Migrating from phsyical Mysql to virtual instance
Copying data directory would work if you are using the same version of MySQL. As per you question, you are copying from 5.6 to 5.7, so this way wouldn't work.

Now: you mentioned you are "migrating", and the steps you are following are for "creating new slave"! 

If you want to "migrate", a better way is the following:


Make a full backup using mysqldump, or other "logical" backup tools (as opposed to physical copy of the files)
restore this backup on your destination server


HTH