Earlier this month, Wendy’s somewhat surprisingly announced a 700-unit franchise deal to put its concepts into ghost kitchens operated by Reef Kitchens in the U.S., Canada and the U.K. over the next five years.
As my colleague Joe Guszkowski pointed out, Wendy’s hopes to have 50 of these up by the end of the year.
The deal is a clear sign that Wendy’s views ghost kitchens as a long-term strategy and not just an industry fad that could be expected to go away in the next few years. It’s also a sign that some of the country’s biggest chains are paying close attention to this trend and that we should expect a lot more of this sort of thing in the coming years.
Ghost kitchens are facilities that usually do not have a storefront and operate multiple brands for delivery-only sales from the same location. They differ from virtual brands, which are brands that operate without a brick-and-mortar presence, such as MrBeast Burger.
Ghost kitchens are a real estate play, letting concepts get a presence in new markets or neighborhoods with relatively little up-front investment. They can help companies establish a brand name in a new market or they can help concepts open in neighborhoods that would otherwise be too expensive. This can be a major point in an era in which real estate costs are soaring while so many operators are looking to develop drive-thru locations.
White Castle notably tried opening a ghost kitchen in Orlando as a predecessor to its actual location there and it was so busy the chain had to shut the operation down.
Wendy’s is certainly not the only big restaurant chain that has been taking a hard look at the ghost kitchen strategy. Inspire Brands, one of the largest restaurant operators in the country, has been testing the idea. Chick-fil-A, meanwhile, has toyed with the strategy in a number of different formats.
For the most part, however, the most aggressive users of ghost kitchens are smaller concepts eager to expand and with relatively little financial ability to do so. Now that a 6,800-unit chain like Wendy’s is getting involved, that could signal bigger players are ready to make a bigger push into this concept. And indeed, others are believed to be looking into the idea, lured by the potential economic benefit ghost kitchens can provide.
The Reef deal is a franchise development agreement—such deals are notorious for a lack of fulfillment—yet its sheer size suggests that Wendy’s sees a lot of potential in opening in Reef’s facilities. It means the company’s tests worked well and there’s enough there to dramatically expand on the idea.
In this case, it gives Wendy’s some inroads into urban areas where it has relatively little presence. Real estate in such markets tends to be expensive and the outlook remains uncertain. Going in there with a ghost kitchen strategy can cut back on those real estate costs. Such markets tend to have higher-than-normal delivery sales, which can make the economics work.
“We believe we can support high-delivery markets in trade areas as well as markets we have not tapped because the economics may not work because of real estate or constraints we need to work through,” Wendy’s Chief Development Officer Abigail Pringle told me last year.
It remains to be seen how far the ghost kitchen trend goes. But Wendy’s involvement likely means there will be a lot more of them in the near future.