Sweetgreen, the popular fast food salad restaurant, recently announced that it was eliminating all use of seed oils, in favor of higher quality oils such as avocado and olive oil. This is more costly, but the company sees it as worthwhile, given its reputation for high-quality ingredients, and growing public interest in oils. So how does a company like Sweetgreen decide what to sell? And how does it compete against the numerous other fast casual chains competing for lunchtime dollars. On this episode we speak with co-founder Nicolas Jammet about the company's strategy, how it deals with labor and commodity costs, and the future of the restaurant business. This transcript has been lightly edited for clarity.
Key insights from the pod:
Why Sweetgreen just eliminated seed oils — 3:49
The surging cost of olive oil — 8:54
How the Sweetgreen supply chain works — 10:25
Why Sweetgreen changes its menu — 15:29
How the company handles food inflation — 20:20
Building a fully automated restaurant — 26:27
What's happening now with labor costs? — 30:49
Why did Sweetgreen add tipping? — 33:36
How changing work patterns change how people eat lunch? — 39:55
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Joe Weisenthal (00:10):
Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Tracy Alloway (00:15):
And I'm Tracy Alloway.
Joe (00:17):
Tracy, do you know my favorite thing about working in Midtown Manhattan?
Tracy (00:22):
Is it the daily commute?
Joe (00:24):
Actually, I have a fine commute. I'm like a few stops away on the subway. That's fine. I guess so. No, I love the plethora of bowl lunch options that we have around us. We are in the bowl lunch capital of the world, maybe DC also, but I imagine like the per capita number of places that let you like, get something that's sort of, like you're feeding from a trough and you can get it right in front of your computer and eat while checking Twitter or your emails. It's very nice.
Tracy (00:53):
I feel very old because I remember when none of these existed and if you wanted to get lunch in Midtown Manhattan, you went to a sandwich shop and you had a selection of sandwiches and you weren't allowed to make any individual customer choices. And I guess the upside of that was it took everyone literally 10 seconds to order and now it seems to take everyone about six minutes. But of course the downside is you weren't able to customize, you weren't able to get the specific things that you want, maybe pay as much attention as you can now to ingredients. So it's definitely changed.
Joe (01:28):
It's definitely changed. By the way, speaking of change, I've been rewatching — I think it's on Hulu or something — the old LA Law episodes that are streaming again. And it's so funny watching what professional lunches looked like in the eighties with like white table closets.
Tracy (01:41):
Was it steak?
Joe (01:42):
It was like fancier plates of, I don't know, vegetables over a piece of fish.
Tracy (01:47):
And people actually going out to restaurants?
Joe (01:49):
People going out. Anyway. So that's just a sad diversion. But I actually do like being able to just eat in a bowl at my computer and staring at the screen anyway. But it does raise the question. There are all these chains and one-offs doing salads and Mediterranean bowls and Cava and knockoff Cava and knockoff of the knockoff Cava and salad bowls and stuff like that. And knockoff Chipotle. How do you stand out? How do you win in this game where there are clearly many competitors?
Tracy (02:13):
No, I completely agree. It seems like a crowded market at the moment and everyone, even the non-bowl places have their version of a bowl nowadays. But also I'm really interested in how you come up with the specific offerings for customers. And how much of it is what people are asking for, so demand, versus supply. Like what is available to you in terms of ingredients at a cost-effective price?
Joe (02:40):
Totally. Well, we really do have the perfect guest to talk about all of this. How the lunches that we eat get in front of us, how the ingredients are selected. Why am I eating this salad that I'm eating right now? Figuratively. I'm not eating a salad right now. We are going to be speaking with Nick Jammet. He is the co-founder of Sweetgreen, one of the success stories in the salad bowl game. So Nick, thank you so much for coming on Odd Lots.
Nicolas Jammet (03:06):
Thanks for having me.
Joe (03:07):
There's plenty of things to talk about in the bowl game, but let's start with something you recently announced, that Sweetgreen is going to be not cooking anything in seed oils. And it's only going to be using, I think, olive oil and other higher quality oils. There is an internet community of people who are really anti-seed oils...
Tracy (03:28):
Can I say? This is Joe's dream, to finally do the anti-seed oil episode.
Joe (03:33):
We're going to do an hour-long conversation about seed oils and seed oil bros. But actually for real though, I am curious, why did you make this switch? How much is it actual customer demand? How much is it science? How much is it quality? Where did this come from and how much is it going to cost you?
Nicolas (03:49):
Great question. So I'm glad we have an hour because there's lots of talk about here, we can go deep. But zooming out and backing up a bit, the reason we started Sweetgreen was because, we did see this shift in the consumer and between their relationship with food. And we saw this conversation starting to change.
We were seniors at Georgetown, myself and my co-founders, Jonathan and Nate. And we were missing the options that we wish we had to eat. And this idea of wanting food that was good for you, that made you feel good, but that was also delicious and craveable and cool. We didn't see any of those options. And when we looked around all the food that was the most delicious, the most craveable, the most accessible, the coolest brands were all the least healthy, and so we wanted to change that.
We wrote a business plan and really in an effort to redefine and rethink fast food, the traditional fast food model of what you were sourcing, what you were serving, how you were prepping it, and ultimately the story you were telling around that food. And over the course of the last 16 years, we've really tried to create an incredible level of transparency around our food, how we're sourcing it and why. All that is important and ultimately how all that leads to really delicious craveable food.
