"embarrassed & remorseful" | spooky kitchens #29

August 13th, 2022. Bad news for Softbank, DoorDash, & (sigh) REEF. Chik-fil-A expands its own ghost kitchen initiative.

Happy Saturday y’all,

First thing’s first: the graphic this week may be my most esoteric yet. I love it.

And as a quick reminder, all green text is linked.* (*not always to anything important)

So what happened this week? (TL;DR)

• Sour news for Softbank, REEF, and DoorDash. And Chik-fil-A is building their second first-party ghost kitchen.

(a two-top’s worth of) sides

😪 Brace yourselves for yet more cuts across the tech (including restaurant tech) world as Softbank leads the unfortunate way (“‘I am quite embarrassed and remorseful’: SoftBank CEO plans widespread cost cuts as tech investments suffer, leading to a $23 billion loss” Will Daniel, Fortune). Somehow, some way, the economic blade that is this strange inflation-led semi-recession has found Big Tech’s Achilles heel. The previously untouchable Softbank’s $23B & largest-ever quarterly loss – as well as CEO Masatoshi Son’s disappointment – public news, we can expect a broad swathe of tech companies to do the heretofore unthinkable: act like a healthy business. Granted, many of them will interpret that as a sign to simply lay off a significant number of people (and thus, magically, the ledger shall be healed!), and they will do so with all the grace of leaders who have never had to deliver bad news. You can imagine how that will go (actually, you don’t have to imagine).

It’s a little more difficult to say where ghost kitchens will fall in this tumult – it really depends on the kitchen. Cloud is bankrolled by, essentially, two sources (Travis Kalanick & Saudi Arabia’s Public Investment Fund) and, aside from generally worse business conditions for ghost kitchens, should be unaffected by tech’s responsibility ripple. REEF, with its investments led by Softbank, well…what can I even say at this point. I can’t remember the last time the company had good news. Kitchen United’s investor pool is refreshed and raring coming off the Series C announcement (though that also means more and greater expectations from shareholders new and old). Other, smaller kitchens can only depend on their own operational stability, seek out opportunities for expansion with a sober, discerning eye, and await the inevitable reopening of VC floodgates.

💪 7-Eleven beefs up its delivery arm (“7-Eleven reportedly acquires delivery startup, intends to compete with DoorDash” Brett Dworski, Restaurant Dive). C-store delivery may currently be the most heated battle in the everlasting saga of The Delivery Wars (business reporters flat out refuse to stop calling what is now the everyday delivery market The Delivery Wars — as if it could ever have a single victor — so at this point, we might as well make the moniker a proper noun). DoorDash can now count multiple legitimately competitive opponents on the convenience front: led by Gopuff, 7-Eleven, and Circle-K. I expect the Big D will lose market share; but just how much remains to be seen. 

(Though 7-Eleven’s announcement comes close to Softbank’s dump of $2B in DoorDash shares, I highly doubt that that was a primary cause. $2B is a lot of money for most people and most companies on this Earth; not really for Softbank. 7-Eleven’s Skipcart acquisition was $65M. In comparison, a rounding error. 7-Eleven is going to compete — but I see DoorDash and Gopuff continuing to control the heavyweight C-delivery market, while the adapting old hands carve out a smaller, welterweight niche.)

• Related: “Here’s how Gopuff is becoming the next big food delivery player” Joanna Fantozzi, NRN. More detail on Gopuff’s rise & innovations in the C-delivery market.

🐔 Chik-fil-A doubles down (literally) on first-party ghost kitchens (“Chick-fil-A Opening Second Ghost Kitchen Facility” Tom Kaiser, Food On Demand). The problematic chicken sandwich maker apparently has no problems with its own virtual brands, of which it has a surprising number. In Nashville, under the banner of “Little Blue Menu,” CFA serves itself, Garden Day (salad bowls), Because, Burger (regular old burgers), Flock & Farm (kind of healthy fine-casual, comparable to Dig or Lemonade), and Outfox Wings (...wings). Though the brands are distinct (and distinctly limited), these kitchens are not truly “multi-tenant” as the article states; Chik-fil-A is the sole tenant and operator. The company simply likes to do everything it does a certain way; why go through the rigmarole of conforming your operations to another ghost kitchen’s system when you can do it yourself (after several years of learning from those other ghost kitchens you partnered with, naturally)?

Though this move probably makes sense for CFA, I don’t see it becoming a significant trend, even for other national brands with the resources to attempt first-party ghost kitchens. Most brands at that level, frankly, still don’t really understand ghost kitchens, or how restaurant success through that model is a different beast than a brick-and-mortar (they are frequently content to skate on the margin rather than test, learn, and adapt). 

😈 Wendy’s kicks REEF while it’s down (“Wendy's deals a blow to SoftBank-backed Reef as the burger chain cuts ghost-kitchen-expansion plans. 'In the US, we are not yet performing,' Wendy's CFO says” Nancy Luna, Insider). I just….you know… you can’t write this stuff. I am, technically, writing about this stuff. But you can’t write a nearly year-long train of bad news for a single company. In fact, even if you were a writer, you wouldn’t write it. Because it’s almost boring, how expected negative REEF news has become — except that we’ve now transitioned into a rarely-seen stage of such continuous bad news that it’s actually shocking that it keeps coming because, goddamn guys, it’s got to end sometime, right?

Ok, quick breath: a lot of smart people work at REEF. They are not bad people. Their model will very likely find a way to survive, and eventually the bad news will end, a new leaf will be turned, etc. I didn’t come into this newsletter wanting to go to town on REEF’s misery. But the news is the news, and my mind is boggled; and you are probably the only people in the world who could understand that boggling. It’s wild.

Anyway, Wendy’s, like RBI before it (a little more on the sly – see the P.P.S. in last week’s Kitchen United feature), is both downplaying and downgrading its relationship with REEF, to the tune of a 550+ unit reduction in its expected REEF locations. The title quote, “In the US, we are not yet performing,” which would be a pretty milquetoast utterance in everyday conversation, is an absolute diss coming from the C-suite of a major restaurant brand. In a still-nascient ghost kitchen market where contract signings and new agreements get all the publicity and poor performance and backings-out generally occur in quiet privacy, this statement is a clarion. How are big brands doing in ghost kitchens? Who has found the successful new non-traditional build they sought? And who has silently pivoted away from the model, or certain partners, altogether?

• Related: “How Reef helps shape city ghost kitchen regulations to accommodate its model” Aneurin Canham-Clyne, Restaurant Dive. Hey! Neutral news! It’s Christmas.

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That’s spooky kitchens.

Boo ✌️,

Mitch

P.S. If you’re just jumping into ghost kitchens and want to learn more, check out my ghostly glossary and spooky kitchens ghost kitchen cheat sheet. They’re there to help make sense of this weird and wild west.

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