A brand new, 300 location burger restaurant chain launches OVERNIGHT. The company’s companion app hits #1 on the app store charts and does over $15M+ in revenue in the space of 48 hours.
On launch day, the company actually pays you to eat their food. Wads of cash are stuffed in paper bags, along with fries and coke. Not only that – Airpods, free petrol, and even a brand new car is given away to a family whose vehicle was dented at the drive-through.
Yeah, welcome to 2021.
Just a few weeks ago, 22-year-old Youtube influencer MrBeast (50M Subscribers) launched his own restaurant empire – MrBeast Burger.
The catch is this; there are no physical locations. You can’t actually dine-in at any of the restaurants. You can only order online via food delivery apps (Uber Eats, DoorDash, Grubhub, etc.)
This business model allowed the company to launch a 300 location business overnight….
To put this into perspective, In-N-Out Burger has 358 locations and has taken over 70 years to build.
MrBeast admits he’s never run a restaurant before, but he doesn’t have to. That’s because he relies on Ghost Kitchens – a new and growing form of ‘manufacturing’ for food retailers.
The rise of ghost kitchens
Think of a kitchen as a manufacturing operation.
The products produced are made to order but have a very short shelf life.
The equipment that is required costs many hundreds of thousands of dollars, but only provides a very limited return, as peak times in a restaurant can be as few as 12 hours a week (primarily Friday night and Saturday). The kitchen equipment costs the same whether you serve 100 customers or 1000 customers, and you are paying for it 24 hours a day, 7 days a week.
As a restaurant owner, the question you should be asking yourself is – how can we get a better return on all that money just sitting in our kitchen?
In other words, how do we maximise the utilisation of our assets?
This is the problem that hospitality entrepreneur Robert Earl of Virtual Dining Concepts (VDC) is trying to solve.
VDC’s business model is licensing the names and faces of influencers and then takes care of food manufacturing via partnering with existing restaurants.
How it works
VDC finds restaurants that have extra capacity to produce orders for them. So, essentially they find a family-owned fish and chip shop, they send them a tablet that prints orders from MrBeast customers to be fulfilled. The restaurants are given branded packaging, so to the end customer, it looks like it came from “MrBeast Burgers” instead of the local fish and chip shop.
The fish and chip shop gets more revenue to cover fixed costs, MrBeast gets a burger restaurant chain and VDC takes a clip for their efforts.
It’s the white-labeling of restaurants.
Do the economics stack up?
I crunched the numbers with a bunch of hypothetical assumptions to understand the unit economics.
Modeling a few scenarios, it appears Mr. Beast could profit anywhere between $7k to $21k per day. Not a bad way to monetise your audience with limited downside and zero legwork…
Influencers as distributors
MrBeast Burger is a part of a growing trend of Influencers seeking to monetise their audience and shifting their dependence on sponsorship. The traditional ‘influencer’ business model is affiliate marketing and sponsored posts. The trend is shifting to influencers producing their own private label by partnering with vertically integrated manufacturers.
Take Kylie Jenner’s cosmetics brand for example. Jenner has partnered with Seed Beauty, a brand, product development, manufacturing, and fulfillment cosmetics incubator. Jenner provides the brand and influencer, Seed does the rest. Jenner relies significantly on their manufacturer and distributor to make everything work. Seed makes money on the wholesale price, Jenner makes the retail margin without any logistical headaches.
We’ve seen this with Ryan Reynolds and Aviation Gin, Conor McGregor and Proper No. Twelve Whisky.
Shit, even that Pauly guy from Jersey Shore is starting a challenger brand to Subway.
MrBeast partnering with VDC is a same-same but different format. That’s because VDC itself doesn’t own any assets – it relies on mum and dad restaurants to fulfill orders. It’s a distributed supply chain.
You can imagine the quality control nightmares. McDonald’s has spent decades perfecting the Big Mac – so much so that it tastes the same whether you’re in Brisbane or Tokyo… What safeguards do MrBeast and VDC have over mum and dad fish and chip shops to ensure that every crispy chicken sandwich has precisely 3 pickles? Not 4, not 2 …exactly 3?
Business model durability
The ultimate question is whether the businesses being created are enduring, valuable companies. Or are they simply ‘flash in the pan’ fads.
Whether you sell cosmetics, alcohol, T-shirts, or burgers, the primary economic moat in FMCG business models is the brand. Indeed it’s important to have a great product, but the product doesn’t always sell itself.
Brand placebos are real.
If you have an audience and community that trust you – well, the sky is pretty much the limit on what garbage you can sell them. You just need reliable partners to handle the ‘boring’ aspects of production, fulfillment, and distribution.
Warren Buffett famously said “Buy Commodities, Sell Brands”
We are seeing commoditisation of the supply chain.
And there will be more of this in the future.