America's Second-Largest Burger Chain Walks

To the delight of Frosty and Baconator lovers across the globe, Wendy's announced an ambitious expansion plan last year, which would add 1,200 locations to its roster by 2025

More than half of these new locations—around 700 to be exact—were planned as delivery-only ghost kitchens to be operated and staffed through a collaboration with Reef Kitchens. 

But, it appears the burger chain may have bitten off more than it could chew, and is now drastically pulling back on its ghost kitchen strategy. Wendy's announced it is cutting down the number

of Reef locations it will open from 700 to just 100 to 150, with a significant decrease in units specifically within the U.S. In the company's Q2 earnings call,

CFO Gunther Plosch shared that sales from the initial collaboration with U.S. Reef kitchens have been underwhelming. The locations have generated average annual sales of less than 

$500,000 per store–paling in comparison to other markets which have realized between $500,000 to $1,000,000 in average unit volume. Wendy's has not yet escaped the inflationary pressures

that have dealt a major blow to the fast-food industry this year. The burger joint has joined others in raising prices to keep up with rising ingredient and labor costs

and customers have also shifted to less discretionary spending, squeezing profit margins. Eventually, something has to give, and for Wendy, that means turning away aggressive growth plans.

Wendy's Ghost Kitchen will still maintain an American presence. but on a smaller scale and focused primarily on densely populated, high-potential markets, according to CEO Todd Penegor.

A higher percentage of the chain's restaurants on Reef's mobile ships may open in Canada and the United Kingdom, where sales are particularly promising. 

We are excited to continue to innovate with a focus on doubling down internationally where we see very strong economics in our current partnership, said a Reef spokesperson.

In addition to Wendy's failure, Reef Kitchens faced many other pains. Violations and complaints of raw or uncooked food have been reported in connection with the company's mobile catering units

Reef also lost its partnership with fried chicken restaurant Fuku at the end of 2021 and temporarily closed nearly a third of its kitchens in January.

But the company continues to expand, saying on its website that there are now more than 8,500 total locations in the Reef network, including 300 kitchens in North America and Europe

Unlike Wendy's kitchens, many of Reef's other establishments operate multiple brands at the same time—a model the company considers very successful.