America's Hottest Salad Chain: What's the Business Story Behind Nearly $100 Million in Funding?

Sweetgreen, the rising star of healthy eating in America, has built its business on what consumers now want from their food and their lives.

"James! How have you been?" Kindra Syphertt, a Sweetgreen employee fresh out of college, gave a regular customer a hug. He held up the salad he had just bought and frowned. "I'm moving to another office soon," he said. "There's no Sweetgreen nearby." After the small talk, James turned, walked past the line of diners already spilling out the door, and disappeared into the crowd pouring down Manhattan's Fifth Avenue.

At Sweetgreen's seven New York stores, scenes like this repeat every weekday at lunchtime. Most customers are white-collar workers from the office buildings nearby, eating a salad for lunch.

"Noon to 3 p.m. is the busiest — there's a long line every day." Kindra Syphertt joined the Union Square store only three months ago, but she can already recite many regulars' favorite dishes. "There are a lot of young people here, and the work environment is upbeat and fun. Capable people get promoted fast."

At Sweetgreen, customers wait about 15 minutes during the lunch rush. Besides the menu that changes with the seasons, the walls hold other things to occupy people in line: photos from the annual Sweetgreen music festival of the past five years, and an inspirational quote that changes every week. The tables and chairs, made from reclaimed wood, are pleasant to look at and whet the appetite. A row of shelves near the door is stacked with packed salads ordered through the app and the website, so customers who come only to pick up can skip the lunch crowd.

"If two restaurant companies have become trends in New York, one is Shake Shack and the other is Sweetgreen," Allison Stewart, a partner at Food X, told QDaily. Food X is an incubator for food-industry startups. QDaily has reported on Shake Shack, the burger chain that gave McDonald's a scare (you can find that story in the further reading at the end of this piece), and Sweetgreen has plenty in common with it: elegant storefronts, well-designed packaging, and an answer to the hottest trend in dining right now — eat local.

"New Yorkers care more and more about where their food comes from and how it was produced," Allison Stewart said. "At the same time, they're increasingly supportive of local agriculture."

On a small chalkboard right inside the entrance at Sweetgreen, handwritten in chalk: red onions, from Dagele Farm, New York; organic Thai basil, from Goodness Farm, New York; honey, from Catskill Food Supply Co., New York; organic baby spinach, from Fresh Fields Farm, California; blue cheese, from Big Mountain Blue Ranch, Massachusetts; chicken, from Allen Farm, Delaware; Columbia River rainbow trout, from Pacific Seafood Co., Washington State. Sixteen sources in all. Customers can pick one of the dishes designed by celebrity chefs, or mix and match freely from more than thirty ingredients.

The company is happy to advertise its high-quality ingredients and its support for local farming and ranching. A customer named Laney Clark said the chalkboard she sees in the store every day reassures her, though she can only judge subjectively how the organic ingredients here differ from those elsewhere.

Sweetgreen, an American salad brand not yet nine years old, is growing at a startling pace. From a first store of under 60 square meters in 2007, it has reached 41 locations across eight states, with another seven in preparation. By the end of last year it had raised $95 million in venture capital, which keeps putting it in the headlines. If any company belongs in a case study of healthy dining, it is this one.

The three founders — Nicolas Jammet, Nathaniel Ru and Jonathan Neman — are all children of immigrants, and each has relatives who ran small businesses. Ten years ago the three were studying finance and management at Georgetown University in Washington, D.C., frustrated that they could not find a healthy, quick lunch near campus. They watched busy classmates forced to eat high-calorie, low-nutrition food like burgers and pizza. Seeing the gap in the market, they opened the first Sweetgreen salad shop near campus right after graduating.

"In this country, the food that's easiest to buy is also the least healthy," Nicolas Jammet, one of Sweetgreen's founders, told QDaily. The original point of the shop was to solve their own lunch problem, but he also has a bigger claim: "Now our goal is to change how the whole country eats and how its agriculture is farmed."

Over the past three decades, America's reliance on imported fresh produce has kept rising, and the trade deficit reached $11.2 billion in 2011. At home, the overuse of drugs on large farms and environmentally damaging farming and ranching practices have drawn intense scrutiny. Americans have started paying attention to food quality, which over the past 15 years has fed an ever-stronger organic-food craze. Whole Foods, the big supermarket chain known for high-quality ingredients, has sprung up across the country. Salad shops like Sweetgreen rose on the same wave.

Two years after the first Sweetgreen opened, a second one opened at Dupont Circle, a landmark spot in Washington, D.C. Starting in 2013, AOL founder Steve Case put several large sums into the company. Its stores now cover the major cities of the U.S. Northeast, including Washington, New York, Boston and Philadelphia, and it keeps adding locations in California. In 2014, Sweetgreen's sales reached $50 million.

Sweetgreen calls itself "fast food" and "fast-casual," though it differs from fast food in the traditional sense — food cooked in large batches in advance, needing only a brief reheat, and available to take away. Fast-casual sells "healthy" as its pitch while still promising a short wait.

