The virtual brand segment faced several hurdles in the first half of 2023, with high-profile cases like Nextbite’s layoffs and sale to C3, as well as Red Robin’s decision to discontinue two virtual brands and end its collaboration with MrBeast Burger. However, industry experts and virtual brand leaders are confident that the sector still holds significant growth potential.

Geoff Alexander, CEO and President of Wow Bao, compared the current state of virtual brands to a baseball game, saying, “We’re in the second inning of a nine-inning ballgame.” He emphasized that while there have been setbacks, there is room for recovery and growth.

Rishi Nigam, Founder and CEO of host kitchen platform Franklin Junction, highlighted that each failed virtual brand has its own unique reasons for failure. These issues might not necessarily reflect the overall potential of the virtual brand category. Failures can occur when virtual brands require complex preparation, too many ingredients, or lack proprietary ingredients that give them a distinct menu identity.

Dorothy Calba, a senior research analyst with Euromonitor, noted that many of the challenges in the virtual brand segment revolved around consistency and quality. Managing multiple kitchens to produce a consistent product is a significant challenge, especially when each kitchen may have its own standards and practices.

According to Alexander, a lack of focus and support for virtual brands within restaurants can lead to subpar results. He emphasized the importance of staff dedication to ensure the quality of virtual brand offerings.

Calba mentioned that the abundance of virtual brands on delivery platforms could work against them. With so many options available, it can be challenging to convince consumers to order from a virtual brand they’ve never visited in person.

Even well-known restaurant chains haven’t always succeeded in the virtual brand space. For instance, Brinker International phased out its Maggiano’s Italian Classics virtual brand in May.

Third-party delivery platforms like Uber Eats have also adjusted their approach to virtual brands by implementing restrictions and developing certified virtual restaurant programs to avoid duplicate listings.

While the virtual brand segment has faced challenges, Alexander believes it’s essential to acknowledge the successes within the industry. With the right focus and support, virtual brands can thrive despite recent setbacks.