Hospitality Industry
7 min read

F&B trends: virtual kitchens and digital dining concepts are on the rise

Francesco Derchi
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An in-depth look at how F&B businesses can harness new value creation models that have emerged in these recent pandemic times. A new type of profitable system created to leverage opportunities thanks to technology, in this case, the abundance of resources in the market made available by digital tools, such as the virtual kitchen. 

What are ExOs?

From small startups to large corporations, few have not felt the impact of Covid-19 this past year. Businesses across industries and geographies have seen many challenges, some fighting to survive and others thriving, moving from new normal to the next normal. Within this context, it is interesting to observe the emergence of new value creation models. Digital technologies have for the first time in history created opportunities for connection and data development. Ideas, talent and finances once scarce are now available, accessible and above all abundant. This is where opportunities lie.

To create value today, organisations need vision and intuition paired with rapid execution capabilities and agility to perform in constantly changing markets. The combination of these business skills allows organisations to anticipate market trends and customer behaviours.

A new type of organisation is emerging – Exponential Organizations or ExO’s. They rapidly scale results and outperform the market showing excellence in terms of vision, intuition and execution. Their competitiveness is visible across industries. ExOs are defined as companies “whose impact or output is disproportionately large - at least 10 times larger -compared to its peers because of new organizational techniques that leverage accelerating technologies” (Ismail S. et al., 2014) proving that “building a successful platform strategy is more nuanced than building the largest network of users“ (David McIntyre, 2019).

 

Restaurants' most challenging year ever

Let’s take the food and beverage industry. The American National Restaurant Association report confirms 2020 has been the “annus horribilis” as the most challenging year ever experienced by the restaurant industry where dine-in restaurants may not return to normal for months, or perhaps even years. For most restaurant operators this means developing new economic models for the long term.

Research shows that prior to the pandemic, 80% of full-service restaurant traffic was on-premise and abruptly ended with losses between $30 and $50 billion per month. This might sound even harder taking into account that the National Restaurant Association, only a month before lockdown measures, projected to reach $899 billion in 2020. In this bleak scenario, we find a reassuring and diverging trend coming from digital and innovation.

 

The rise of MrBeast Burger

On December 19th, 2020, in full pandemic, with a very provocative video, MrBeasts aka Jimmy Donaldson, the second highest paid star YouTube with over 87 Mio followers according to Forbes, announced the launch of 300 MrBeast virtual kitchens as a first step in the development of a new venture. The only way to be served at MrBeast burgers: via delivery app.

While using social media to gain viral attention for fast food concepts is not a new thing (Gaber, H. R., & Wright, L. T., 2014), in the case of MrBeast Burger, the figure of the creator, the idea and the size of the initiative contributed to create a unique response from media. The video of the launch collected over 51 million views in three months, the app quickly went to the top 100 app’s in the Food & Drink category on the Apple Store and has even been reported as crashing during the opening night. From a retail perspective,  there is value in opening 300 restaurants. Strategically, it allows them to have a competitive advantage and maintain distance from the competition by major players such as McDonalds (Vignali, 2001).

Finally, from a business perspective, it seems that every step had been planned with a very structured and meticulous approach allowing the new food concept to be named “the most important restaurant concept in the U.S. right now“ by Jonathan Maze. 

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Virtual kitchens as ExOs

MrBeast is one of the brands of the Virtual Dining Concepts (VDC), a 2020 company created by longtime industry leader Robert Earl and tech visionary Robbie Earl, to leverage the trend of virtual kitchens and delivery-only restaurant concepts. The company is able to act as a platform putting together the production side with a set of emerging brands with a strong fan base; among them Tyga Bites, Wing Squad™, Mariah’s Cookies, Pauly D’s Italian Subs, Mario’s Tortas Lop and more.

Also known as cloud or ghost kitchens, a virtual kitchen is “restaurant that focuses exclusively on takeaways” (Choudhary, N. 2019). By not offering dine-in facilities, they are focused only on food production. Orders are received exclusively online and the food is delivered to customer only as takeaway.

From a strategic perspective, Virtual Dining Concept creates competitive advantage unbundling the current fast food value chain, and by doing this, represents a perfect example of Exponential Organizations. A new type of business created to leverage opportunities thanks to technology, in this case, the abundance of resources in the market made available by digital tools. Unused or partially used kitchens can find a new business life thanks to technology via access through multiple platforms and ecosystems to the existing market demand of fast food, currently served by delivery apps.

 

How to become an ExO

ExO’s are built by 10 attributes plus one. The attributes are divided in three parts:

  1. MTP (Massive Transformative Purpose). The intangible, value focused component, reflecting the organisation’s aspiration, showing the direction for managerial and business decisions, overarching the entire organisation (Ismail et al., 2018). Think of Airbnb’s “ Belong Anywhere” kind of drive.
  2. S.C.A.L.E. This stands for the five attributes dedicated to taking advantage and exploiting abundance in the market by using Staff on Demand, Community and Crowd, Algorithm, Leveraged Assets and Engagement techniques. This group is dedicated to manage growth, creativity and uncertainty.
  3. I.D.E.A.S. The internally focused attributes are dedicated to the organizational part of the company, its internal culture and tools needed to manage the abundance by order, control and stability. These are Interfaces, Dashboards, Experimentation, Autonomy and Social Technologies.

 

ExO theory applied

Now we have defined an ExO, let’s apply the theory to MrBeast Burger.