And the consumer has changed a lot in 16 years and I'm happy to talk about different parts of that. But so much of it has been around removing friction between them and their meal and their food. Whether that's the convenience of how you order or how you pick it up or how it comes to you, or just the convenience or friction of understanding what is in your food, and what you're eating and how it makes you feel.
And so I think what got us excited to grow Sweetgreen was this kind of lifting of the curtain between consumers and their food. And I remember very specifically, the kind of questions consumers asked when we first started Sweetgreen about their food, and what they ask today, are so different – the information they want to know about their food. And so we've been on this so far 16 year journey, which sounds like a long time, but we still think we're in the very early innings of our journey. But in 16 years, it's wild to see just the shift of the consumer, what they want to know, their connection to food, and how we are part of that.
Joe (05:45):
So wait. So seed oils though?
Tracy (05:47):
Were they asking questions about seed oils?
Joe (05:48):
So this is what I wanted to know. What was going on here? Was it actual demand? Was it just tweets? What happened there?
Nicolas (05:55):
So we spend a lot of time looking at all of our ingredients, our whole supply chain. We also spend a lot of time understanding our consumer – what they're talking about, what they care [about], what they value. And it's kind of this balance of learning from the customer, but also leading them in places we think are important for the food system and for our fast food model.
And our menu and our sources have evolved so much in 16 years. So we had seen this growing conversation around seed oils and the more we looked at just the consumer conversation around it, and the more we did our research to understand. And I will say, on that point, doing the research around any of these supply chains or any of these ingredients can be pretty tricky. Because most of them are incredibly, probably nuanced, in some ways.
There's some parts that are black and white, but there's incredible nuance in what's good for you, what the carbon footprint is. And across all supply chains like seafood, oils, poultry, vegetables. And so we spend a lot of time trying to understand and become experts on all these categories so we can make the best decisions possible and then ultimately be transparent with those decisions to our customers.
So we saw this growing conversation and for us it was really understanding what we think is important to try to shift some of the standard practices and fast food, but also what we think our customers would really value. And so we talk a lot about price value at Sweetgreen and we spend so much time and energy and money sourcing our food and building our network of farmers and growers and this incredible roster of ingredients.
And so oils, as you look at the last couple years, had become a growing conversation. And to your point, there's all these voices online on social media that have really started to focus on the specifics around oils and what part of our diet that makes up and our caloric intake and what's good for you, what's bad for you.
And so as we looked around, we saw that no chains or large scale restaurant groups were really thinking about this. Or really talking about it. And we look at our menu every year and we say ‘What can we upgrade?’ And this was the investment we wanted to make. We thought it was a really important conversation.
And we decided to change all of our cooking oil to extra virgin olive oil and avocado oil, which we were switching from high oleic sunflower oil. Which, again, this goes back to part of the nuance. It has a very similar fatty acid profile to the two that we're switching to. And, generally, is different than a lot of the other — when people say ‘seed oils,’ okay, technically it's a seed oil, but for us it's really trying to understand the nuance and what customers would value. And we were excited to make that switch and announcement. And the response has been incredible.
Tracy (08:20):
So I definitely want to get into how your supply chain works. Because my understanding is it's different to a lot of other chain eateries, but just on olive oil in particular, maybe avocado oil as well, but it seems like you're doing this at kind of maybe a bad time. Because I'm looking at a chart of virgin olive oil. And I mean it reached a record earlier this year and it's still phenomenally high. So how do you manage the cost of making the switch? And I'm curious also, do you hedge something like olive oil purchases?
Nicolas (08:54):
Great question. So if you're looking at the chart around the olive oil markets, given the situation in Greece and Spain and with the weather and droughts and fires, the olive oil markets really are at an all time high. We see that as a more short-term blip. We know that ultimately it will come down to some version of steady state.
We decided it was still worth the investment and we're able to really think about how to offset that creatively within our supply chain. So there was no price increase connected to this for our customers and really just wanted to create value there for our customers on the menu.
And part of the reason for having olive oil and avocado, it was also to be able to hedge between the two. Typically in our supply chain, our more important SKUs, we do think about contracts to really think about locking in great prices. And we have an incredible supply chain team that spends time in the field with our farmers and growers and with our partners and really does a great job sourcing incredibly high quality ingredients and paying a price that makes sense for our business, but also makes sense for our partners.
Tracy (09:54):
So when you decide to switch from seed oils, sunflower oil, to olive oil/avocado, how do you go about sourcing that oil? And again, maybe this is a good way to get into the differences between your supply chain and how you're sourcing things versus other restaurants. My understanding is the majority of restaurants will go through large food distributors, whereas you are sourcing directly from farmers and doing a lot of that transportation yourself, I guess?
Nicolas (10:25):
A bit. So the way our supply chain works is we spend a lot of time understanding the different inputs and having direct relationships with our growers, farmers, food partners. So we go direct to the source. We still use distributors to move that product around. Just because there is a very efficient infrastructure around that, and we're not in the distribution business and that's not part of the Sweetgreen model.
But we spend a lot of time directly with the farmers, growers and food sources, people growing and raising our food to really understand how those products fit our ethos. And so we have a food ethos that really guides all the decisions and investments we make in our menu. Things like focusing on regenerative organic growers and produce, clean oils, really thinking about animal responsibility, of how animals are raised.
And so for us, we have this detailed food ethos that really guides our supply chain team and our culinary team, and allows us to really make the right decisions. We then very often will contract prices directly with growers and partners, and then we use our distribution partners to move that product around into our restaurants. And so we celebrate seasonality, regionality, we work with some of the country's greatest farmers and growers that are growing the highest quality products across the country. And we’re really proud of that.
