- Reef Technology is a ghost kitchen startup that prepares meals from food trucks in parking lots.
- It has raised over a billion TK, but insiders say it stopped paying vendors months ago.
- Real estate firm JLL is suing Reef for nonpayment of bills totaling around $3.5 million.
When Reef Technology signed lucrative licensing deals in 2021 with major restaurant brands like Wendy’s, Popeyes and Burger King, the ghost kitchen startup instructed employees to do whatever it took to get the food trailers open, no matter what. the cost, former employees told Insider.
Reef operates food trailers that sell food for delivery through apps like DoorDash and
. But launching and maintaining these mobile cooking vessels, which are typically set up in Reef-managed parking lots, has been costly. A former corporate employee with inside knowledge of Reef’s operations said Reef grew “recklessly”, burning through investment money “very, very fast”.
“These trailers never made any money,” said a former Northwest regional director of kitchens. “Even Wendy’s weren’t profitable. At best, they were breaking even.”
Now the Miami-based startup is shifting focus from growth to “profitability and productivity,” according to a memo sent to all staff by CEO Ari Ojalvo. That means layoffs and bonus delays for employees. But it also means defending against vendors who accuse Reef of scamming them out of millions of dollars, according to former employees, internal documents obtained by Insider and a recent lawsuit filed by JLL.
JLL, a global commercial real estate services firm, sued Reef Technology in mid-April for breach of contract, alleging the Miami-based ghost kitchen operator owes JLL and its subcontractors more than $3.5 million for maintenance and maintenance services. repair on their food trailers.
According to the lawsuit, Reef began underpaying JLL on invoices from the end of October 2021 through the end of the year. Reef made partial payments to subcontractors but did not pay JLL for its services, which included managing maintenance and repairs to its network of cooking vessels, according to the lawsuit.
Then, beginning in 2022, Reef “stopped paying JLL for anything,” according to the lawsuit.
Reached for comment, JLL’s attorney, Daniel B. Rogers, said, “JLL does not comment on pending litigation.”
A Reef spokesperson told Insider: “REEF does not comment on pending litigation or ongoing business matters. As a fast-growing startup innovating the future of food and other proximity-based services, we are continually refining our supplier relationships and managing our people to maximize productivity, profitability and profits for our customers and investors.”
‘They don’t mind paying vendors’
Five former Reef employees said Reef stopped paying vendors in the fall of 2021. By that time, Reef’s ghost kitchen operation had tripled, growing to 320 kitchen vessels operating in the US and throughout the world. The former employees requested anonymity for fear of professional repercussions, but Insider knows their identities.
A former regional kitchen director in the Northwest said that once Reef discovered the “true cost” to launch and maintain kitchen vessels, company leaders directed managers to stop paying vendors and find new ones to make. the job, the former employees told Insider.
“They don’t mind paying vendors,” said the former regional director. “They are trying to get out of whatever debt they have by whatever means they can.”
A former supply chain employee, who left Reef last month, said senior management’s stance was “we need to have alternative suppliers” available to use because “we were upside down on ships”. The former employee says vendors under his control were not paid or only partially paid due to cash flow issues. “They wanted to have alternatives lined up.”
An executive at a company JLL outsourced on behalf of Reef told Insider this week that his company is owed $250,000.
As of September and October 2021, they said Reef stopped paying. “She suddenly stopped dead in her tracks. Nothing was happening,” the executive said. They asked to remain anonymous to discuss the matters freely, but Insider knows his identity.
A former Reef corporate employee told Insider that vendors expecting payment would include companies that service trailers, as well as those that repair and maintain kitchen equipment.
“A lot of vendors dropped out for not paying,” the former corporate employee said.
One vendor, United Rentals, began pulling generators that power refrigeration in trailers in January because the company wasn’t getting paid, four former employees told Insider.
Cutting off “critical services” like generator power “really hampered our business,” the former regional director said.
On March 18, 2022, JLL terminated its contract with Reef declaring the company in “default for failure to pay multiple invoices that were due between November 24, 2021 and February 25, 2022,” according to the lawsuit.
JLL’s attorney, Daniel B. Rogers, said, “JLL does not comment on pending litigation.”
After SoftBank backed Reef with $700 million in November 2020, the company has been racing to grow its food trailer network in North America.
Last week, Insider reported that Reef was delaying employee bonuses and owed vendors more than $8 million in outstanding payments. The company also announced plans to cut 5% of its global workforce of 15,000, or 750 employees.
Reef said he stayed focused on his cooking vessels. “We’re not shutting down the kitchen business and we’ve secured a new round of funding to continue to grow it,” Reef spokesman Mason Harrison told Insider, declining to say where the funding was coming from. Nation’s Restaurant News reported Tuesday that Reef is working to secure another round of funding led by SoftBank.
Several current and former employees have told Insider that food trailers don’t make enough money to support the cost it takes to launch and operate them.
The former regional director, who used to work in the restaurant industry, said most trailers under his jurisdiction made about $500 a day in sales, but the boats cost about $1,500 a day to operate.
“The economics of the model just never made sense,” he said. “And I don’t see how they ever make sense.”