Wait, it’s Denny’s? The rise of virtual restaurants and the mysterious origins of your delivery order
Quick Take
Since the pandemic delivery boom, virtual brands like The Meltdown from Denny’s and ghost franchises like MrBeast Burger are becoming more common on delivery apps like DoorDash. While these delivery-only virtual restaurants support chains and local restaurants alike with thousands of dollars in additional revenue, there are issues with consumer transparency.
“Thank you so much!” I tell the DoorDash driver as I grab two identical red-and-white plastic bags with one hand and hold the collar of my large and extremely friendly black Labrador with the other. The enticing aromas of grease and salt fill my kitchen as I bring the bags to the dining room, where my dog locks himself into position under the table.
I open the bags, take out the food and already have a hunch that my hypothesis is correct. Each bag contains the exact same meal: a melt with slow-roasted beef, caramelized onions and sharp cheddar cheese on sourdough bread and a side of fries. Everything is identical, down to the 45-degree angle of the slice down the center of each sandwich and the ridged crinkle cut on the fries.
I ordered both of these meals through DoorDash. One sandwich, named the Slow Cooker Meaty Melt, came from Denny’s, on Ocean Street in Santa Cruz. The other, the Hot Mess Melt, came from a restaurant called The Meltdown, that, according to its storefront, sells “handcrafted sandwiches with attitude” and is located 1.1 miles away from me.
While The Meltdown looks like an independent restaurant, it’s not. You can’t go there to eat because it doesn’t have a physical location. It’s known as a virtual restaurant, meaning its menu is cooked in a shared kitchen — in this case, at the same Denny’s — and can be ordered only through a delivery app. The glossy, stylized photos of toasted sandwiches oozing with cheese that showcase the menu are distracting enough that it’s easy to miss the small, gray bar near the top of the profile that says, “The Meltdown is hosted by Denny’s.”
While the meals were the same, the prices were not — the Meltdown meal was more than $3 less. The Denny’s meal, which included fries, was $17.29. The Meltdown meal did not include fries; the melt was $11 and I added fries for $3.25, for a total of $14.25. This figure doesn’t include taxes, tip or service fees.
I’ve never had this meal from either restaurant, so I take a few bites. Both sandwiches are, in the most generous of terms, fine. They’re filled with a decent amount of shredded beef, but “caramelized” is a liberal description for big soft chunks of onion. There is at least one slice of white cheddar on each sandwich, but neither comes close to achieving the web of melted cheese promised by The Meltdown logo when I pull apart each half. The outside is toasted to a pale yellow, and is greasy with salty butter (that’s a good thing). It’s hard to tell if the fries had been hanging out in the kitchen between orders for a little too long or if they just didn’t travel well. Either way, my dog doesn’t mind when I slip him a few.
A new type of ‘restaurant’
It might sound dystopian, but virtual restaurants like The Meltdown — also called virtual brands and ghost franchises — are becoming increasingly common nationally and in Santa Cruz County. If you order food through delivery apps like DoorDash or Uber Eats, you could have already eaten food from one — maybe without realizing it.
Virtual restaurants do not have brick-and-mortar locations; instead, they offer menus exclusively through delivery apps, and attract customers with a catchy name, professional photos and specialized items. The food is prepared in a kitchen inside an actual restaurant, but this partnership isn’t shared prominently on the virtual restaurant’s profile. Curious customers can only see where the food is being made by looking at the brand’s location outside of the app.
Are virtual restaurants misleading to customers? How do delivery apps let users know that ordering food from a virtual restaurant and not a new mom-and-pop down the street?
It depends on the app. DoorDash and Uber Eats are two of the most commonly used delivery apps in Santa Cruz County. Uber Eats does not identify virtual restaurants on its storefronts; curious customers can see where the food is being made only by looking up the searching at the brand’s physical location in a map outside the app. This might reveal that your chicken wings are, in fact, made at Chili’s.