Every single one of our restaurants does have a board that lists every single source – and not just of, like, the cool ingredients. Like ‘This peach is in season, I'm going to tell you where it's from’ – our oils, our rice, really sharing full transparency around all of our ingredients to really, again, lift the curtain between customers and their food.
And so for us, we think that's really important and ultimately we do all that because we think it leads to the best tasting food. When things are grown right in the right soil with the right methods and you're sourcing high quality food. Ultimately we are doing all fresh prep in our restaurants, but it is not like high-end culinary chef-driven protocols and cooking. It is very simply taking high quality ingredients and prepping them very minimally for our customers.
Joe (12:38):
By the way, just for those at home, or those curious, Tracy, first of all, I did not realize we actually had spot olive oil prices on the terminal. I guess I shouldn't be surprised though. The ticker OLO8, SSM1. In 2020, it was 2,000 euros for a metric ton of extra virgin spot oil, olive oil. It's recently 8,000. So that's a four bagger since 2020. Pretty extraordinary. Okay, one last question on the seed oils. We're not really going to go 45 minutes...
Nicolas (13:05):
Which is how we met, by the way, on Twitter.
Joe (13:07):
On Twitter, right. But actually this is, this is one last question on the seed oil and then we can move on. How much is it about like, okay, there's a bunch of weirdos with anonymous avatars talking about seed oils all of a sudden, so then they're like, okay, there's clearly a conversation here. People want a higher quality oil, etc., but I don't know who these people are and I can't read the science. Versus, like you independently saying ‘You know what, I think actually avocado oil and olive oil, setting aside the Twitter chatter, are better, healthier oils,’ that you've independently sort of done research on, independent of what weirdos on the internet say.
Nicolas (13:44):
Great question. It is more the latter. And it's really understanding, you know, we've made so many great decisions around our supply chain and our menu and how we source just based on what we think is right, what direction we want to shift the industry in. As I look back on the 16 years, we've made a lot of decisions on our menu and supply chain that honestly folks thought were a bit crazy when we did it. And ultimately...
Joe (14:04):
What's an example of something that people thought was crazy?
Nicolas (14:07):
You know, opening and not serving, like having a soda fountain program.
Joe (14:11):
You don't have cheddar cheese, right?
Nicolas (14:13):
We've had cheddar cheese at moments. We don't have it today.
Joe (14:16):
Yeah, what’s up with that ?
Nicolas (14:17):
Is that a request for cheddar cheese?
Joe (14:18):
No, I'm actually curious. Like, that seems like a weird decision to me, because that struck me. I've gone to Sweetgreen a handful of times. Just a normal cheese, that seems like an interesting decision to make.
Nicolas (14:29):
Yeah, I would say there are dozens of ingredients that would be incredible on our menu and we just can't, we don't have room for them all. Our menu does evolve and things come on and off. And so cheddar is definitely something that might make its way back on the menu one day.
Joe (14:42):
Red headline breaking news, when this comes out, cheddar might come back one day.
Tracy (14:47):
Wait, so speaking of things that can come on and off the menu and also weirdos on the internet, as part of my research, I was looking on Twitter and it seems like the thing people are most upset about at Sweetgreen at the moment is you stopped serving beets? And I can read you like dozens of tweets on this subject.
“No beets is killing my vibe,” “No longer serves beets in the Shroomami,” “So you're just going to completely alter the ingredients, where TF are the beets?” This goes on and on and on. But like, what happens when that kind of ingredient is no longer available? Is it a seasonal choice? Is it a supply choice? Like, clearly there is some customer demand for beets.
Nicolas (15:29):
First of all, I love that there's this much passion around beets, which is really incredible. But our menu evolves quite a bit, and this is related to a big menu launch we did about two months ago with a new category on our menu called Protein Plates. So launching these more center of plate protein plates that have grains and protein and veg and no lettuce, so not a salad. And really thinking about just a completely different occasion for customers and new customers. And this is based on a lot of customer feedback we heard about options they wish they had at Sweetgreen or just out there. In general, whenever we add things to the menu, we also remove things. Otherwise we would...
Tracy (16:06):
Is that just to like streamline and keep the locations effecient or?
Joe (16:08):
Counter space?
Nicolas (16:10):
It’s this idea of SKU rationalization and just efficiency for an operation, for your prep, for just the number of ingredients you have in your restaurant. And if we just kept adding a couple things every year, you'd wake up 10 years later having way too many ingredients, way too complex an operation–
Tracy (16:24):
And it would take customers seven minutes to order now instead of six.
Joe (16:28):
I'm surprised though about the beets because one of the stories I remember from years ago is that Sweetgreen teamed up with the rapper Kendrick Lamar for a salad called “Beets Don't Kill My Vibe.”
Nicolas (16:38):
That was the reference in that tweet.
Joe (16:40):
And the Verge headline, “I ate a salad named after a Kendrick Lamar song.” Anyway, so actually this raised an interesting question. I mean, I like Sweetgreen, I go there sometimes, I go to Chipotle sometimes. Chipotle doesn't seem to change. I mean, every once in a while it, it adds a different...
Tracy (16:58):
They'll have like a new meat or something.
Joe (16:59):
But it's really similar for the decade or however long. Why is it important to switch it up?
