Nextbite’s failures are a warning for the entire virtual restaurant industry

Do Nextbite’s layoffs and subsequent sale to its competitor signal a death knell for the virtual restaurant industry?

Nextbite, once a prominent player in the virtual restaurant industry, has faced a tumultuous journey in recent months. Despite gaining significant attention and success during the pandemic with its celebrity-backed delivery-only brands like Hotbox by Wiz Khalifa and George Lopez Tacos, the company has recently experienced a series of setbacks, including multiple rounds of layoffs and the sale of its technology arm, Ordermark, to UrbanPiper, an Indian company.

Now, Nextbite has been acquired by Sam Nazarian, the CEO of SBE Hospitality Group, which owns C3, a fellow virtual restaurant company group and former competitor. This acquisition marks the consolidation of two major players in the virtual restaurant space, signaling a significant shift in the industry just two years after the boom of ghost kitchens during the pandemic.

Nextbite was initially established as the virtual restaurant division of Ordermark, a technology company focused on online ordering management for restaurants. Founded in 2017, Ordermark was one of the pioneers in providing software solutions to help restaurants streamline their online orders, eliminating the need for multiple tablets from different online ordering platforms.

The founding team of Ordermark consisted of CEO Alex Canter, who is the fourth-generation owner of Canter’s Deli in Los Angeles, along with Mike Jacobs, Jay Fuhr, and Paul Allen. In October 2020, Ordermark secured $120 million in Series C funding led by Softbank Vision Fund 2. Subsequently, Nextbite merged with Ordermark, and by 2021, the company fully adopted the Nextbite name.

Although Nextbite continued to form partnerships with various restaurants, such as Nathan’s Famous, Killer Brownie, and Shawarmama, the company’s recent layoffs have raised concerns about its stability. Former employees, including Kirk Mauriello, the CEO of virtual restaurant company Profit Cookers, anticipated Nextbite’s potential downfall due to challenges related to labor-intensive menus and a heavy reliance on celebrity endorsements.

Mauriello noted that many operator partners joined Nextbite but eventually left within a short period due to the demanding nature of managing virtual brands. These brands often required complex food preparation, such as hand-pounding chicken and creating multiple types of sauces, which proved to be time-consuming and inefficient. Mauriello emphasized the importance of understanding the restaurant industry and simplifying menu items to ensure operational efficiency.

Former employees and industry experts have also highlighted the issue of food quality in virtual brands, not only within Nextbite but across the industry as a whole. Nextbite’s focus on its tech-driven approach sometimes resulted in a diminished emphasis on food quality. The most successful virtual brand, MrBeast Burger, which was launched in partnership with Virtual Dining Concepts, has been an exception to this trend. However, even MrBeast Burger has received mixed reviews regarding food quality, with customers expressing concerns about overly salty dishes, overcooked items, and soggy fries.

Liz Moskow, a food industry futurist and former vice president of brand development at Nextbite, believes that the future success of virtual brands lies in striking a balance between restaurant operations, hospitality, and customer service. She suggests that restaurants should develop their own virtual offerings aligned with their standard operating procedures, providing customers with a differentiated, valuable, consistent, and high-quality experience.

The challenges faced by Nextbite do not necessarily indicate the demise of the entire virtual restaurant industry. However, they do highlight the need for companies to adapt and thrive in an environment where delivery-only brands are no longer essential for the survival of the restaurant industry. With customers having a multitude of options, virtual brands must prioritize hospitality, customer service, and food quality to ensure repeat business and long-term success.

As the virtual brand boom of the pandemic subsides, the industry must evolve and find its place in the post-pandemic landscape. By incorporating operational expertise, maintaining high-quality standards, and offering unique value to customers, virtual brands can continue to thrive in the ever-evolving restaurant industry.

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