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CMI Brief: Sweetgreen

Updated: Sep 10

Source: The Wall Street Journal

Key facts

Food and Beverage; Fast Casual Dining Chain

Founded 2007 in D.C. by Georgetown grads Nicolas Jammet (CCO), Nathaniel Ru (CBO), Jonathan Neman (CEO)

Product: salads & now hot plates, roughly $10-12 a pop, depending on location. Specialises in partnerships with local farms. Margins 20% at peak (similar to Chipotle)

Size: $1.6bn valuation (September 2019); 109 Locations; 3,500 employees

Total secured equity: roughly $470m, led by Fidelity, Lone Pine Capital and D1 Capital Partners; last funding announced September 2019 (Series I funding round, $150m)

Market info: $125bn globally; fast casual close to 8% of restaurants; average visit to fast casual is $12 vs. fast food $5; average age 35-45. Sweetgreen’s customer base falls closer to millennial bracket (up to 39).

Source: CBS News

Sweetgreen’s proposition

Cult-status. The success of Sweetgreen has been attributed to several key factors, but the most key amongst them is arguably how it has been able to achieve cult status. Sweetgreen has become a favourite amongst young urbanites seeking consistent, fresh and healthy lunches. Most of their locations are located in areas of (usually) dense footfall, with some outlets within office buildings. The cult has been expanded by the publicity brought by a swathe of high profile celebrities who regular at Sweetgreen, including Kendall Jenner and Justin Bieber. At anywhere from $12-14 a pop, Sweetgreen is fairly exclusive and consumers have withstood several-dollar price increases as the brand has developed. Sweetgreen launched Outposts in 2018, charge-free delivery posts to offices, helping it gain status as a go-to work lunch. They now have 1,000 Outposts.

Transparency and quality. Behind the prices at Sweetgreen are the quality of their ingredients. When expanding into new areas the company establishes partnerships with local farms, listing them on the wall of their restaurants. Sweetgreen has hosted an impressive lineup of celebrity chef collaborations, including with Momofuku’s David Chang.

Run like a tech-business. Sweetgreen’s founders have expressed their desire to make the brand the Apple of the food industry, incorporating technology at every turn. The chain is cashless, still uncommon in the US. Their embrace of tech has paid off: Jammet revealed that over 50% of orders are placed on the Sweetgreen app. The value of the app is hard to overstate, it separates the Sweetgreen experience from other similar models like Chipotle by enabling a slick, frictionless service with less pressure on the single-line model.

The founders have repeatedly expressed interest in incorporating blockchain, which would enable true farm to table transparency. Theoretically, the track and trace technology would enable the company to more effectively deal with food poisoning outbreaks. Until the pandemic this was one of the crucial problems in the US fast casual space, forcing 43 Chipotle outlets to shut in 2016. The limitations on this strategy are undoubtedly rooted in the costs incurred on farms in collecting and integrating information, especially for smaller farms. Needless to say, while less significant than the infrastructure required for data collection, the project would also pose significant cost for Sweetgreen.

The founders have also toyed with the potential idea to integrate third party data into the platform, such as intolerance information from 23andMe. The health company announced 2019 their beta programme allowing users to export lab data to third parties like Sweetgreen into integrated platforms.

Renderings of drive-thrus. Source: Sweetgreen


Rumoured IPO. Sweetgreen was on track to file an IPO at the end of its first ten years, opening more doors for expansion. But the founders decided against it, saying their plans were more ambitious. Too much money in a business, one ex-board member said, can be catastrophic. The company decided to take a more organic, tech focused expansion route instead.

Digital push. During the pandemic, Sweetgreen has benefitted from being able to use its existing capabilities like its app to further options for delivery. Delivery has likely helped mitigate the loss of Sweetgreen Outposts and the reduction in ales from brick-and-mortar locations, enabling some softening to the blow of the work-lunch market. The capability will also support their suburban push. Even before the pandemic, Sweetgreen was beginning to make use of dark kitchens to help further their reach. The Wall Street Journal has reported restaurants like Sweetgreen are even turning to empty malls as staging for dark kitchens during the pandemic. HBS estimated that whereas setting up a brick-and-mortar restaurant in New York City cost $1.5m, setting up a dark kitchen can cost as little as $100,000 with other labour cost savings. Delivery will be key for Sweetgreen in the coming months but their advantage is over the long term underpinned by its experience and community.