Nicolas (17:04):
Today we have 220 restaurants in 20 states, and we're continuing to grow into different parts of the country and really broaden who our customer is and who we can serve and which is really exciting. And so for us, aside from just the seasonality in our ethos and really wanting to celebrate incredible produce and ingredients as they come in and out of season at peak freshness, it's important for us to just keep evolving and broadening.
You know, the addition of protein plates for us was about creating a new occasion and attracting a new consumer that maybe doesn't want to eat a salad or are existing customers that maybe don't want to eat salad every day. Especially one of the things we've been hearing from our consumers, I mean, we're reading and seeing all the same things that you all are in the world around value and just the consumer wallet and what they're feeling right now.
And customers certainly want value more than ever now. And so as we think about places in the world today to get quick, clean, delicious, healthy dinner options and the convenience and a price that makes sense, it's not easy. And so for us to launch something like protein plates, it's what our customers are telling us they would love for dinner. And so to have, between 15 and 16 bucks, a plate of clean, seed oil-free cooked proteins and grains that is hearty and delicious, this really appeals to our consumers and is striking a chord where they are right now.
Tracy (18:21):
So you mentioned the number of stores that you have, and I think you are rolling out quite a bit outside of the traditional urban centers — so Midtown Manhattan, LA, those sorts of places. Do you find as you open stores outside of cities, that tastes are different there versus say a Midtown Manhattan, is that part of the reason why you've unveiled the new menu?
Nicolas (18:48):
Yes, overall I would say it's been exciting for us to really broaden where Sweetgreen is and who we can serve. And so as we do that, broadening the menu is a really exciting objective. And that doesn't just mean adding new categories like protein plates. Over the past year we've also added some really incredible flavors and ingredients on our menu. Things like a really clean barbecue sauce and a barbecue chicken plate and salad that we made with a chef in Chicago named Charlie McKenna, who is the world champion of barbecue sauce.
And we made a version of his sauce with no refined sugars and according to our ethos, and it is delicious. And so thinking about broader flavors and ingredients, more protein at the center of the plate, the protein plates we did launch have up to 50 grams of protein per plate. The focus on protein right now for consumers is really, really big. And so we heard that from our...
Joe (19:35):
Protein’s hot right now?
Nicolas (19:36):
Yes, protein is very hot right now. And ultimately, like anything at Sweetgreen, you can come and customize and create what you want. So if you want double protein or no protein, you can really create the meal you want.
Joe (19:46):
Talk to us about the intersection of plate design with the food inflation that we've seen over the last few years. I have to imagine that, you know, 2014, 2013, early in Sweetgreen's era, it probably just wasn't much of a constraint. And I imagine that it's a lot trickier now or maybe more of like an engineering or puzzle problem to solve, like, okay, food has gotten a lot more expensive. And so given these constraints and given the desire to like have an economical price point, you have to like solve for X. Talk about plate design in the era of higher commodity costs.
Nicolas (20:20):
You know, for us as we have scaled and now that we're at a certain size versus, 10 years ago, it's not just about price and design – and I can talk about that – but it's also about just creating more resilience in our supply chain. So when we do launch something like olive oil or source an ingredient, you know, we have to think about it at a much different scale and think about having secondary and tertiary sources. And so when you have 50 restaurants versus a couple hundred, just having the resiliency in the supply chain is more critical than ever.
But, for us, engineering and designing a menu and a plate and these entrees really starts with a ton of time spent with our customers. Understanding not just existing customers, but prospective customers, people that don't come to Sweetgreen or people that have heard about it and have never come, or people that have never heard about it.
So really understanding what would drive intent to purchase for them and what appeals to them. And then we take, that's kinda the science side. Then we take the art side and understand what we think is exciting in food, in our supply chain, what flavors we want to really talk about and celebrate. And we marry those two things.
And we do a lot of customer testing. So we put a lot of products in front of customers to really understand how it makes them feel and how the flavors work. And then ultimately for us, when you talk about inflation and price, we focus a lot on price value. So we spend all this time sourcing really high quality ingredients, creating this experience in the restaurants where our team members are taking those ingredients, prepping them from scratch, and creating this fresh, incredible product that then you have all these channels to interact with.
So the convenience of whether it's our app or the pickup shelves. And so it's not just about the price of your menu, it's also the price value. And so making sure that whatever the customer is paying, they feel like it's worth it and the value is there. And so that's why so much of it for us is really communicating all the work that goes into the quality of our ingredients and getting credit for that.
And the olive oil change was one of those examples where we really want to tell this story. And, for us, we were the first national chain to really use clean oils and talk about it. And so we're excited to see if that continues to spread in the industry, if other folks will do that. And there are some other great concepts out there talking about this, but at scale we haven't really seen that. So it's exciting to see and talk about those things so ultimately customers can come to Sweetgreen and say, okay, this feels worth it. The value is here for what I'm paying.
Tracy (22:34):
Nick, you keep mentioning scale, which, fair enough, you're still a young company and you're still clearly growing. But I guess I'm curious, like how important is scale to the overall strategy to achieve profitability? And I think you were profitable in a recent quarter on an adjusted EBITDA basis. So like, there is some progress there, but do you need to get to a certain size in order to have pricing power in the market for things like ingredients or maybe even labor in order to start making profits on a sort of regular basis?
Nicolas (23:12):
You know, scale is definitely important and as we have made so many incredible investments over the last few years in our technology, our supply chain, continuing to leverage our GA and our home office to really create that path to profitability. We have had two quarters of adjusted EBITDA profitability, so we are excited about the progress and well on our way.
