How Salad Chain Sweetgreen Figures Out Its Next Product to Sell

24:43So 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.

25:16And 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. Nick, you keep mentioning scale, which, you know, 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.

25:51But 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? You know, scale is definitely important. And, you know, as we have made so many incredible investments over the last few years in our technology, our supply chain, continuing to leverage our G &A and our home office to really create that path to profitability. We have had two quarters of just a bit of profitability. So we are excited about the progress and well on our way. And, you know, but when you talk about scale, you know, 220 something restaurants sounds big and it certainly would have sounded big to me a few years ago, but it is still very small relative to the opportunity we have in fast food and in our category.

26:39And 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 really, in this time more than ever, being really disciplined about the growth. We opened in five new states in the past 12 to 18 months and bringing Sweetgreen to communities in states where we probably, rewind 10 years ago, maybe didn't think we'd get to. What's in it? Where? Where's that? You know, we've had really exciting growth in the Midwest.

27:09So opening in Indiana, in Michigan, in 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. 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 like a big dip in places like Minneapolis in the winter? Unlike say LA, where I imagine that's all people want to eat 365 days a year.

27:46You know, 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. We have, you know, 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 sweet green eater and you've eaten, you know, a lot of salad, you know, once a week or twice a week in the summer and fall when winter hits.

28:15And 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 breadth 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.

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30:03With Volley from iShares, you get access to both monthly income and growth potential in one simple ETF. It's the best of both worlds. Discover Bali. iShares large cap premium income active ETF. iShares. The market is yours. Visit www.iShares.com to view perspectives for investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. Risks include principal loss and the use of derivatives, which could increase risks and volatility. Monthly income is not guaranteed. Prepare by BlackRock Investments, LLC. Let's talk about the Midwest a little bit more.

30:31specifically, 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, et cetera. What is the hardest part about automating the process of making a salad? So we did open our first automated sweet green in Naperville, Illinois, about six months ago. We acquired an incredibly talented group of individuals with a company called Spice two years ago and have since started building the sweet green version of that machine called the Infinite Kitchen.

31:08And so we launched it six months ago. And really so much about designing this format and 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, and 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 sweet green at peak lunch and it can be intense, right?

31:35There's a line out the door. People are trying to move fast. People want to order. Things are flying. Things are going fast. And 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.

32:05So 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. I just want to drive home this question, though, like the salad construction challenge, because especially I have to imagine, you know, the hospitality component for say like restaurants that are making, doing a lot of money on delivery. So it's not as important. What is the challenge? I was in San Francisco one time and I went to a robotic coffee shop. It was truly a terrible experience. Like, I don't, they just, I can't imagine how they screwed it up so badly.

32:40And 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 like workflow operation standpoint, a lot of economists, businesses must be really interested in how much service sector work can be automated. What makes it hard? 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.

33:10And what makes it hard is just the technology. There's no off the shelf solutions don't exist today. And every restaurant has different menus with different ingredients that need to be handled differently. I think you're starting to see, you know, there are many automated solutions in coffee. There's some in pizza. You know, you're starting to see some more spot automation where they can do one task, you know, or one discrete task. The infinite kitchen for us that was built at Sweetgreen, it, you know, 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, you know, the fresh herbs or the piece of protein or a sauce.

33:42And 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. This is coming. We're actually opening our second one in a few days in California. Yeah. What about simpler automation?

34:12And I think when we hear salad making robots, you know, everyone has a vision of a robot chopping up lettuce or something like that. But you could have automation on things like salad dressings. So you can pre-mix the salad dressings and maybe that saves costs. So something a little bit less high tech, I guess. Yeah. I think there will be a number of solutions from small discrete tasks that are automated to larger, you know, full concepts automated over the next couple of years. And, you know, 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.

34:48That's why we were really excited to partner with and acquire the Spice team, because they're brilliant, and the technology they'd 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. I want to talk a little bit more about the labor market. And I think I read in your last earnings call, much like much of the economy, things are getting a little bit easier, it looks like on the hiring side, on the wage side, etc.

35:26But 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 that hospitality and people have a certain expectation of what it's going to be like when they go into a sweet green. And at a time of high churn, difficulty hiring, et cetera, 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.

36:02How do you maintain that quality at a time of a lot of, I guess, very green, fresh employees? Great question. You know, I think the last couple of years was really challenging in so many ways. I think, you know, 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, right? 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 we had to move fast on so much of that stuff. But it did alter and shift the team member experience pretty radically.

36:34And 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.

37:05And that's everything from uniforms to wage 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. So the other thing that seems to get people worked up on the internet, aside from seed oils and beets, is tipping. Oh, yeah. Tipping on an iPad. 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.

37:45But first of all, why did you decide to do that? Second of all, what's been the customer response? And I guess like third of all, the question that everyone asks on this issue is always, why are the customers subsidizing the labor costs of a company? 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 that, you know, quite often have at other places. And so, you know, the back end of how you actually bring that to life can be pretty complex.

38:18It's different state by state, different channel by channel, 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. What was the change? Tipping, adding tipping. They didn't have it before where you could optionally tip. So adding tipping for our team members. Got it. Keep going. Joe, does this mean you're not tipping your sweet green salad makers you haven't noticed? to be can I say don't listen so I haven't been going to Sweet Green lately it's just anyway keep going that's the only reason I hadn't noticed we'll have to get you back to try the plates I will I'll come back for the plates anyway sorry keep going and so you know this is something we constantly heard from our team members when we do they wanted tips round tables and we just you know 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 back end of how this comes to life is pretty complex I had no idea it was that complicated?

39:16Because I always assumed it was something provided by the payment vendor, and you could just plug and play. It depends what your existing tech infrastructure is of who your payment provider is, who the POS is, what your app is built on. 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.

