Ghost Kitchens Are Proving To Be a Messy Business

Seeking to leverage a boom in food-delivery apps, Reef and competitors build restaurant kitchens in warehouses or trailers, which are meant to be cheaper and nimbler than traditional storefronts. From a report: Business models vary, but Reef generally acts as a franchisee, preparing and selling food with its own workers and paying a restaurant brand a percentage of each order. The concept has become particularly popular during the pandemic, as food delivery became clutch for many consumers and restaurants looked for cheaper places to prepare food they were delivering, not serving. Investors have poured more than $3.5 billion into ghost-kitchen startups in the past three years, according to data tracker PitchBook Data, a large slug of funding for a fledgling sector. Much of that funding has come from tech-focused investors who want the rapid growth often seen in software companies -- and delivery apps, such as DoorDash. Reef's operational strains illustrate the challenges of meeting investors' high expectations in the food business, a sector typically defined by low profit margins and modest growth and one that depends on executing daily in the nondigital economy with workers, supplies and logistics. Reef, backed by investors including SoftBank Group, has said it plans to add thousands of mobile kitchens in parking lots around the world. The company says it currently has about 350. Big brands have begun to warm to the concept. Chick-fil-A and Yum Brands' KFC have been experimenting with their own versions of ghost kitchens, seeing them as a potential area for growth. Wendy's has joined with Reef in a deal that calls for Reef to open and operate up to 700 locations in North America, and the U.K. Reef's rivals include CloudKitchens, founded by Travis Kalanick, who co-founded Uber Technologies.

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