But when you talk about scale, you know, 220 something restaurants sounds big and it certainly would've sounded big to me a few years ago, but it's still very small relative to the opportunity we have in fast food and in our category. And you look at so many of these larger competitors and there are thousands, if not tens of thousands of restaurants.
And so 16 years in, 220 restaurants, we still think we are very early in our journey. And so we're excited to build sustained and profitable growth. And in this time more than ever, being really disciplined about the growth. You know, we opened in five new states in the past 12 to 18 months and bringing Sweetgreen to communities and states where we probably, rewind 10 years ago, maybe didn't think we'd get to.
Joe (24:10):
Where’s that?
Nicolas (24:11):
We've had really exciting growth in the Midwest. So opening in Indiana, in Michigan, all over the Chicago area. And it's been really exciting to see — and Minneapolis, really excited to see our growth there and how the brand was received. And we've got some really exciting growth there also.
Tracy (24:27):
How seasonal are sales in places like the Midwest? I'm just curious when it's really cold, I personally do not crave a salad, although I admire your objectives to make craveable options for presumably year round. But do you see a big dip in places like Minneapolis in the winter?
Joe (24:46):
Unlike say LA where I imagine that's all people want to eat 365 days a year.
Nicolas (24:51):
We've had one full winter in the broader Midwest, but we do see seasonality, right? And I think a lot of restaurants do, but I think with our product, especially the salad category, we do see more seasonality that affects it. Actually the larger category on our menu is more the warm bowl. So things that have heartier grains and more proteins in them.
And then honestly, that was part of the intention of the protein plates, was also to think about if you are a Sweetgreen eater and you've eaten, you know, a lot of salad, once a week or twice a week in the summer and fall, when winter hits and it's just one of those days where you want something a little heartier or you want something for dinner and it just isn't a salad.
Even the greatest of salad eaters don't want to eat that every single day. And so really starting to create that range and breath on our menu for existing and new consumers that just hits a different need state. It's satiating in a different way. And so it's been really exciting to see even early on just the effect on dinner. And then now as we enter the winter to really see how protein plates will perform. We just launched it six weeks ago, but the signs have been really exciting so far.
Joe (26:05):
Let's talk about the Midwest a little bit more specifically. You recently opened up a robotic concept in Naperville, Illinois in which robots make the salad. And I have to imagine that there's a lot of interest in a lot of people these days for service automation given tightness of the labor markets, etc. What is the hardest part about automating the process of making a salad?
Nicolas (26:27):
So we did open our first automated Sweetgreen in Naperville, Illinois about six months ago. We acquired an incredibly talented group of individuals with a company called Spyce two years ago and have since started building the Sweetgreen version of that machine called The Infinite Kitchen.
And so we launched it six months ago and really so much about designing this format in that restaurant was – you know, the technology was really important in the actual automation and the robotics – but it was more about the full experience that wraps it, and thinking about today the experience our customers are going from where they walk into a restaurant, you know, they're pointing at their ingredients on a line, interacting with a team member, but also thinking about the friction that exists in this existing format of, I'm sure you've been into a Sweetgreen at peak lunch and it can be intense.
There's a line out the door, people are trying to move fast, people want to order, things are flying, things are going fast. And, you know, our team members who do an incredible job have to be fast, friendly and accurate at the same time, which is really hard.
And so for us, understanding what we love about our current format and experience and what friction we want to create, so much of the work was more around the experience we wanted to build around the automation and thinking about the different roles and how the team members play a role that is actually more around hospitality and less around assembly. So the infinite kitchen assembles the meal. But our team members now get to really spend their time interacting with customers, more focused on hospitality, maybe talking to them about our supply chain.
Joe (27:51):
I just want to drive home this question though of like the salad construction challenge, because especially I have to imagine, you know, the hospitality component for say like restaurants that are doing a lot of money on delivery or something, it's not as important. What is the challenge? I was at San Francisco one time and I went to a robotic coffee shop. It was truly a terrible experience, like, I don't, I can't imagine how they screwed it up so badly and I don't think it's there anymore.
But what is the actual constraint? Because I watched the video of how the Naperville thing works, looks pretty straightforward, et cetera. So from a sort of workflow operation standpoint, a lot economists, businesses, must be really interested in how much service sector work can be automated. What makes it hard?
Nicolas (28:34):
Well, to your point, I do believe that fast forward in the next decade or beyond, automation will play a role in food, and in restaurants. I think it will have to, and I think it shifts the team member experience. It shifts the experience for the customer. And what makes it hard is just the technology. Off the shelf solutions don't exist today. And every restaurant has different menus of different ingredients that need to be handled differently. I think you're starting to see there are many automated solutions in coffee, there's some in pizza, you're starting to see some more spot automation where they can do one task, or one discrete task. The infinite kitchen for us that was built at Sweetgreen, it assembles the majority of the meal.
And then there's a finishing station where our team member gets to finish the bowl or plate with the fresh herbs or the piece of protein or a sauce, and then it's handed to the customer by the team member. So the idea was that the transaction, even though your bowl is mostly assembled by this automated machine, starts and ends with human hands and there is this opportunity for more hospitality in a calmer environment. And there's all these other benefits that really start to create a ton of value for the customer around perfect accuracy in the machine. Perfect portioning, perfect temperature control, speed. So this is coming. We're actually opening our second one in a few days in California.