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DoorDash is more transparent. It notes the parent company in a sliding banner that runs near the top of the storefront — but not necessarily on the first slide. And sometimes the customer still needs to do some sleuthing. On the profile for The Burger Den, another of Denny’s virtual brands, it says that it’s “brought to you by Denny’s.” It’s Just Wings, on the other hand, is identified only as “a concept by Brinker International,” which is the parent company of Chili’s Grill & Bar.
In an email to Lookout, DoorDash maintains that virtual brands on its app are “clearly marked in order to inform customers where they are ordering from,” and customers should reach out to DoorDash if they aren’t satisfied with their experience. It highlights the benefits of virtual brands to restaurants “as a way to reach new customers, provide more selection within their neighborhoods and grow their revenue cost effectively.”
Uber Eats, Virtual Dining Concepts, Nextbite, Brinker International and Denny’s did not respond to requests for comment.
Customers, meanwhile, seem to be largely oblivious to this growing phenomenon. Lookout discovered that there are at least 11 virtual brands and ghost franchises operating in Santa Cruz County. While most ghost franchises have decent ratings of 3.5 to 4.5 out of 5 stars on sites like DoorDash, people have shared online that they believed they were supporting a new business with their online order — only to find it was made at a national chain.
Thousands of dollars in additional revenue for host kitchens
National chains were some of the first to launch their own virtual brands, but local restaurants say that hosting ghost franchises in their kitchens gives them a larger footprint in the delivery economy — and brings in thousands of dollars a month in additional revenue.
That’s certainly been the case at Sevy’s Bar & Kitchen at the Seacliff Inn in Aptos, says food and beverage director Steven Miller. The restaurant prepares orders for four virtual franchises: MrBeast Burger, Buddy V’s Cake Slice, Firebelly Wings and HuevoRito. The menus are licensed to the restaurant and the food is prepared in its own kitchen with ingredients distributed by the franchise. For Buddy V’s slices of cake, it simply redistributes frozen cake that’s already baked, frosted, sliced and packaged for individual consumption.
Its most popular items are breakfast burritos from HuevoRito and burgers from MrBeast Burger, says Miller. Sevy’s also offers its own menu to go through third-party delivery apps, mostly DoorDash. In the past year alone, its DoorDash orders have increased almost 200%, Miller says. Now, he estimates orders from DoorDash and ghost franchises combined bring in $4,000 to $6,000 in additional revenue per month.
“We fulfill more DoorDash orders than orders for room service,” says Miller.
There are other benefits, too. Miller says new guests are brought into the restaurant when they come to pick up their orders — although he clarifies that franchise orders must be placed through DoorDash or another delivery app. “There’s a percentage split that’s different with each ghost kitchen,” Miller explains.
And when Sevy’s gets busy on a Friday or Saturday night, as it often does with banquets and catering large events, the kitchen can simply pause orders from MrBeast Burger, for example, while it catches up; the virtual restaurant appears closed.
Miller says he believes the popularity of ghost franchises will increase in the Santa Cruz area. With a decade of restaurant experience under his belt, he sees virtual brands as a valuable addition to a restaurant’s bottom line: “If you’ve got a kitchen and you’re a small business, and your kitchen can handle the volume, it’s a really great way to boost your sales.”
Delivery boomed during the pandemic — and is here to stay
Like so many things that might have changed our lives forever, this new, delivery-only food business model grew out of the pandemic, when eating out was not a possibility for most Americans and delivery apps ballooned in popularity.
In 2020, Brinker International launched its first virtual brand, It’s Just Wings, at more than a thousand Chili’s locations. In 2021, Denny’s launched The Meltdown and The Burger Den at about half of its locations.
At the same time, companies specializing in virtual dining franchises cropped up. These companies create and sell delivery-only brands to restaurant kitchens. In return for licensing, staff training and marketing materials, they take a cut of the profits and guarantee to increase revenue at restaurants through fulfillment of delivery-only brands.
Some of the most successful brands are made in partnership with celebrities. In 2020, Virtual Dining Concepts launched the popular MrBeast Burger with philanthropic YouTube star MrBeast, whose real name is Jimmy Donaldson, at more than 300 locations. It also has Mariah’s Cookies with singer Mariah Carey and Buddy V’s Cake Slice with chef Buddy Valastro from the reality TV show “Cake Boss.”