39:51I mean, our team members are really pleased. It's adding a great amount to their wage. And the most exciting thing is we do believe there is inherently a service flywheel here, right? So team members know that the hospitality is incentivized. And so it makes them care about that customer experience even more. 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 know, you talked about the importance of hospitality training anyway. So presumably, like everyone should be really friendly. But then I'm also tipping for stuff before I've even eaten it.

40:26And it's hard for me to judge like 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. 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. The minimum is now like 40%.

41:01Or I saw one where it was like 25, 20, 30. And so they like switched up the order or something like that. So the button where you intuitively would do the, anyway, yeah. And 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 sweet green every day that had their favorite team member, that had, you know, they were just regulars and they said, I want to tip. I want to like, I want to connect with my team members and reward them for the incredible service and they make my day.

41:29And so for us, this was just something we, you know, 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 customer self-select into whatever journey they want there. 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, you know, pretty straightforward. It goes right to the wage line. Have you seen any pushback? Did the whining online translate into any less activity?

42:00You know, 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. 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. I never heard that. Yeah, 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.

42:35So 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 % on to the cost in return for service. Is that something that you're mindful of as a growth company? It is. And as we really expand to all these different places around the country and really get excited about welcoming new customers into Sweetgreen, into the funnel, the pricing strategy is really built on just having that range of prices. So entry points for different people. We have a bowl on our menu that starts under$10 in every market. So if you want to self-select into that, you can.

43:12If 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 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.

43:45That creates some value there as well. Tracy, now that you're getting into deadlifting, you've got to get the protein plate with the triple protein. 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 like 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. Okay. Well, I guess you don't need the triple protein.

44:22And let's talk about, I introed this conversation by saying, what's great about a bowl of anything is I can eat it at my desk in my office while 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? You know, over the last couple of years, we have seen our consumer shift around a lot, just like everyone in the industry.

44:59Yeah. 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 of years, there's been certain assumptions that, you know, 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.

45:29And what's really exciting is seeing, I think, 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 are 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 have just been the place they get lunch in their office. So we started this conversation talking about hatred for seed oils. And you mentioned that proteins are becoming a thing as well. Yeah, they're very hot right now.

46:01What's the next thing on the horizon, like the next food-related matter that we can all obsess over? You know, 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.

46:31And obviously, when you connect to like just the metabolic state of things in this country and chronic disease. I think there's a much bigger conversation. I think Joe 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 GLP-1? And I have to imagine, unlike some other, you know, 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?

47:07You know, just like anything that grows really quickly, we're watching it and learning and trying to understand. I think what's really exciting for the type of food we serve is whether you're on something like Ozempic or you're, you know, just trying to create a different lifestyle or just 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, you know, clean food options. And so we're watching it. we're learning. We're trying to understand how our consumer is shifting.

47:36But 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 that is satiating, but that also is good for you. I feel like we have to get Sweetgreen for lunch now. It's like mandatory. Definitely. Yes. I'm sorry I haven't been to one in a few years. I'll start So where are you going to lunch? There's a knockoff cava a couple blocks away. What's the knockoff cava?

48:07I forget what it's called. It's just, it's like the same thing, just a little worse. And I go to the dig, the dig, it is so, mainly because it's like literally 60. So you love seed oils, huh?

48:20Yeah, I wanna, I'll check out, I'll go to this. I say that as a broader comment of the rest of the industry. A little subtweet of the industry. No, that was a lot of fun. Thank you so much. Yeah, of course.

48:42Tracy, that was fun. We should go to a sweet green soon. Test it out. I'm going to get one of those triple protein bowls. I know. I'm going to max it out. I have a real craving for protein now. Yeah. I have a major protein craving right now, and I'm going to put the max tip option. Yeah. Yeah. Now, that was a really interesting conversation. And we kind of hit a lot of the big talking points in consumer goods. Well, is it a good in food right now? Consumer services. Yeah. 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, like the worst of that seems to be over.

49:19The 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 like the loyalty programs for a lot of chains right now. I'm just so lazy. You're not going to put in your email address. You should do it. Download an app. It's worth it, Joe. All right. Maybe I will. No, but that was a really fun conversation. You know, it is pretty striking to switch to olive oils given that chart. Yeah. That's a wild chart. Yeah. Yeah, it will be interesting to see whether or not it normalizes and how quickly.

49:56Also, I want to do more, Tracy, on the roboticization of services, especially if delivery, Uber Eats, Seamless, all of these different Grubhub, whatever it's called. You know, 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 like 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 like what really is the constraint?

50:34Is it scale? Is it the fact that there's nothing off the shelf? What is it? Just to be clear, it hasn't taken off in the U.S. 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 Izakaya's, but it's taken a lot longer. But the assembly side still. Yeah, the assembly side seems difficult. But again, like there's gradations of assembly. So you can have like 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 the lettuce.

51:18We gotta do more robotics. I feel like service, 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 like this sort of chat GPT 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. It is true. There does seem to have been this like huge gap between the amount of money going into robotics versus the amount of money going into AI.

51:52Yeah. So we have all this artificial intelligence, but we don't actually have the like physical machinery to put some of it to use. Johnny Five. Yeah. All right. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow Nicholas Jemay. He's at Nicholas Jemay where he is monitoring your tweets about seed oils. Follow our producers, Carmen Rodriguez at CarmenArmin, DashBennett at DashBot, and KaleBrooks at KaleBrooks. And thank you to our producer, Moses Andam.

52:28For more OddLots content, go to Bloomberg.com slash OddLots where we have a blog, transcript, and a newsletter. And check out our Discord, Discord.gg slash OddLots. And if you enjoy AllBots, if you want us to do more episodes on either seed oils or robots, then please leave us a positive review on your favorite podcast platform. Thanks for listening.

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