How Virtual Brands Saved This Fast Casual in 2020

For a lot of fast casuals, 2020 proved to be tale of two halves. The first half, and in particular Q2, was brutally tough on sales. Once COVID arrived, a variety of factors became disadvantages to the category, from a reliance on lunchtime walking traffic in downtown business districts to big dining rooms prioritizing on-site experiences and customizable menus that didn’t translate well to off-premises sales.

But with some operational and service tweaks, many fast casuals were able to regroup and return to positive sales comps by the end of 2020. And for at least one brand, the pivot that might have rescued the year was its commitment to virtual concepts.

Like most restaurant companies, Pasadena, California–based fast casual Dog Haus suffered catastrophic sales drops last spring. March same-store sales were down 28 percent; in April, they were down 42 percent. Some 65 percent of the company’s sales traditionally come from its beer gardens, which are bigger locations with TVs and full bars. So the closing of dining rooms hurt Dog Haus even more than most.

But the brand had an ace up its sleeve. It was already in the midst of developing a portfolio of virtual concepts, The Absolute Brands, that would leverage its existing menu lineup and allow franchisees to run multiple concepts out of their kitchens. Prior to COVID, the goal was to test the platform in 2020 before rolling out with eight delivery-only virtual concepts in 2021. But Dog Haus leadership rushed three of the concepts to market in the wake of the coronavirus, offering chicken-sandwich concept Bad Mutha Clucka, plant-based Plant B, and Bad Ass Breakfast Burritos as vehicles for both corporate- and franchise-owned locations to expand their delivery sales.

“Once we figured out what COVID was and we stopped hiding underneath the couch, we realized, ‘OK, let’s launch The Absolute Brands. Let’s get out of this. Let’s kick ass on our delivery,’” says Dog Haus partner André Vener.

And that’s just what the company did. Indeed, The Absolute Brands almost single-handedly became the engine that Dog Haus needed to get to positive sales. The company ended the year up 1.5 percent in same-store sales, crossing $50 million system-wide for the first time. Even better were the last six months of 2020, which saw a 13.75 percent comp increase. That climb even extended to the dine-in-friendly beer-garden units, which enjoyed a 5.5 percent same-store sales gain in the last half of 2020. A quarter of Dog Haus’s 50 locations were up 25 percent or more in those six months.

“If we didn’t have The Absolute Brands, we might be still in the negative [sales] category,” Vener says. “We have to give the credit to the launch of those brands.”

It’s a remarkable pandemic-era turnaround for a brand that doesn’t have drive-thru locations (though those are coming in 2021). And it’s tangible proof that delivery—and by extension delivery-only virtual concepts—was the difference between open or closed for many restaurants. Vener says delivery now accounts for 60–70 percent of sales, and that sales from the virtual concepts account for anywhere between 10 and 40 percent of sales per store, and 25 percent systemwide.

Vener says there are a variety of factors separating those Dog Haus stores with robust growth over the course of 2020 and those without. One of those factors was sheer geography; locations where there were fewer delivery providers or less density naturally led to less opportunity to grow the delivery business. Another factor was how much effort individual franchisees put into marketing the virtual concepts and treating them as individual companies.

He points to a Dog Haus franchisee in Chicago as an example of how a proactive operator could leverage The Absolute Brands to grow sales. The store in Lincoln Park was really struggling prior to COVID. But with the adaptation of The Absolute Brands—and particularly Bad Mutha Clucka—in the midst of the crisis, that store was able to quickly turn things around and watched as its sales climbed 147 percent year-over-year in the last six months of 2020.

Despite the success of The Absolute Brands, Vener says the company has no plans to extend those concepts beyond Dog Haus kitchens.

“As much as I like virtual kitchens and virtual brands, ours aren’t made to give out to somebody else and sell,” he says. “Ours are made for our culture and our DNA and our secret sauces and recipes, which I’m not going to give out to somebody—only to our franchisees. And we’ve got 50 locations now that you could pick these brands up, and it’s working.”

That’s not to say Dog Haus itself won’t be exploring the ghost-kitchen space more. In fact, it’s partnered with both Kitchen United and CloudKitchens to facilitate expansion, and used ghost kitchens to test markets where it doesn’t already have a presence. That was the case with its Kitchen United location in Austin.

“It was a huge success in the ghost kitchen, and six months later, we have our first brick and mortar open in Austin and we’re about to open a second brick and mortar,” Vener says. “Two separate franchisees bought in that area because of the ghost kitchen.”

Dog Haus’s success has rolled into 2021. The brand just enjoyed a 16.3 percent year-over-year sales climb in the month of January. It has 15 new units under construction, and plans to open more than 20 locations by year’s end, with at least two of the new restaurants featuring a drive thru. Vener says there will also be more development with The Absolute Brands, noting that three more would likely become available in the coming months.

Dog Haus is committed to opening more beer-garden units even as it downsizes the traditional footprint a bit to accommodate more off-premises sales, he adds. The demand for destinations where customers can grab a brat and a beer will likely surge once the pandemic is finally behind us, he says, and Dog Haus still wants to satisfy that experience.

No matter the model that Dog Haus pursues in the future, it seems certain that it’s survived the worst-case scenario—and then some.

“We’re growing,” Vener says. “We’re fighting through this.”