Customers dine at Wendy’s outdoor seating near Union Square in New York City.
Alexi Rosenfeld | Getty Images Entertainment | Getty Images
Wendy’s announced on Wednesday that it would open 700 ghost kitchens in the US, UK and Canada by 2025 through a partnership with start-up Reef Technology.
Ghost kitchens, also known as virtual, cloud or dark kitchens, are designed to meet the demand for restaurants outside of the business premises. The facilities fulfill delivery orders placed through third-party delivery apps such as DoorDash. Companies say they are helping restaurants cut costs by using fewer workers, fewer square feet, and being in less desirable locations – as in the case of Reef in parking lots.
Wendy’s CEO Todd Penegor told analysts on Wednesday that its US business saw digital sales grow more than 10% in the second quarter.
Wendy’s and Reef piloted eight ghost kitchens in Canada before creating this development plan. The companies assume that they will be able to open around 50 of the ghost kitchens this year.
“If you look at economics, it is still early to say what we can do with the sale of each of these vessels, but we expect sales between $ 500,000 and $ 1 million per unit,” said Penegor.
The average annual gross revenue of a Wendy’s franchise restaurant in the United States was $ 1.75 million in 2020, according to the franchise’s disclosure documents.
Despite lower expected sales for the ghost kitchen locations, Wendy’s continues to expect solid returns. It will allow the company to expand more into urban locations, and Reef will be responsible for buying the kitchens and hiring workers, Penegor said. The start-up will also pay slightly higher royalties – 6% of gross sales in the US compared to 4% billed to other franchisees.
Penegor also said the program could be a great way to attract new franchisees due to the lower upfront cost.
The deal makes Reef the first Wendy’s franchisee in the UK The burger chain opened its first restaurant on UK soil in decades as part of a broader plan to expand its global reach in June this year.
Reef was founded in 2013 as ParkJockey and only started as a parking garage operator, but has since developed into ghost kitchens in shipping containers on more than 4,500 parking spaces. According to Pitchbook, the startup raised more than $ 756 million as of February, including an investment from SoftBank. Other restaurant partners are BurgerFi and Wow Bao.
Wendy’s shares rose 3.7% in afternoon trading after the company also announced quarterly earnings and earnings that beat Wall Street estimates and raised its guidance for 2021. The stock is up 3% this year and has a market value of $ 5.02 billion.
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