Dive Brief:

• Virtual restaurant startup Nextbite is laying off an undisclosed number of employees Business Insider reported Saturday. In a statement emailed to Restaurant Dive, Nextbite CEO Alex Canter said the company is restructuring its organization to “strategically focus on current opportunities.”
• Last month, the company brought on former Red Robin CEO Denny Marie Post to serve as co-president. Nextbite has also introduced several new virtual brands in recent months, including Packed Bowls by Wiz Khalifa, George Lopez Tacos and ‘Wichcraft by Tom Colicchio Sandwiches.
• The layoffs reported this week are the second round of job cuts at the Softbank-backed company, which let go less than 10% of its workforce in April. Other restaurant tech companies have cut jobs in recent months, with Reef Technology, a ghost kitchen company also backed by Softbank, shedding 5% of its workforce in May.

Dive Insight:

Founded as Ordermark in 2017, Nextbite has raised more than $150 million in funding, including $120 million from Softbank in 2020, as operators were turning to virtual brands in droves to add revenue during the first year of the COVID-19 pandemic. These layoffs may indicate that demand for virtual brands could be slowing, particularly as consumers return to in-person dining.

Operating such brands from existing locations pressures labor when the industry at large continues to experience labor shortages. Restaurant operators struggling to find labor may be unwilling to split their attention between their core brand and a virtual brand. The industry is experiencing pressured margins from food inflation, so adding more menu items or SKUs could be a challenge as well.

Rapid growth in the sector may have proven unsustainable, Nextbite hired more than 300 new employees in 2021, tripling the size of its team. Reef once referred to itself as the “fastest-growing restaurant company on the planet.” However, in January, Reef temporarily ceased operations at nearly 100 locations, and has since ousted the president of its kitchen division, and laid off 5% of its total workforce.

Nextbite added former Red Robin CEO, Denny Marie Post as co-president on June 30. Canter said he is optimistic about bringing on Post, who will oversee marketing, operations and culinary innovation with a focus on restaurant fulfillment partners. Post’s presence could also bring a tailwind to the company. With 35 years of experience in the industry, Post has worked with brands from Red Robin to KFC and Starbucks to Burger King.

Growth is still very much a possibility. The global virtual kitchen market is expected to grow to $71.4 billion by 2027, according to Statista. As the virtual brand space nears saturation, Nextbite may have an advantage in scale and celebrity partnerships, which can help cut through the clutter on third-party apps and perhaps entice repeat visits, which has been a challenge with virtual brands.