hands volunteering at soup kitchen

Ghost Kitchens Face Growing Pains Amid Rapid Expansion

Reef Forges Ahead

Ghost kitchens have been all the rage since the onset of the pandemic, with investors pouring billions of dollars into the market.But these kitchens, which prepare delivery food for restaurants across the nation, are running into trouble. Ghost kitchen operators have faced regulatory hurdles, labor shortages, and higher-than-anticipated expenses. All these factors have hurt their bottom lines.

Take Reef as one example. A leader in the market, Reef has faced permitting violations, staffing shortages, and other difficulties, but that has not stopped the ghost kitchen operator from expanding. Reef intends to open kitchens in thousands of locations across the globe, up from the 350 locations it has today. Unlike some of its rivals that use large, shared kitchens, Reef opens up small kitchens in parking lots.

Food Delivery Still in Demand

Reef and other ghost kitchen operators are trying to capitalize on the huge uptick in demand for food delivery which took place during the early days of the pandemic. Food delivery apps like DoorDash (DASH) and UberEats (UBER) are making it easy to order takeout, which has caused demand to stay high, even as restrictions on indoor dining have been lifted. These startups are building kitchens in trailers and warehouses, making food for a bevy of restaurants. Many are in fast-growth mode, fueled by tech investors seeking to put money into markets poised for rapid growth.

Still, Reef’s problems underscore the difficulty in meeting the expectations of investors in an industry known for low margins and sluggish growth.

Reef Is Back in Growth Mode

Reef’s concept has piqued the interest of investors, raising more than $1.5 billion in venture funding. Despite the money, Reef ran into trouble this summer. Its expenses greatly exceeded its sales, resulting in a series of management layoffs.

But this has not stopped Reef from growing. The company recently inked a deal with Wendy’s (WEN) in which Reef will open and operate as many as 700 ghost kitchens across the US. It also has agreements with Restaurant Brands’ (QSR) Burger King and Popeyes.

Losses per kitchen at Reef have also narrowed during the past several months. Its average kitchen has daily revenue of $1,250. Chick-Fil-A and KFC (YUM) are also opening their own kitchens to handle delivery food, as consumers and the restaurant industry continue to embrace delivery.

Things are changing daily within the financial world. Sign up for the SoFi Daily Newsletter to get the latest news updates in your inbox every weekday.

Sign up

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store SoFi Android App, Get it on Google Play

ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

TLS 1.2 Encrypted
Equal Housing Lender