Dive Brief:

• Donatos expanded its presence in the Nashville, Tennessee, market through a delivery-only partnership with ghost kitchen company Reef Kitchens that began Wednesday, according to a press release. Currently, the chain has one brick-and-mortar location in the city, as well as another in nearby Murfreesboro. 
• The pizza chain states that it looks to use the partnership to grow in several cities around the United States, leveraging Reef's reach, which the ghost kitchen company says on its site is 70% in urban markets.
• This announcement comes on the heels of Red Robin’s plans to add Donatos to approximately 120 restaurants by the end of this year. This will bring the partnership to more than 200 locations.

Dive Insight:

The Reef partnership marks a departure from Donatos strategy to grow with Red Robin. In its Red Robin model, Donatos acts like a virtual brand, utilizing Red Robin’s kitchen space and menu space for delivery, dine-in and pickup, while also being listed as a standalone delivery brand in third-party marketplaces.

With Reef, Donatos acts entirely on its own for delivery-only on third-party marketplaces — in this case Uber Eats, DoorDash, Postmates and Grubhub. Both partnerships present a major opportunity to build the brand's presence and to reach a new audience, a benefit Red Robin CEO Paul Murphy acknowledged during his company's Q1 call. This diversified footprint could also appeal to franchisees looking to grow with the brand. 

The delivery-only model could work well for Donatos which, like many of its pizza peers, fared well during the pandemic because of its heavy off-premise business. The company was relatively insulated when dining rooms were shut down, as only 10% of its sales are dine-in, a franchisee told the Columbus Business First.

Both virtual and ghost kitchens have been on a steep growth trajectory during the pandemic, as they provide a low-cost entry for concepts looking to stay afloat through an additional revenue channel or concepts hoping to expand their presence in a market without hefty real estate costs. 

As such, the segment has piqued the interest of several investors. Reef itself raised $700 million at the end of 2020, which will be used to grow from 4,800 locations to 10,000 locations in the U.S. Several chains, including Jack in the Box, Nathan's Famous, BurgerFi and Wendy's, have already leveraged Reef Kitchen's spaces and technology to expand their delivery presence.