🎧🍌 The Peel Episode 1: Building McDonald's for the Next Generation | Jonathan Neman, Co-founder and CEO of Sweetgreen
Sweetgreen's origin story, the $2 trillion of hidden external costs in the US food system, building an enduring brand, and never giving up
This is a special week of The Split with three episodes of my new podcast The Peel releasing this Tuesday, Wednesday, and Thursday (beginning next week, we’ll release one per week). This is also the first post with extra benefits for Premium subscribers, human edited and enriched podcast transcripts (these will get better!).
The Peel will explore the world’s greatest startup stories, where we’ll:
Get a behind the scenes look into each company’s origin story
Explore how the industries they operate in actually work, and
Learn playbooks and tactics you can use to launch and scale your own business
I’m still figuring out how this podcasting thing works, please let me know if you have any feedback on this first episode or suggestions for future guests!
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And now, on to The Peel Episode #1 with Jonathan Neman, Co-founder and CEO of Sweetgreen.
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Building McDonald's for the Next Generation | Jonathan Neman, Co-founder and CEO of Sweetgreen
Jonathan Neman is Co-Founder & CEO of Sweetgreen, an American fast casual restaurant chain that serves salads. Jonathan and his co-founders started the company in 2007, opening their first restaurant just three months out of college. Sweetgreen opened its second and third locations in the middle of the 2008 Global Financial Crisis, and went public in 2021 in the middle of the COVID-19 pandemic. Sweetgreen’s focus on locally sourced quality ingredients has built it into a national brand with more than 200 restaurants across the US.
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In this episode, we discuss:
How the restaurant industry actually works
The $2 trillion indirect healthcare and environmental costs of the US food system
Sweetgreen’s origin story
How the 2nd location almost failed
Launching a music festival headlined by Kendrick Lamar, The Weeknd, and The Strokes
Killing a major product line to double down on online ordering in 2015
How to build an enduring brand
Sweetgreen’s new salad subscription and gamified loyalty program
The surprising benefits of Sweetgreen’s new automated Infinite Kitchen
Why the best entrepreneurs never give up
Thank you to Zac and Xavier at Supermix for the help with production and distribution!
Find transcripts of all prior episodes here.
Turner: Jonathan, how's it going? Thanks for joining me today!
Jonathan: Thank you so much for having me. It's great to be here!
Turner: I wanted to jump right in. Could you talk a little bit about the state of the restaurant industry, big current topics and trends, and how it all works?
Jonathan: I can talk a little bit about what we saw when we started and then maybe what's changed 15 years later. So going back to 2007 when we started the company, we wanted a healthy option that was delicious, affordable, and convenient in our own community. We were students at Georgetown and we couldn't find a place to eat and we just looked around, we're like, “This is crazy. How come there is nowhere to eat that is healthy but also delicious?” And you looked around at all the brands and things like McDonald's or Coca-Cola or Subway - the best option for healthy food was considered Subway, which is full of processed foods. They promote this idea of freshness, but it’s really not that healthy, similar to McDonald's and all the other food out there.
The system is really focused on most efficiently moving calories, largely processed, and getting them to people in the most efficient way as possible. And in the effort to standardize things and drive margins, as well as the fact that most restaurants are franchised in this country, it means that you really have to build a system that dumbs down the operation at the edges, which means most of the food is actually prepared further upstream, somewhere in a commissary, really in a factory. And then it's kinda reheated for you.
Turner: Which is terrible.
Jonathan: It's crazy when you think about how it's being done. In 2007, Chipotle had recently gone public, so you saw a different kind of model being developed around fast casual, and they had a fresher model of food and still maybe not that healthy, but definitely fresher. And we saw an opportunity to create, what we thought could be, one day, a global iconic brand that stood for food that was healthy and delicious and really supported the communities that we were in.
So that was the idea from the beginning: how do we create the McDonald's of our generation? The industry - first of all, it's a huge industry. I think the number I recently saw was 200,000 fast food restaurants in the United States. So that's one for every 200 people.
Turner: When you say fast food, how is that defined?
Jonathan: So call it the McDonald's. We probably would not be in that category – we’re in this hybrid category of fast casual or fine casual. A lot of people define it differently – still fast, but with a higher quality of food.
By the way, I don't mind calling us fast food and going head-to-head with them because I think you’re speaking about the experience, not about the quality of food.
You have about 200,000 fast food restaurants in the US. Most of them are franchised. So if you think about the big restaurant operators in in the country, all of them are franchises or some hybrid version of the franchise model. McDonald's is pretty much fully franchised. Yum!, they own Taco Bell. Restaurant Brands owns Burger King, Popeyes, Tim Hortons. All these companies are franchise. You have a few operators that are not franchised - Chipotle being one. You have Chick-fil-A, which is a bit of a hybrid model. In-N-Out is another that is not franchised. Starbucks is largely not franchised.
 Yum! Brands is a restaurant company that owns quick-service chains Taco Bell, Pizza Hut and KFC. They spun out from PepsiCo’s fast food division.
But for the most part, think about restaurant companies not as actually running the restaurants. They are the brand, the marketing engine, behind these restaurants, but really are making something like a 5% franchise fee off these other operators. Sometimes they’re more mom and pop; sometimes they’re larger franchise groups that are running hundreds or thousands of restaurants.
COVID changed our industry significantly. One - obviously digital has shifted significantly. Restaurants were kind of late to the game as it relates to digital. I think that's one of the things that Sweetgreen did differently. We were early to digital and our digital penetration was over 50% before the pandemic. Obviously, like anything else in e-commerce, the pandemic brought that forward for a lot of people. All the big chains now are seeing digital penetration somewhere around 30 to 40% of total sales.
Another big shift that we're seeing is around labor. The restaurant industry employs a lot of people. A lot of people left the workforce during the pandemic and it's a job you cannot do remotely. Today, there are over 2 million open jobs in the restaurant industry. So whatever you think is going on with our economy, the restaurant industry is still hiring. We did see that the industry's seen over 20% inflation from wages so the average wage for restaurant employees has gone up significantly.
Turner: Do you know why there's that huge gap? Because I feel like the narrative I hear is “Gen Z doesn't want to work.” Is that true or what's driving it?
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