Reef might be too innovative for its own good.
The fast-growing operator of delivery-only restaurants has run into problems in some cities, where inspectors have dinged its mobile, delivery-only kitchens for permitting and other violations. Reef says its unique model doesn’t always fit into existing legal frameworks.
Last month, the company closed all of its mobile kitchens in New York City. The city said the units were in violation of “numerous” health and safety requirements; the company denied any violations, saying that it closed the units when their temporary permits expired.
The details are unclear, and the New York City Health Department did not respond to multiple requests for comment beyond a two-sentence statement. But both parties said they are working together to get those locations into compliance.
A similar story has played out in other cities where Reef has opened its kitchen "vessels." The modular trailers are used to cook and serve food, primarily for delivery via third-party providers, and tend to fall into a regulatory gray area.
“It doesn’t fit what exists,” said Denny Post, the former CEO of Red Robin who advised Reef from February to August 2020. “There’s brick-and-mortar and then there’s food trucks, and this is neither. It’s a hybrid.”
In Houston, five units were ordered to cease operations in June and July because they were missing a necessary permit or medallion, according to city records provided to Restaurant Business. The medallions are stickers that indicate a mobile food unit is allowed to sell and serve food in Houston.
When asked why some of its units were operating without permits, company spokesperson Katy Feinberg said, “Regulations and compliance are an ongoing conversation across all cities because we’re creating something new.”
Reef has since fixed the issues with the locations in question, working with the city to “understand and adapt regulations for our innovative model,” Feinberg said in an email. It has 29 mobile units in Houston.
The problems were first reported by Business Insider.
Reef's vessels, branded as NBRHD Kitchens, are typically located in parking lots also owned or managed by Reef. They can be moved, but the company does not move them often, Reef President Michael Beacham told Restaurant Business in September. The company aims to put the kitchens as close as possible to customers so food arrives fast and hot.
In many cities, Reef operates under food truck permits, which often require businesses to move from place to place.
“There may be cases where they’ve not moved them as frequently, and that’s bugged the cities,” Post said.
“I don’t think they have intentionally played fast and loose,” she added. “I think there are some rules that are onerous that they may have looked the other way on, or at least tried to.”
Feinberg said Reef “welcomes all scrutiny and feedback.”
“We want to get this right,” she said.
As the self-proclaimed fastest-growing restaurant company in the world, Miami-based Reef is naturally going to attract some scrutiny. Last year, it raised $700 million from investors including SoftBank. And in the past few months, it has announced deals to open thousands of locations with big brands like Wendy’s, TGI Fridays and Bennigan’s.
Paul Mangiamele, CEO of Bennigan’s parent Legendary Restaurant Brands, said he’s not concerned about Reef’s run-ins with inspectors.
“Sometimes there’s vitriol about people being successful and maybe a little resentment that goes along with that,” he said. “I’ve not seen anything but the utmost level of professionalism” from Reef.
Mangiamele said he has personally visited Reef units and that they were “1,000% in compliance” with local rules.
“I want to do thousands of delivery vessels with them,” he said.
Other Reef restaurant partners had not responded to requests for comment as of publication time.
Reef said it works with regulators in every city where it operates to find the best permitting structure. Post confirmed those efforts, noting that Reef has invested heavily in hiring people to handle permitting and make the business more “plug-and-play.”
“They absolutely do work to create a new way of viewing these businesses,” she said.
And that work has been successful in some places. Officials in Reef’s hometown of Miami, for instance, amended the city's code this spring to create an ordinance for Reef that is distinct from food trucks. Similar processes are underway in Chicago and San Francisco, where Reef is “thrilled that we have been able to navigate this path,” Feinberg said.
Post compared Reef’s situation to the disruption of the taxi industry by ride-hailing apps like Uber and Lyft.
“It definitely is going to require local municipalities to look at lots of things differently,” she said.