Tracy (29:46):
What about simpler automation? I think when we hear about salad-making robots, everyone has a vision of a robot chopping up lettuce or something like that. But you could have automation on things like salad dressing, so you can pre-mix the salad dressings and maybe that saves costs. So something a little bit less high-tech, I guess.
Nicolas (30:06):
I think there will be a number of solutions from small discrete tasks that are automated to larger, full concepts, automated over the next couple years. And like I said, you're seeing that today, which is exciting. Over the past decade there was a ton of funding that went into so many of these startups and I think the environment's a little tougher today, obviously in that world.
That's what we were really excited to partner with and acquire the Spyce team because they're brilliant and the technology they had built was really wonderful. And so marrying that with our brand and our food has really been an incredible combination. But today the Infinite Kitchen does do assembly, dressing, dispensing and mixing. So it does the majority of the process. And then a few things are finished at the end by hand, but it's been really incredible to watch that experience and how consumers are interacting with it.
Joe (30:49):
I want to talk a little bit more about the labor market, and I think I read in your last earnings call, much of the economy things are getting a little bit easier, it looks like on the hiring side, on the wage side, etc. But what I'm curious about in particular is during the sort of peak of the labor market tightness, maybe 21, early 2022, when so many companies were expressing frustration about hiring, how do you sort of keep up a minimum quality expectation?
You talked about hospitality and people have a certain expectation of what it's going to be like when they go into a Sweetgreen, and in a time of high churn, difficulty hiring, etc., talk to us about the process of maintaining that. When I imagine an employee who's been there three years is much better than the person who's been on the job three days. How do you maintain that quality at a time of a lot of very green fresh employees?
Nicolas (31:43):
Great question. I think the last couple years were really challenging in so many ways. I think obviously at the peak of Covid, so much of the operation and the experience for a team member, not only the customer but for the team member, was totally flipped around. Wearing masks while you're working, having these plexi screens, having all this different like safety protocol, which was all there for a reason.
And like we had to move fast on so much of that stuff. But it did alter and shift the team member experience pretty radically. And I forget the exact number, but our industry did lose millions of workers during that time. And so it was really challenging. What's really been exciting about this year is, as we have seen labor markets ease, we have seen our turnover come down, which has been really exciting.
And to your point, having team members that are here and passionate about the mission and being developed and growing in the organization is just a wonderful thing for both sides. But whenever the labor markets are hard or even now, the focus for us is really on just like we listen to our customers, spending as much time listening to our team members, and understanding how we can better the team member experience. And that's everything from uniforms, to wages, to training modules, to physical experience, in the restaurants. And so we spend a lot of time really understanding how we can consistently improve the team member experience and just continue to invest in them.
Tracy (32:57):
The other thing that seems to get people worked up on the internet, aside from seed oils and beets, is tipping.
Joe (33:04):
Tipping on an iPad.
Tracy (33:05):
Yes. On a screen. And I think this is something you recently started incorporating into the business model. So I have so many questions on this issue and we've been meaning to do an episode exclusively on tipping for a while, but we haven't quite gotten around to it.
But first of all, why did you decide to do that? Second of all, what's been the customer response? And I guess third of all, the question that everyone asks on this issue is always why are the customers subsidizing the labor costs of a company?
Nicolas (33:36):
Great question. And when I talk about spending a lot of time understanding and talking to the team members and just understanding the landscape out there, tipping was the number one thing we really heard from our team members that they value and quite often have at other places. And so the backend of how you actually bring that to life can be pretty complex. It's different state by state, different channel by channel with whether it's on the app or in person, so integrating all the different technology behind the scenes to bring that to life is pretty complex. So, I mean, shout out to our tech team and our CTO, but it was a pretty big project...
Joe (34:09):
Sorry, what was the change?
Nicolas (34:10):
Tipping. Adding tipping.
Tracy (34:12):
So they didn't have it before, like where you could optionally tip and now you can. Joe, does this mean you're not tipping your Sweetgreen salad makers? You haven't noticed?
Joe (34:22):
Can I say? Don't listen Nick. So I haven't been going to Sweetgreen lately, it's just, anyway, keep going. That's the only reason I hadn't noticed.
Nicolas (34:30):
We’ll have to get you back to try the plates.
Joe (34:32):
I'll come back for the plates. Anyway. Sorry. Keep going.
Nicolas (34:33):
And so this is something we constantly heard from our team members when we do round tables and when we just spend time with them understanding how we can improve the team member value prop and experience. And so we spent a year building this and like I said the backend of how this comes to life is pretty complex.
Tracy (34:50):
I had no idea it was that complicated, because I always assumed it was something provided by like the payment vendor and you could just like plug and play.
Nicolas (34:59):
You know it depends what your existing tech infrastructure is, who your payment provider is, who the POS is, what your app is built on, state [law], we're in 20 states, so the state by state regulation makes it also more complex. But it's a pretty hairy thing to build. But our team built it, they did it brilliantly.
We spent a lot of time talking to team members and customers to understand even the details of the experience of what are the prompts, how these would make you feel, and did a test. And it's been really incredible to see the results so far. I mean, our team members are really pleased. It's adding, you know, a great amount to their wage. And the most exciting thing is we do believe there is inherently like a service flywheel here. So team members know that the hospitality's incentivized, so it makes them care about that customer experience even more.
