If you ask Michael Jacobs what he thinks of virtual restaurants, you might expect an enthusiastic declaration of support for the concept. After all, as a co-founder and the original CEO of Ordermark and someone who helped conceive of the idea behind Nextbite, he helped create one of the highest-profile startups powering a wave of virtual restaurant brands launched in recent years.
But in reality, his answer is decidedly more circumspect.
“I don’t think restaurants need virtual brands,” Jacobs told me in a recent phone interview. “It’s a nice to have, and it’s not bad for the restaurant, but it’s not anything that will save a restaurant.”
In other words, Jacobs believes that while restaurants can get ok top-line growth running a virtual brand out of their kitchen, it’s often not a game changer for the overall business.
Where he thinks digital-powered business models can make a difference is by helping restaurants with another part of their P&L: expenses. In particular, the cost of food and materials required to run a restaurant.
This realization dawned on Jacobs over time, first as the founder of Tapin2, a company that made software running multi-brand digital restaurants at stadiums, and later as the CEO of Team Kitchens, a facilities-based ghost kitchen company he started after selling his shares in Ordermark/Nextbite in 2019 (after his separation from Ordermark, he and the company engaged in a round of litigation that, according to Jacobs, has since been settled).
During these stints, Jacobs realized that while there are some benefits to tapping into a collective brand to gain customers and garner incremental sales a la a traditional virtual restaurant, the real power in a collectively powered brand lies in the cost savings of pooled purchasing.
“While working with some of the enterprise brands, I realized that they were saving as much as 50 to 60% on every item they were purchasing,” he said.
In contrast, independently owned restaurants and smaller chains utilizing a virtual brand concept aren’t getting the same scaled purchasing savings as large enterprise restaurant brands. But according to Jacobs, if these smaller organizations leverage pooled purchasing through a virtual collective, it can make a huge difference to margin-constrained businesses.
“The important thing is like during this time where restaurants are hurting from inflation, we have a solution where they can save 15 to 25% give or take on what they’re purchasing right now,” Jacobs said. “And as we scale, I think the numbers will get even better.”
“What I wanted to build was a network of restaurants that work together,” Jacobs said of his new company KitchData. “Where it’s a bunch of small to medium-sized businesses who collaborate through these virtual brands on their purchasing.”
By doing this, Jacobs believes the restaurants can collectively work together to create a virtual brand with a purchasing power similar to that of an enterprise business. Sure, it’s a virtual restaurant, only one where the focus is on the bottom line rather than the top.
KitchData also pairs its technology with concept and brand development consulting, where it helps operators develop a brand they fully own, something Jacobs sees as another significant differentiator.
“It’s theirs to do with as they wish,” Jacobs said. “Ric Flair owns Woo Wings (the virtual chicken wing brand the famed pro wrestler launched recently). Powerbomb Pizza is owned by Pro Wrestling Tees. DaMandyz Donutz is owned by (pro wrestlers) Daria and Amanda.”
KitchData is getting going just as some in the broader restaurant tech space – including Jacob’s former employer – are restructuring as part of a broad pullback of the easy money invested into the space over the past few years. Jacobs, who managed to raise $3 million in seed funding for KitchData despite investor cooling, has high hopes for his company.
“I think it’s the best thing invented for the restaurant industry itself in decades,” Jacobs said. “And we’re going to do a good job at saving the bottom line for restaurants.”
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