The great ghost kitchen belly flop
What it looks like when restaurants predict the wrong future
Reef, the company that operated mobile kitchen trailers in parking lots across the country and internationally, is scaling back again, closing unprofitable operations in cities including Portland, OR and Philadelphia.
Reef reportedly took over a billion dollars of investment to change how restaurants work, expanding quickly. But it was Wendy’s announcement of a large Reef partnership in spring 2021 that really turned heads. The fast food giant committed to opening 700 delivery-only locations in partnership with Reef across the U.S., Canada, and the U.K. by 2025. Fifty of those were meant to open by the end of the year.
Instead, about a year later, Wendy’s dramatically scaled back the partnership, committing to 150 locations in the same time frame. Then, earlier this month, Wendy’s walked it back again. “We do not envision that delivery kitchens will be a large element of our growth trajectory moving forward,” said Wendy’s CEO, Todd Penegor, during the company’s fourth quarter earnings call.
Turns out the demand for convenient delivery solutions — those are Wendy’s words — was a bit misplaced.
We could all be forgiven for thinking that the massive pandemic pendulum shifts would be permanent. The rapid rise of ghost kitchens was chronicled by another Covid-era hypebeast, Clubhouse. There was a moment during some dark pandemic days in 2021 that the mobile app took over popular culture. The premise: anyone (well, anyone with an iPhone) could drop into virtual audio-only rooms to hear a host of live speakers talk about literally anything. Each “room” had a theme; speakers and sometimes moderators kept rooms on topic with varying degrees of skill and success.
At the height of its popularity, people were hosting rooms to discuss restaurants and restaurant tech every night. And no topic was more popular than delivery-only ghost kitchens, which were then emerging as an alternative to traditional restaurants. My evidence is purely anecdotal, of course. But judging by how many times I — a frequent Clubhouse speaker for a very limited period of time — was personally talked over by someone in a room extolling the benefits and margins and potential of virtual brands and ghost kitchens, there were plenty of opportunists in the (virtual) room.
Get in, loser, we’re going to the future.
Competition among fast food companies is fierce, and there’s real fear about getting left behind. Remember when they all went to war on social media circa 2018? Or how they’re all trying to one-up one another with chicken sandwiches? Tech is just one more front on the battle for customer dollars and attention. Moving early on huge tech bets might pay off. Being an early adopter on Clubhouse got me a mention in Los Angeles Magazine. It got Burger King’s parent company some quick press when it hosted a version of its earnings call on the app. And then it was over.
Similarly, it’s become clear that putting it all — or even some of it — on ghost kitchens was the wrong idea.
When Softbank, the mega-investor known for huge bets on tech giants, injected hundreds of millions of dollars into Reef, the intention was for it to grow as fast as possible. It was a well-trod path traveled by plenty of unicorns, Uber, DoorDash, and WeWork among them, all subsidized by sky-high sums (to varying degrees of success).
Now, Wendy’s is publicly walking back what is likely a regrettable growth decision. Here’s the second part of Wendy’s CEO Todd Penegor’s earnings quote from a couple weeks ago: “We believe our efforts are better spent driving more access to the Wendy's brand through our global next-gen design.”
That’s corporate speak for: “We’re renovating.”
This makes the entire debacle seem like little more than an expensive real estate lesson. It is better to run your distribution channels, Wendy’s has learned, rather than cede control to a third party with historically questionable food quality and reportedly poor working conditions.
Wendy’s might be able to afford any financial hit that comes from changing its mind. (I have no knowledge of the deal between Reef and Wendy’s or if any money ever changed hands). But big corporate bets on the future have ripples, and Wendy’s leap of faith was a signal that a distributed, delivery-only kitchen model was worth considering. Other big names signed on, only to similarly end the relationship: Burger King, Popeye’s, and others have ended so-called experiments with Reef.
That doesn’t mean delivery-only is over, or that any restaurant chasing a ghost concept is wrong — plenty are finding success with the model. But it does mean it’s probably not the high-stakes land-grab it appeared to be a couple of years ago.
The renovations that Wendy’s calls “next-gen design” are standard: dedicated pickup orders for delivery drivers, mobile order parking and pick-up shelves, new tech to help employees manage an influx in digital orders. They’re timely improvements that restaurants small and large have been making for years; pragmatic updates outside starry-eyed optimism of the next billion-dollar venture meant to optimize restaurants.
It’s almost like trying to reinvent the industry for profit simply doesn’t work, no matter how much venture cash backstops the proposition. Now Reef seems to be doing some metaphorical renovating of its own. It’s pivoting from underperforming physical locations to a new focus: licensing its existing software to stadiums, airports, and other large venues.
What else?
OpenTable is part of ChatGPT’s newly launched plugin experiment. It joins a handful of other related companies (including sister company Kayak, Instacart, and Shopify) in tapping AI to make recommendations and, in OpenTable’s case, book restaurant reservations.
Later this week for paid subscribers: a chat with OpenTable’s CEO
Uber Eats is removing thousands of virtual brands in an effort to “declutter” the app. Well this tracks.
Amazon’s latest move into restaurants is palm-scanning to pay at Panera Bread. Customers can tie their handprint to their Amazon accounts and Panera loyalty accounts. That’s fun!
Domino’s calls itself an “innovation company” now. At various times in history it’s been a pizza company, a delivery company, and a technology company, too.