Tracy (35:44):
But I guess the thing I don't get about optional tipping for something like a bowl or a salad chain is like, first of all, you talked about the importance of hospitality training anyway. So presumably everyone should be really friendly. But then I'm also tipping for stuff before I've even eaten it. And it's hard for me to judge the quality of the salad bowl construction before I've actually tasted it. So I guess probably like a lot of people, I feel guilty enough that I will do the optional tipping, but I also feel a little bit annoyed about it because I'm not sure what I'm tipping for.
Nicolas (36:20):
You know, it’s a great point. I think for us, the experience was built in a way where consumers can self-select into tipping or no tipping and we didn't want to add that pressure. And so one of the prompts is no tip and I think you go to some places today and it's like 30% 35% 25%.
Joe (36:34):
Oh yeah.
Tracy (36:35):
The minimum is now like 40%.
Joe (36:37):
Yes. Or I saw one where it was like 25%, 20%, 30%, and so they switched up the order or something like that. So the button where you intuitively would do, anyway.
Nicolas (36:46):
So for us, there's a lot of intentionality in all the details there. And funny enough, we were also getting a lot of requests from customers that wanted to tip that were going into their Sweetgreen every day that had their favorite team member. They were just regulars and they said ‘I want to tip. I want to connect with my team members and reward them for the incredible service and they make my day.’ And so for us, this was just something we were really excited to launch both for team members and customers. And we think the experience we built around it is really thoughtful and intentional to let customers self-select into whatever journey they want there.
Joe (37:17):
You know, as Tracy mentioned, this is one of those things that on the internet people are really annoyed by. I'm not surprised that the employees would like it because it seems like almost total, pretty straightforward, goes right to the wage line. Have you seen any pushback? Did the whining online translate into any less activity?
Nicolas (37:36):
It's still pretty early for us. So we are still learning and watching. So far it's been really positive. Like anything we roll out, whether it's menu or features like tipping, we're learning and evolving as we need to, but so far it's been really positive.
Tracy (37:49):
I recently learned there's an actual terminology for the idea of companies becoming more sophisticated with their pricing options. It's called Price Pack architecture.
Joe (38:00):
Oh, I never heard that.
Tracy (38:00):
I hadn't heard it either. But I do feel like this is becoming more of a thing for companies where the goal is to offer a suite of price options. So you have a cheaper thing for people who want that, but you also have the premium products. You also now have the option to add 20% onto the cost in return for service. Is that something that you're mindful of as a growth company?
Nicolas (38:28):
It is. And as we really expand to all these different places around the country and, and really get excited about welcoming new customers into Sweetgreen and into the funnel, the pricing strategy is really built on just having that range of prices. So entry points for different people. You know, we have a bowl on our menu that starts under 10 bucks in every market. So if you want to self-select into that, you can.
If you want to do triple protein and add everything into your bowl or plate, you can get a very expensive plate that fits your needs and fits what you're looking for. But at the end of the day, it also does come back to the idea of price value that I talked about. So often customers, what we hear and what we know is that regardless of the price they're paying, it's more about was it worth that price?
But the range, making sure that consumers can self-select into whatever price they want and, you know, it also connects to their frequency. We have customers that are coming to Sweetgreen quite often. We have a loyalty program that has a subscription piece as well for those highly frequent guests that creates some value there as well.
Joe (39:23):
Tracy, now that you're getting into deadlifting, you got to get the protein plate with the triple protein.
Tracy (39:28):
I'm not getting into deadlifting at all. Right now my capacity to deadlift is absolutely zero. So for people who don’t know, I have a tendonitis type thing that is flaring up again and I can barely like lift my phone, let alone weights. But I appreciate all the guys online who are telling me to use straps. When like, just to be clear, I am not going to be deadlifting at all in the foreseeable future.
Joe (39:55):
Okay. Well, I guess you don't need the triple protein. Let's talk about, I introduced this conversation by saying what's great about a bowl of anything is I can eat it at my desk in my office and sort of just stare at the screen and consume calories.
What have you seen in terms of work from home offices? I'm sure you did not anticipate the degree of working from home and the changing of urban centers and delivery, all these different things when you started it. And obviously the work environment in 2023 is very different than 2019. What has that meant for Sweetgreen in the business model?
Nicolas (40:30):
You know, over the last couple years we have seen our consumer shift around a lot, just like everyone in the industry. What was fortunate for us was, even pre-Covid, we had started shifting a lot of our pipeline and our growth into suburban centers. And for the past few years, the majority of our growth and openings have been in more suburban residential areas.
So our footprint has become more balanced. And over the last couple years there's been certain assumptions that everyone has made around return to work and what it's going to look like. And I think the world is kind of, we've all been wrong. So I think we've just accepted that where it is today is where it stays and we're building our business around that. And what's really exciting is seeing, as we broaden our menu and we have all these channels, things like delivery and pickup, just seeing people fall into their new rhythms and behaviors wherever they're working or living. And so it's been really exciting to see the strength of our suburban restaurants and seeing people really incorporate that into their routine versus before it might've just been the place they get lunch in their office.
Tracy (41:27):
So we started this conversation talking about hatred for seed oils and you mentioned that proteins are becoming a thing as well. They're hot. They're very hot right now. What's the next thing on the horizon? Like the next food-related matter that we can all obsess over?
Nicolas (41:43):
For us, I do think oils and the fat quality I think will be a huge conversation that will grow and that's why we decided to make the investment. I think if you look at even the data of the caloric consumption and how much of the average person's daily calorie intake is coming from these highly processed oils, it has increased so much in the past couple of decades and it's in everything. So I think that visibility and transparency for consumers is going to be a huge topic of conversation. And, obviously, when you connect that to just the metabolic state of things in this country and chronic disease, I think there's a much bigger conversation.