Suburban push. Sweetgreen announced December that they will open a drive-thru restaurant in Colorado in 2021, trialling as part of their suburban push. Although calls of the end of the office are likely overblown, this strategy will help offset any losses in their office spaces and medium term limitations on the hard-hit work lunch market. The suburban push is a strategy sensible regardless of the pandemic, representing a somewhat of a lateral expansion furthering Sweetgreen’s aim of becoming an everyday ‘essential’. Indeed, the founders have previously stated their desire to become the new McDonalds.

Concept diversification. Sweetgreen announced 2020 it would launch Plates - essentially hot dinners. A continual apprehension about brands like Sweetgreen is that people don’t want to eat in December; Plates certainly enables expansion on a broader concept. To some extent the company’s original concept has shown this critique to be less important in the age of millennials and Gen Z. Brookings said millennials will make up 75% of the workforce by 2025; as the American consumer base is infiltrated by upcoming generations, it will likely seek sustainable and ethical dining options. Such options hitherto might have appeared in the category of ‘people don’t want to eat that every day’. Even if they don’t, eating Sweetgreen-style products several times a week is, needless to say, a huge market.

Is their transparency sustainable? These ambitious growth goals raise the question of whether Sweetgreen’s core attributes - transparency and quality - can be sustained as the chain grows. The model is highly capital intensive, and will likely face teething issues as the difficulties of monitoring a swathe of local supply chains becomes more challenging. The company often has regionally separate supply chains of up to 150 farms - their edge but also their obstacle. Their supply chains are impressive, representing hitherto a successful response to consumer demands for transparency. The company reports on its Medium site that they were able to source 20,000lbs of kelp to help revive Maine’s coastal economy. Technology like blockchain would certainly help maintain this.

What remains to be seen is whether Sweetgreen will be able to maintain their ethos of locality and quality as it grows. Nathaniel Ru, the Chief Brand Officer, calls this ‘intimacy at scale’. Nicolas Jammet described in an interview to INC how important community was to their brand. For several years the brand hosted the Sweetlife festival, with a line up including the likes of Kendrick Lamar. But for a company with such an emphasis on not growing too quickly for the sake of it, Sweetgreen has grown remarkably quickly. Yet other similar concepts like Tender Greens haven’t had the same slick, techy feeling as Sweetgreen. Whilst slick branding is easily maintained, slick customer experience oftentimes comes down to basic things like restaurant cleanliness and staff friendliness, which are ultimately determined by how pressured staff are and the quality of management. The degree to which quality of the product and experience can be maintained will not just be determined by technology, but also by the quality and structure of management across restaurants.

Source: HBS Online

COVID Impact

Restaurant closures. Sweetgreen had to close 21 of its over 100 restaurants. Some of these are in office buildings, where the office-lunch market has collapsed. Most of Sweetgreen’s stores are in dense urban areas, increasing the impetus of their suburban growth strategy. At the same time, Sweetgreen opted to return its $10m PPP loan in a very public announcement. The brand is better positioned than competitors in the similar price range with good delivery options and a cult following. Pret, although a slightly cheaper option, was never really able to gain a strong foothold in the US office lunch market despite having locations in the same types of locations as Sweetgreen. Pret permanently closed 17 locations in Boston and Chicago in July. Sweetgreen has largely been able to withstand he hardest hits of the pandemic, where 110,000 restaurant operators said in December they had closed permanently during the pandemic.

Layoffs & Restructuring. According to the chain’s Medium, 20% of the staff have been laid off. The founders announced a two-year restructuring plan, heavily focused on geographic expansion and their suburban drive. The plan also emphasised further investment in their tech capabilities. Sweetgreen had previously announced a rise to its prices in some locations in order to provide staff with better pay and benefits.

Is something similar possible in the UK?

Some brands are trying to infiltrate the space, albeit on a broader but familiar concept including wraps, sandwiches and hot foods such as Pure. London business-lunchers are creatures of habit, but there is a change happening in the lunch market. Pret seems to be on a slow demise, and who knows where it will end up at the end of the pandemic. Since its purchase by JAB the brand seems to have lost its edge, bringing in third party brands and letting management of stores slip.

There is, in other words, space for something like Sweetgreen. Although a different product entirely, the historic success of Pret is testament to consumer desire for freshness, transparency and personality, as well as openness to interesting menus (so long as they retain an option for classics like the Caesar Baguette). Hot options seem more important to the London consumer. Like Pret, the issue for a brand like Sweetgreen is that margins are impossibly thin, and the high margin additions are less easily persuading on digital platforms.

Sweetgreen is truly a unicorn of the fast-casual sector. Whether or not it will live up to the expectations set by its founders will perhaps be determined by whether its growth path is overambitious, sacrificing the core of its success.