Dive Brief:

• During Dine Brands' Q4 earnings call Tuesday, Applebee's President John Cywinski said the company has launched a ghost kitchen pilot with one Los Angeles location, two locations in Philadelphia and one soon to open in Miami. The outposts are meant to "satisfy online delivery demand for Applebee's where we currently don't have penetration," Cywinski said. 
• These pilots come on the heels of the launch of Dine Brands' new virtual concept, Cosmic Wings, which features Cheetos-inspired chicken wings and operates out of nearly 1,300 existing Applebee's kitchens nationwide
• The COVID-19 pandemic has accelerated growth in both the virtual and ghost kitchen space, especially for casual brands, as delivery business has proliferated. For Dine Brands, delivery generated 14% of the sales mix in Q4 for Applebee's and 15.6% for IHOP.

Dive Insight:

During Dine Brands' earnings call, CEO John Peynton said the company's virtual brands and ghost kitchens will be evaluated as long-term growth vehicles. Cywinski said the company is "very pleased" with Cosmic Wings' initial results, averaging $510 of incremental sales per restaurant during its first full week in operation.

Cosmic Wings follows its virtual predecessor, Neighborhood Wings by Applebee's, which provided the company with learnings to continue in the space, Cywinski said. Dne Brands learned that in order to be successful, a virtual brand had to be differentiated from Applebes's menu and branding and needed a "buzzworthy" offering, which led to the Cheetos positioning, a feature that has "resonated exceptionally well," Cywin 

Several of Applebee's competitors are experimenting with virtual or ghost kitchens as well. Brinker International recently added virtual brand It's Just Wings, while Bloomin' Brands has Tender Shack and Denny's has The Burger Den and The Melt Down.  

On the ghost kitchen front, Ruby Tuesday's owner NRD Capital opened Franklin Junction last year to create "host kitchens," and tested these host kitchens within 100 Frisch's Big Boy locations. In an interview with Restaurant Business, NRD's Aziz Hashim laid out the benefits of the model stating, "We didn't want to spend $2 million to $3 million to build a facility."

Casual dining brands especially could benefit from diversifying their portfolios and expanding their presence without that brick-and-mortar cost. A typical Applebee's is 3,800-to-4,700 square feet, for example, and the median cost of a restaurant is $450 per square foot.

"To clarify, these [ghost kitchens] are low capital investment, small-footprint kitchens without a street-front presence," Cywinski said during the call. "The business model here appears attractive in the right geographies, where a brick-and-mortar presence may not be feasible." 

Applebee's website shows the brand's presence in Philadelphia includes only two "delivery-only" options and one physical location, while the brand has three brick-and-mortar locations near Los Angeles, but not within the city limits. Peyton told Forbes the opportunity may present itself to open the model up to IHOP and franchisees in addition to Applebee's.

Turning to these low-entry point models to generate incremental sales could help casual dining chains expedite their recovery, which has lagged behind the quick-service segment by a significant margin throughout the crisis. During Q4, for example, Applebee's experienced a same-store sales decline of 17.6%, while McDonald's U.S. same-store sales were up by 5.5%.

With these efforts, Applebee's is betting on off-premise to drive growth in the long run.

"We think that growth in off-premise is incremental for us. ... We think it's going to settle somewhere above where we were pre-pandemic. We think it's introduced new consumers to our brands and we think we're now in the consideration set for takeout and delivery in a way we weren't before because we demonstrated our ability to deliver," Peyton said on the call.