Tracy (42:13)
Oh!
Joe (42:16):
I think Tracy and I had the same thought when you said metabolic, but how are you thinking about anticipating a world in which more and more of your customers may be on Ozempic or a GLP-1? And I have to imagine, you're probably a higher-end consumer, typically people who can perhaps afford it more easily at the current price points. Have you seen anything now or more importantly, perhaps, are you thinking of anything strategically in terms of a world in which many more people are on these drugs?
Nicolas (42:43):
Just like anything that grows really quickly, we're watching it and learning and trying to understand. I think what's really exciting about the type of food we serve is whether you're on something like Ozempic or you're just trying to create a different lifestyle or you want food that makes you feel good, Sweetgreen kind of fits all those use cases.
I think folks that are on a product like Ozempic are probably cutting out more of the higher caloric less clean food options. And so we're watching it, we're learning, we're trying to understand how our consumer is shifting, but ultimately I think what's really exciting is as our menu gets broader, I think it creates more reasons for customers to come to Sweetgreen. Not just for health or for caloric or metabolic reasons, but that ends up being like a plus on the back and they're eating something that is craveable and satiating, but that also is good for you.
Tracy (43:29):
I feel like we have to get Sweetgreen for lunch now. It's mandatory.
Joe (43:34):
Yes. I'm sorry I haven't been to one in a few years. I'll start going back.
Nicolas (43:37):
Where are you going to lunch?
Joe (43:39):
There's a knockoff Cava a couple blocks away.
Nicolas (43:42):
What's the knockoff Cava?
Joe (43:43)
I forget what it's called. It's like the same thing just a little worse. And I go to the Dig. Mainly because it's like literally 60 [seconds away].
Nicolas (43:51):
So you love seed oils, huh?
Joe (43:52):
I want to check it out. I'll go to Sweetgreen.
Nicolas (43:58):
I say that as a broader comment of the rest of the industry.
Joe (44:02):
A subtweet of the industry. No, that was a lot of fun. Thank you so much.
Nicolas (44:05):
Of course.
Joe (44:18):
Tracy, that was fun. We should definitely go to Sweetgreen. To test it out. I'm going to get one of those triple protein bowls.
Tracy (44:24):
I know I was just thinking...
Joe (44:24):
Going to max it out.
Tracy (44:25):
I have a real craving for protein now.
Joe (44:28):
I have a major protein craving right now and I'm going to put the the max tip option.
Tracy (44:32):
Yeah, that was a really interesting conversation and we kind of hit a lot of the big ones talking points in consumer goods. Well, is it a good? In food? Like the idea of labor costs. The addition of tipping, and how maybe that helps a little bit on the labor market tightness. Although as Nick said, the worst of that seems to be over. The sophistication in pricing, I feel like that's a real trend and it is true, I don't know how many of the apps you've signed up for, but it is true that you can get a lot lower prices through the loyalty programs for a lot of chains right now.
Joe (45:11):
I'm just so lazy. You gotta put in your email address...
Tracy (45:14):
You should do it.
Joe (45:14):
Download an app...
Tracy (45:16):
It's worth it, Joe.
Joe (45:17):
All right. Maybe I will. No, but that was a really fun conversation. It is pretty striking to switch to olive oils given that chart. That's a wild chart.
Tracy (45:27):
Yeah, it will be interesting to see whether or not it normalizes and how quickly.
Joe (45:32):
Also I want to do more, Tracy, on the robotization of services, especially if delivery, UberEats, Seamless, all of these different [platforms], GrubHub, whatever it's called, you don't care about the hospitality experience in those conditions. Intuitively, you would think that there's a lot of opportunity and demand from the business side to find ways to automate the creation of people's lunches. But it really just has not taken off so far at all. And like I said, I went into a coffee shop, coffee I would think should be really like the easy one and it was a terrible experience. So I wanted to have a better understanding of what really is the constraint? Is it scale? Is it the fact that there's nothing off the shelf? What is it?
Tracy (46:13):
Just to be clear, it hasn't taken off in the US. I mean I remember like 20 years ago in Tokyo you had robotic servers. Like you would actually order through – it wasn't an app back then, but it was like a little machine at the table and then someone would bring it out to you. And that was like a fairly normal thing at izakayas, but it's taken a lot longer here.
Joe (46:36):
But the assembly side still...
Tracy (46:37):
The assembly side seems difficult, but again, there's gradations of assembly. So you can have a giant mixer that's mixing salad dressing and that seems fairly easy to do, versus like an actual, you know, Jetson-style robot that's like washing and cutting up lettuce.
Joe (46:54):
We got to do more robotics. I feel like this is a sort of fact about the economy, which is that manufactured goods tend to see productivity gains over time and services tend to have stagnant productivity, at least as far as the best we can measure them. But if we had this sort of ChatGPT of robots, an actual good robot, which I don't think many exist so far, but if we had one, maybe we would actually see some productivity gain.
Tracy (47:20):
Well, it is true, there does seem to have been this huge gap between the amount of money going into robotics versus the amount of money going into AI, right? So we have all this artificial intelligence, but we don't actually have the physical machinery to put some of it to use.
Joe (47:35):
Johnny Five. That’s what we need.
Tracy (47:36):
Yeah. Alright. Shall we leave it there?
Joe (47:38):
Let's leave it there.
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