Restaurants

Wendy's to open 700 ghost kitchens by 2025 with start-up Reef

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Key Points
  • Wendy's announced it will open 700 ghost kitchens across the U.S., U.K. and Canada by 2025 through a partnership with start-up Reef Technology.
  • Ghost kitchens fulfill delivery orders placed through third-party delivery apps like DoorDash and help restaurants cut down on costs.
  • Wendy's CEO Todd Penegor said that the company is forecasting annual average sales of $500,000 to $1 million for a Reef ghost kitchen.

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Customers dine at Wendy's outdoor seating near Union Square in New York City.
Alexi Rosenfeld | Getty Images Entertainment | Getty Images

Wendy's announced Wednesday it will open 700 ghost kitchens across the United States, United Kingdom and Canada by 2025 through a partnership with start-up Reef Technology.

Also known as virtual, cloud or dark kitchens, ghost kitchens are meant to address the demand for off-premise restaurant dining. The facilities fulfill delivery orders placed through third-party delivery apps like DoorDash. Companies say they help restaurants cut down on costs by using less labor and square footage and being in less desirable locations — like parking lots, in Reef's case.

Wendy's CEO Todd Penegor told analysts Wednesday that its U.S. business saw digital sales dollars grow more than 10% in the second quarter.

Wendy's and Reef piloted eight ghost kitchens in Canada before making this development plan. The companies expect to open roughly 50 of the ghost kitchens this year.

"If you look at the economics, it's early to tell what we can do from sales out of each of those vessels, but we're expecting the sales in the range of $500,000 to $1 million per unit," Penegor said.

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Wendy's CEO explains why the chain plans to open 700 ghost kitchens by 2025

The average gross annual sales for a franchised Wendy's restaurant in the U.S. was $1.75 million in 2020, according to franchise disclosure documents.

Despite lower expected sales for the ghost kitchen locations, Wendy's is still expecting a solid return on its investment. It will allow the company to expand more into urban locations, and Reef is responsible for buying the kitchens and hiring workers, Penegor said. The start-up will also pay slightly higher royalty fees — 6% of gross sales in the U.S. compared with the 4% rate charged to other franchisees.

Penegor also said the program could be a great way to bring in new franchisees because of the lower cost of investment.

The deal makes Reef the first Wendy's franchisee in the U.K. The burger chain opened its first restaurant on British soil in decades this June as part of a broader plan to expand its global reach.

Founded in 2013 as ParkJockey, Reef started off just as a parking garage operator but has since branched out into ghost kitchens inside shipping containers located in more than 4,500 parking facilities. As of February, the start-up has raised more than $756 million, including an investment from SoftBank, according to Pitchbook. Other restaurant partners include BurgerFi and Wow Bao.

Wendy's shares rose 3.7% in afternoon trading after the company also reported quarterly earnings and revenue that topped Wall Street's estimates and raised its 2021 forecast. The stock has risen 3% this year, giving it a market value of $5.02 billion.