The casual-dining concept is allowing another operator in Arkansas to sell its menu items out of its kitchen. The brand is also planning to offer other delivery-only concepts out of its own restaurants.
There’s no question dine-in is back, says Marc Butler, senior vice president of strategic planning and off-premises for Hooters of America. This year in particular.
However, as swiftly as that channel is rising, sales outside the four walls aren’t budging. And Butler knew they wouldn’t; he’s seen just how much off-premises has grown since Hooters began building the infrastructure in 2014. He just didn't realize how big it would get. It’s done so well that popularity of wings on delivery platforms actually surprised him. Flipping the switch was easy in 2020, the year in which Hooters experienced the most growth. Butler expected a decline in 2021 and 2022, but it just didn’t happen.
“I think people were introduced to things during the pandemic in the name of safety that they're continuing on in the name of convenience, and in particular, as this younger generation gets older, it becomes an even larger part of our customer base,” Butler says. “But I don't see any reason off-premise is going to slow down.”
As off-premises ascended, Hooters spent years searching for an appropriate ghost kitchen solution to bring its brand to new markets, but the economics never seemed to work. Franklin Junction, launched in 2020, seems to be the exception. Instead of using its own proprietary infrastructure and space, the company matches brands like Hooters with “host kitchens” or existing restaurants, hotels, convenience stores, or other venues that have capacity to add delivery-only concepts.
Rishi Nigam, CEO and cofounder of Franklin Junction, has spent more than 23 years in the food and beverage industry, beginning as a teenager. He explains that kitchen capacity issues have existed for decades, and for the longest time, restaurateurs have tried to hack the system and make more out of their investment. For instance, an operator sees that burgers and fries aren’t selling well and knows their kitchen can produce tacos, but adding that onto the menu may cause too much confusion for consumers. Fast forward to the pandemic, off-premises is at its peak, and so are third-party delivery platforms, opening the door for operators to get as much out of their kitchens as possible with virtual brands.
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On one side, Nigam saw brands needing to maximize their kitchen space. On the other, there were concepts wanting to test new markets, but without the upfront capital of a brick and mortar. He cofounded Franklin Junction as the connector between the two. There are audits around order fulfillment, cleanliness, and sanitation to ensure when the customer receives the product from the host kitchen, they’re undergoing an equal or superior experience compared to entering the actual restaurant.
“The brands are helping provide training, supply chain support,” Nigam says. “Obviously, we've got to get product into new markets and that's not an easy task. There's marketing efforts to let people know that a new brand is available. So it's not unlike opening a new restaurant, but you're not committing capital. You're not having to go build brick-and-mortar because you've got the Franklin Junction host network on the host kitchen side.”
Franklin Junction operates more than 350 host kitchens across 10-plus countries. Some of its more recognizable existing partners include Frisch’s Big Boy, Nathan’s Famous, and Arthur Treacher’s. The company has the ability to scale quickly; The Captain’s Bowl, a Canadian-based chain, entered 200 host kitchens in under two months. Frisch’s Big Boy is able to “host” more than 250 virtual restaurants across its system.
Hooters is a dual partner, meaning it’s operating as a cloud concept inside a host kitchen in Rogers, Arkansas, and planning to host other delivery-only brands in its own restaurants. Nigam says results thus far are “very promising and definitely exceeding expectations.”
“It's something that you know collaboratively we thought it was a great location,” says the CEO, describing why the Arkansas market was selected as the inaugural host kitchen. “We had a host kitchen there that we thought was really well-prepared to take on this concept. The market itself has tested really well. You know a lot of times, our job is making sure that everybody's aligned on the objectives of what we want to do. And with this test, great location, excellent operator, and Hooters was very supportive of being able to go live in Arkansas.”
“I don't know when the next time Hooters would have thought about building in Rogers, Arkansas, but we were able to stand them up within a few weeks there and now they're in a new market, they were never in so I think that's the value prop for both of us,” he continues.
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The menu, which focuses on best-selling items like wings and tenders, is about 40 percent the size of a typical location. To prepare, Hooters brought the Rogers, Arkansas, host kitchen team into one of its restaurants and walked through hands-on training. The casual-dining brand also has a quality assurance team that will do homework on these sites to make sure standards are met in terms of health inspection scores and food safety audits.
The partnership is beginning with the Hooters brand, but Butler says fast-casual spinoff Hoots Wings and some of the chain’s virtual brands could make future appearances.
The ultimate goal for Hooters is to fill gaps within its operating footprint. It's essentially a rectangle, with the end points being Texas, Central Florida, the Midwest, and Virginia. As the chain moves forward with Franklin Junction, it will be careful to not infringe on the delivery areas of its existing system. Franchisees aren’t engaged in the process yet, Butler says, but that’s typical of any situation where the company tests the product first prior to getting operators involved.
Before Hooters decides to expand into more host kitchens, two objectives must be met—brand standards and necessary sales volume. Because the company is still sorting through how host kitchens will fit into its overall distribution infrastructure, Butler isn’t sure yet on what the whitespace could be. He is confident, however, that Hooters picked the right team for this venture.
“I think one thing that we found some comfort in is their senior people were involved,” Butler says. “When we're on the phone with their team, it's senior people. So Rishi’s actively involved. His executive team is actively involved in the process. So that was very helpful there just as far as maintaining the standards for us.”