Sevy’s works with Virtual Dining Concepts as well as Nextbite, another virtual dining company. Its brands include Packed Bowls with rapper Wiz Khalifa and ‘Wichcraft with “Top Chef” judge Tom Colicchio, as well as brands that don’t have any celebrity affiliation, like HuevoRito and Firebelly Wings.
Overall, virtual brands have been a successful pivot in the dining industry’s post-pandemic landscape. In February, Denny’s CEO Kelli Valade said that its virtual brands have been “instrumental” in sustaining off-premise sales, pulled more dinner and late-night orders and lured new, younger customers to a brand known for its breakfast and senior discounts. By the end of 2021, It’s Just Wings became a $170 million business. In June, it was reported to account for 3% of Brinker International’s sales.
But there have also been some bumps in the road.
In March, Uber Eats removed thousands of virtual dining brands out of concern that they were clogging the app with multiple storefronts offering the same menu. It planned to remove about 5,000 virtual brand listings that sold identical food in the U.S. and Canada, while keeping the parent company on the app.
In July, MrBeast filed a lawsuit in the U.S. District Court for the Southern District of New York against Virtual Dining Concepts seeking to end their partnership, with Donaldson saying that negative reviews of MrBeast Burger online are damaging his reputation.
Virtual brands give restaurants “another horse in the race”
Rather than host ghost franchises, Santa Cruz’s Back Nine Grill & Bar created its own virtual brands with The On Demand Company. On Demand took items that were already on Back Nine’s menu and rebranded them for online sale through delivery apps. The restaurant now has five delivery-only brands, including Nancy’s Desserts, which offers all of Back Nine’s desserts packaged with coffee or tea, and Top Notch Sandwiches, serving burgers and sandwiches similar to what Back Nine offers on its restaurant menu.
Back Nine began fulfilling orders for delivery-only virtual brands in April. While it’s been a slow start, executive chef and manager Ben Kralj estimates that the restaurant now fulfill about three orders a day.
Back Nine’s menu is already available for delivery through delivery apps, but Kralj decided to add additional virtual brands in order to reach targeted consumers — someone craving a great sandwich, for example. He says he hopes this will give the restaurant “another horse in the race” to attract customers on delivery apps who were “spinning the Russian roulette wheel of dinner.”
He points out that focusing on delivery is a new concept to restaurants. “Before the pandemic, the delivery platforms in Santa Cruz County were only a miniscule amount of revenue. Now, on a regular day, we’ll do one whole turn of the restaurant in DoorDash, GrubHub, UberEats and food to-go,” says Kralj. In other words, filling to-go orders for both the restaurant and its virtual brands is like filling up Back Nine’s 32-seat dining room one extra time every day.
Like other virtual brands, Back Nine’s virtual storefronts don’t list any affiliation with the restaurant — aside from sharing an address — but Kralj says he thinks that when customers order through delivery apps, they’re not concerned or even thinking about where the food is made. “I think that Santa Cruz is a little bit unique compared to a big city. We’re more focused on where we get ingredients and where the food is prepared,” he says. “In a major city, I don’t think that even crosses your mind because if you’re living in San Francisco or New York, you know that 100% of that food is getting trucked in from a hundred miles or more.”
He points out that while Back Nine doesn’t partner with any franchises, there are multiple incentives to hide the location of the kitchen from the app user. “The franchise doesn’t want you to know where it’s being made, because then that franchise is promoting that small local business, and that’s not what the franchisor is ever going to want,” he says. “If it doesn’t work out with that business to continue, like they’re not meeting the standards for their food, then they very quietly and quickly move that kitchen to a new location so they don’t lose out on that market.”
For now, Kralj isn’t considering adding national franchises to the kitchen yet, but says he’s open to the idea: “This summer, sales were down for restaurants and lodging across Santa Cruz. We may consider it to see what we can do to generate more sales, but one baby step at a time.”
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