Wendy’s Is Walking Back Major Expansion Plans — Eat This Not That

To the delight of Frosty and Baconator lovers throughout the globe, Wendy’s introduced an bold growth plan final 12 months, which might add 1,200 areas to its roster by 2025. Greater than half of those new areas—round 700 to be actual—have been deliberate as delivery-only ghost kitchens to be operated and staffed by means of a collaboration with Reef Kitchens.

However, it seems the burger chain might have bitten off greater than it might chew, and is now drastically pulling again on its ghost kitchen technique. Wendy’s introduced it’s slicing down the variety of Reef areas it’s going to open from 700 to simply 100 to 150, with a big lower in models particularly throughout the U.S.

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Within the firm’s Q2 earnings name, CFO Gunther Plosch shared that gross sales from the preliminary collaboration with U.S. Reef kitchens have been underwhelming. The areas have generated common annual gross sales of lower than $500,000 per retailer–paling compared to different markets which have realized between $500,000 to $1,000,000 in common unit quantity.

Wendy’s hasn’t been resistant to the pressures of inflation which dealt a significant blow to the fast-food trade this 12 months. The burger joint has joined others in elevating costs to maintain up with rising ingredient and labor prices and clients have additionally shifted to much less discretionary spending, inflicting revenue margins to slim. One thing finally has to offer, and for Wendy’s, this has meant dialing again its aggressive progress plans.

Wendy’s ghost kitchens will nonetheless maintain a presence within the U.S. however on a a lot smaller scale and centered largely in “densely populated excessive potential markets” in line with CEO Todd Penegor. The next proportion of the chain’s eating places in Reef’s cellular vessels will alternatively open in Canada and the U.Okay. the place gross sales have been extra promising.

“We’re excited to proceed innovating along with a give attention to doubling down internationally the place we have seen very robust economics in our present partnership,” a Reef spokesperson mentioned.

Along with the Wendy’s setback, Reef Kitchens has handled quite a few different rising pains. Well being division violations and complaints of uncooked or undercooked meals have been reported in connection to the corporate’s cellular meals models. Reef additionally misplaced its partnership with the fried rooster restaurant Fuku on the finish of 2021 and briefly closed almost one third of its kitchens again in January.

The corporate continues to scale nevertheless, and notes on its web site that over 8,500 whole areas now exist throughout the Reef community, together with 300 kitchens in North America and Europe. Versus Wendy’s kitchens, lots of Reef’s different amenities function a number of manufacturers directly—a mannequin which the corporate has discovered to be extra profitable.

Reef’s competitor Kitchen United has gained traction utilizing a distinct operational method. Whereas Reef models are usually positioned in parking tons, Kitchen United areas are arrange as meals halls and will also be discovered inside grocery shops like Kroger and Ralphs—the place pure foot visitors can result in increased gross sales.

The ghost kitchen idea was actually engaging on the top of the pandemic and thought to be the way forward for quick meals. Juggernauts like Kitchen United and Reef proceed to innovate and fine-tune their fashions, however unexpected roadblocks–such because the Wendy’s pull-back–have made the trail ahead extra thorny than initially anticipated.

Megan Hageman

Megan is a contract author based mostly in Columbus, Ohio. Learn extra

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