Reef Technology may sound like some kind of marine life innovation. It isn’t. But it is a unicorn. One of Miami’s first unicorns.
And its main business is running ghost kitchens.
Sounds like some apparitional myth, but it is a company valued at over $1 billion — in the parlance of start-up companies, that’s considered a unicorn. It’s based in Miami and began its corporate life as something more pedestrian — a parking lot operator.
You turn to WLRN for reporting you can trust and stories that move our South Florida community forward. Your support makes it possible. Please donate now. Thank you.
The company has attracted deep-pocketed investors from around the globe. It has become one of South Florida’s largest employers with over 2,400 workers and plans to hire hundreds more. And it is the largest operator of parking lots on the continent.
So what is Reef Technology?
"There's actually a very long answer to that question," said Wall Street Journal start-ups and private equity reporter Eliot Brown. "Their main area that they're focusing on is something where they get a trailer, put a kitchen in there and then cook food for something like Wendy's, and then take a cut of the order when somebody orders it through Uber Eats."
That's a ghost kitchen, and they are helping change the concept of what a restaurant is, according to Joanna Fantozzi, senior editor with Nation's Restaurant News, an independent trade publication reporting on the food service industry.
"I think Reef really is changing the definition of what a restaurant is. A restaurant basically is kind of this idea of a brand. It can be anything," she said.
Possibilities and Problems
In 2013, what today is known as Reef Technology was called ParkJockey. It called itself a "parking solutions" company. It managed parking lots using mobile phone payment apps, ran valet stands and looked for ways to put empty spaces to work. It's still active in parking lot management. In 2019, thanks to a huge investment by Japanese conglomerate SoftBank and the investment arm of the Abu Dhabi government, the firm changed its name to Reef Technology and began its strategy of utilizing empty parking spaces with other activities.
By the way, according to a report in the South Florida Business Journal at that time, its new name was inspired by coral reefs. The idea is that coral reefs occupy small spaces in the ocean, but support a lot of marine life. It’s meant as a metaphor for how Reef Technology sees its business model — using what it calls urban spaces as neighborhood hubs.
"What if a parking lot was more than a lot?" asks a corporate video on Reef's website (with the pun likely very much intended). The company’s vision is to use the real estate it manages once reserved for cars to sit idle for other activities: restaurant ghost kitchens, pick-up locations for online retailers and what the company calls "pop-up micro clinics" — temporary health clinics. Reef has had partnerships to run mobile COVID-19 testing sites in some South Florida shopping mall parking lots.
"Reef is a technology-focused startup that has gone into a very physical, operational, heavy business," said Brown, who has reportedon the company's growth, finances and safety concerns. "That's not an easy transition to make, and it can become kind of chaotic."
The company's fast growth into dozens of cities and hundreds of ghost kitchen locations has run into much slower-moving local regulations.
"They're not quite restaurants. They're not quite food trucks," said Fantozzi. She has reported on Reef's difficulties with local food and health regulations. "Since they're kind of in-between, Reef had been obtaining temporary licenses, temporary permits and then working with the cities to obtain more permanent permits."
One of those cities is its hometown — Miami. In April, the city commission approved an ordinance creating a pilot program laying out clear rules for ghost kitchen operations. It allows the trailers to be located on vacant land with certain zoning. For now, that is restricted to commercial lots in specific neighborhoods of Miami.
"It's a little bit tough for them because they basically have to work on a city-by-city basis. I think that working with the city of Miami is really helping them," Fantozzi said. Operations in four cities — New York, Chicago, Houston and Detroit — were suspended at times last year for problems meeting local regulations such as operating without an approved permit.
Cooking Up Growth
Reef is growing fast. Brown calls it "absurdly fast, like over 300 percent last year" in revenue growth. However, the company has been spending a lot, too. Trailers outfitted with kitchens can run to $200,000, and the cost of bringing electricity and propane to parking lots as well as the rising cost of labor cut into Reef's revenues. It recently posted a job for a South Florida-based line cook starting at $20 an hour.
"The question is: is this fast growth sustainable or is it just sustained by all the money you're putting in?" asked Brown.
South Florida is well-known for its vibrant entrepreneurial business culture. Statewide, Florida is a magnet for entrepreneurs. In 2020, more than five out of every 1,000 adults started a business, far out-pacing the national rate. Still, survival is tougher here. About one in four start-ups in 2020 don’t make it a year.
Reef Technology has beaten the odds and then some. It has raised $1.5 billion from outside investors, including $700 million in November. This has made Reef one of the few South Florida-based start-ups worth over $1 billion.
"If you're a tech investor and you're putting money to this, your expectation is this is going to grow really, really fast and it's going to be one of the biggest emerging companies in the country," Brown said.
As a private company, Reef does not publicly release financial information. However, Brown reported the average Reef ghost kitchen costs $1,800 a day to operate as of September compared to bringing in an average of $1,250 a day in revenue. Some trailers using the Wendy's franchise are taking in $4,000 a day according to his reporting. "I think that is sort of the hope — that they get a lot more things like Wendy's and then become a big franchisee around the country," Brown said.
In 2021, Reef forged deals with Wendy’s, TGI Fridays and DJ Khaled. Reef will open 700 Wendy’s delivery kitchens in the next five years in the U.S., Canada and United Kingdom. This will grow Wendy’s global footprint by 10 percent without its franchisees having to buy or build a building. The deal made Reef the first Wendy’s franchisee in the UK.
"Having these parking lots and having these places where they can park these facilities is really a big advantage," said Fantozzi.
The pandemic helped feed the demand for restaurant take-out and delivery options, and the ghost kitchen strategy also offers restaurant brands the possibility of serving new locations without making big real estate and employee investments. Kitchens in trailers don't have a dining room or high-traffic frontage. They don't need hosts and waiters.
In the case of DJ Khaled, it's a new restaurant brand without the traditional restaurant. "If you order from DJ Khaled "Another Winds" [restaurant], you're never going to see what that restaurant looks like because it doesn't really look like anything," Fantozzi said.
