delivery a long time before we were, now we're catching up. I think saturation point is really far away."

The base number of virtual restaurants is not the only question though, as André Vener, co-founder of Dog Haus and the virtual restaurant collection dubbed Absolute Brands, said during the session. If everyone keeps stamping out chicken wing or burger brands like they have been, some of those food verticals could get virtually saturated.

"If we all get the same playbook and we're all on these panels thinking this is what my next eight brands will be, yes, I do think it will get saturated," he added. "If you put the thought in on the packaging, the marketing and the photography. If that works, you can knock out everyone because there's always competition out there and the top brands will rise to the top. It's people leaning into what they're good at instead of being one of the 100 people that will launch a burger concept next month."

How the the virtual kitchen industry plays out will be an evolution, as Ken Chong, CEO and co-founder of Virtual Kitchen Co., said. His brand helps restaurants figure out how they can approach the virtual restaurant and ghost kitchen opportunity, and noted that his work will change as the industry matures.

"I view this more as a long-term evolution, similar to the e-commerce revolution which is still happening. I think we'll see various phases of trends, for instance, everyone launching a burger brand," said Chong. "What we'll see is this feedback loop of consumer behavior evolving as possibilities become faster more affordable and more options will change the consumer behavior. I think we’ll see continual evolution for the next 20 to 30 years."

Check out the full panel for more insight into how to navigate the Darwinism within the virtual restaurant world via the Restaurant Finance Week portal.

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