Firstly, let’s talk about the environment. Exponential Organizations are built to take advantage of the paradigm of abundance of resources available in the market, as consequence of the disruptive force of digitalization in society. In this case, abundance can be found in the number of kitchens that are now un-used or operating at limited capacity because of Covid. This condition is a clear insight from an entrepreneurial perspective to build a business model able to exploit such a valid amount of assets as well as a big drive for traditional restaurant owners who see this project as an alternative revenue source.

The first of the attributes is the Massive Transformative Purpose which acts as the north star of the organization, the element that should provide the direction for strategic decision making. In this case, VDC’s purpose is well defined in helping the restaurant community generate additional revenue and sources of income through virtual brands.

  • Staff on Demand. Acting as platform to connect the production supplier with the food demand, it is crucial for VDC to market the best recipes and food concepts. The food concept creation, the demand generation and the production itself are made by third parties. All of them come from partners who bring value to the equation. From the offer side, Jimmy Donaldson the YouTuber, Mariah Carry and the rapper Tyga are just some examples of creatives and personalities who participate in this platform business by bringing their food concepts to the market through the VDC platform.
  • Community and Crowd. This is a crucial attribute in order to provide profitability in the business equation. The most successful brands that are sold on the platform are supported by their relative community of fans that allows fast and scalable development, like in the case of MrBeast Burger launch which amassed 5 million views. Community data and geographic penetration are also useful assets in organising the logistic development of the business, as we are talking of a delivery model, the more concentrated in a region the community is, the more the concept will exploit its brand awareness.
  • Algorithm. ExO’s are built to exploit most of the available data. For MrBeast Burger and its peer brands, it is necessary to manage opportunities coming from the market through food delivery apps and their algorithms. The scope is to centralize the orders and then organise the production according to the virtual restaurant distribution to guarantee full coverage of the city.
  • Leveraged Assets. The VDC business model is organised to exploit the kitchen capacity available in the market in a productive way by providing new offerings and menus led by celebrities, users traffic and orders coming from the communities and the ingredients to prepare the meals. No investment is needed from  the restaurant. The creation of a win-win relationship between platform owner, partners and restaurant owners is key for the development of the business; each of the parts need the other to grow and increase profitability.
  • Engagement. This attribute means leveraging creativity to keep the community active and focused on the offer. An excellent case of community engagement is the “one-of-a-kind” pop-up experience event that MrBeast and his best friends created, recorded and released on YouTube. Following MrBeast's creative style, the idea featured the “world’s first free restaurant” where people were paid to eat there As a result of this community engagement initiative, a 30 km car queue was created after powerful word of mouth forced the team to close the restaurant earlier than planned.

 

Internal attributes of an ExO

Exponential Organisations also have internal attributes that are used to organise the abundance and structure the business.

  • Interfaces. This attribute has a strategic relevance for the ExO as interfaces are the only way for customers to have access to the offer. All the different brand VDC concepts can be purchased exclusively online. This means accessing menus and brand concept explanations  through the different branded website or app and along with the most popular food delivery apps like DoorDash, Grubhub and Uber Eats.
  • Dashboard. This is the way orders are managed, received and delivered. The orders' key performance indicators are used to measure real time business operations, from traction and marketing data about the community interaction to value orders or kitchen production capacity. Each measure should be transparent to allow every partner operating in the platform to be aware of the results and improve according to a mutual benefit scope.
  • Experimentation. In ExO’s , every side of the company should live in a constant beta approach. It is easy to imagine that among the various food concepts and brand personalities, not all of them will have MrBeast's traction and community success. What matters most is to follow a trial-error approach during every business decision and test the market while scaling up. 
  • Autonomy. Following this attributes' principle, every team that is working in an Exponential Organization should be allowed to take decisions and act autonomously for the good of the project, avoiding bottlenecks, improving speed and aiming for common satisfaction. This means kitchen staff should be able to operate according to this rule; food concept owners should decide to launch creative initiatives to engage the community, and consequently, feed the platform with more customer inputs.
  • Social Technologies. All the Virtual Dining Concepts are built to allow the different parts involved to operate without physical proximity via digital space. The digital infrastructure is built to connect every side of the platform in a seamless and effective way. This means that an order collected for example by the brand’s app or by Doordash or UberEats will be managed by the most appropriate kitchen according to the ingredient requirements, following the logistic optimised flow and then finally taken in charge by the delivery company that will assign a driver to perform within the promised time frame.

 

Conclusion

It takes a minimum of four attributes correctly implemented and a good Massive Transformative Purpose to grow exponentially. The challenge is hard but the stakes are highly rewarding. For Virtual Dining Concepts and MrBeast Burger, the road is only at the beginning but the premises are there to bring this new creative model into the land of unicorns. We will be here, watching and enjoying our burgers.

Virtual Dining Concepts is just one of the many examples of Exponential Organizations. We witness the emergence of new business models demonstrating the importance of digital thinking and reinventing value creation. Becoming an exponential organisation and tapping into the abundance paradigm is key to thriving through this pandemic and the constantly changing times.

 

References:

  • Choudhary, N. (2019). Strategic Analysis of Cloud Kitchen–A Case Study. Strategic Analysis, 9(3).DOI:10.11127/gmt.2019.09.05
  • Ismail, S. (2014). Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it). Diversion Books.
  • McIntyre,D. (2019)Beyond a ‘Winner-Takes-All’ Strategy for Platforms. MIT Sloan Management Review. Available at here.
  • Vignali, C. (2001). McDonald’s:“think global, act local”–the marketing mix. British food journal.DOI: 10.1108/00070700110383154 
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