A San Antonio-based food truck manufacturer is accusing ghost kitchen company Reef Kitchens of fraud in a recent bankruptcy filing.
Cruising Kitchens, which has built food trucks for Raising Cane’s, Whataburger and Wendy’s, filed for Chapter 11 bankruptcy on Jan. 2. In the filing, it alleges that its financial problems stem from an agreement to build up to 650 food trailers for Reef starting in 2020-21.
Reef was one of the companies to emerge from the ghost kitchen boom during the pandemic. It operated delivery-only food trailers, opening hundreds of them around the U.S. and partnering with Wendy’s and other chains to open hundreds more. But it faced sales and profitability issues and regulatory problems and began closing locations in 2023. It then shifted its focus to software, but last year, it again began recruiting operators to run restaurants through a program called Ulysses.
According to the Cruising Kitchens bankruptcy filing, after the company had built about 200 trailers for Reef, Reef said it was out of money and could not make further payments. In spring 2023, Reef said it would pay Cruising Kitchens $1 million, but the payment was blocked by Cruising Kitchens’ lender, Blue Sky Bank.
Cruising Kitchens said the Reef “scam” led to a $1.4 million loss and left it with $9 million in real estate, $11 million in inventory and 120 employees without the revenue to support them. When the company was unable to meet debt payments as a result, it transferred ownership of its real estate and equipment to Blue Sky under a deed in lieu of foreclosure agreement. But the lender later violated the agreement, according to the filing.
In late 2023, Cruising Kitchens sued Blue Sky over breach of contract and fraud; the case was settled in April 2024.
It was not clear whether the company has taken formal legal action against Reef. But the bankruptcy filing lists an outstanding claim against Reef for fraud and breach of contract totaling $1.4 million.
Neither Cruising Kitchens nor Reef had responded to a request for comment as of publication time.
Cruising Kitchens has about $3.4 million in assets and $14.7 million in debt, according to the bankruptcy filing. It owes $5.5 million to Blue Sky, as well as $660,000 to the Kansas City Chiefs and $450,000 to its landlord.
The company said its outlook is still bright, and that it is expecting $4 million to $6 million in new contracts this quarter. It also has a deal with Smalls Sliders to build up to 500 container restaurants for the burger chain.
But it has paid a price for getting swept up in the ghost kitchen mania of the early pandemic years.
The idea of scaled-down, delivery-only restaurants gained traction then as demand for food delivery boomed. Companies like Reef, Kitchen United and CloudKitchens raised billions of dollars in venture capital to help fuel expansion, and delivery-focused restaurant brands like MrBeast Burger exploded in popularity.
But ghost kitchens soon ran into problems with execution and consistency, and they struggled to generate enough sales through delivery alone, especially as restaurant dining rooms reopened. Many pivoted to a different business model, like Reef has done, or disappeared altogether.
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