The industry estimates that total sales for fast-casual restaurants will reach $50 billion by 2017. One of the earliest and most successful national brands in the category is Chipotle Mexican Grill, founded in 1993; its roughly 2,000 stores in five countries brought in nearly $476 million in net profit in 2015.

The U.S. salad business took in $300 million in 2014 and is growing fast. Several successful regional brands now split the market; besides Sweetgreen, the cross-regional brands of any scale are Saladworks and Chopt. The New York brands Just Salad and Dig Inn are Sweetgreen's competitors too. Saladworks, with 100 stores, reported $75 million in sales in 2014; Chopt says each of its stores can bring in $2 million to $3 million a year. Most of these brands also advertise high-quality ingredients from small and mid-sized farms, and all are expanding their national market share.

Jammet says the fierce competition does not worry him. "We and our competitors are on the same side, fighting unhealthy eating. If their business does well, it lifts the whole industry." He admits the company hopes to build a brand of national scale, but says that as it expands it respects the particular culture of the community around each store, seeking to grow its own brand while preserving and strengthening that community's character and values. "Our philosophy is: a failing community cannot produce a successful business."

That community character shows up in Sweetgreen's interiors too. Every store has a unique design, and all of them keep a raw-wood theme, a green-yellow-white palette, clean lines and potted greenery — a fit for the "natural" theme, and popular with young people. Every store shares one decoration: the words spring, summer, fall and winter on the wall. Some are bent from neon tubing, others are framed pictures, matching the menu that turns with the seasons.

The first restaurant, in Georgetown, Washington, D.C., is a stand-alone cottage with green roof tiles and white walls, its floor and ceiling wrapped in pale raw wood, paired with an all-stainless-steel counter. At the Nomad store on Broadway in Manhattan, a four-tier wooden staircase seats 20 people; at the opening party a band used it as a stage. Sweetgreen favors reclaimed wood. At one Maryland store, the wall paneling came off an old barn, and the wood in the tables and chairs once served as lanes in a bowling alley. Some of the takeout containers are made from recycled paper.

But the décor is only the last step in drawing customers. The hardest part of keeping Sweetgreen's business model running is the supply chain.

Jammet recalls that in the restaurant's early days, building supply relationships with small farms took a great deal of effort. Their strategy was to go to the farmers' markets and talk to the farmers directly.

"Buying short-term is easy, but to earn the trust of small and mid-sized farms we have to show we mean to order long-term, and then keep our promises. We've built partnerships with nearly 2,000 small and mid-sized farmers and ranchers, and every day the ingredients in our stores come from 200 to 300 different suppliers around the country." Jammet does not expect a gap between supply and demand any time soon. "Our purchasing plans are made at least a year ahead, and the menu changes five times a year with the seasons."

The model carries real risk: a large company entering the market could use rock-bottom prices to reshape the industry standards Sweetgreen has worked so hard to build. In fact, even as the healthy-eating wave keeps growing, Whole Foods' business performance has slid. QDaily has reported on Walmart's move into organic food; Walmart, built on enormous purchasing volume, has a well-known "reputation" for squeezing suppliers, which means a company like Sweetgreen would have to pay more to keep those suppliers on its side. The same threat exists at the retail end, because the organic-food business has not built any brand advantage — price is still what people care about most.

So Sweetgreen's real skill lies in using its stores, its story and its philosophy to charge a premium.

For instance, Sweetgreen claims it promotes more than healthy eating. For customers used to produce out of season, Jammet says, he hopes to change how people think about food. "We should eat what the land grows naturally. People should respect nature and keep to its rhythms. A customer may feel let down when a short-supply ingredient comes off the menu, but they'll also feel excited about the special foods of the season."

Not everyone can afford that freshness. Sweetgreen's priciest salad runs over $15 after tax, and even the cheapest, simplest meatless combination costs $8. Plenty of quick-lunch spots in Manhattan sell a hearty salad for $10 or less. The average American household income is $52,000 a year, and only a small share of those households can buy expensive salads regularly. That is also why America's healthy-eating wave has not blown past the big cities.

Two Gallup surveys, from 2003 and 2013, show that the American habit of eating greasy traditional fast food has barely changed. Eight in ten people said they had gone to a fast-food restaurant in the past month, and nearly half said they eat it at least once a week. Only 4% said they never eat fast food, while 3% eat it every day. The U.S. Centers for Disease Control and Prevention says that among children aged 2 to 19, 34% eat fast food on any given day.

Habits are stubborn, but the bigger constraint is low income. In New York City, 21.2% of people live below the poverty line. When survival comes first, the choice between a one-dollar burger and a ten-dollar salad that does not fill you up is no choice at all. Prince George's County, just 18 kilometers from Sweetgreen's birthplace of Washington, D.C., once became known nationwide for its density of fast-food restaurants. The county has fewer than 900,000 residents and more than 800 fast-food outlets.

At Union Square in New York, dozens of small farmers set up a market four days a week. Fresh produce, homemade honey and cheese, seafood just off the boat, and rarities like ostrich eggs and buffalo meat draw countless New York eaters. The farms all lie in the countryside outside the city; the farthest sellers drive more than eight hours round trip. The market has many regulars, and they say food from small farms costs a good deal more, but spending more now saves on medical bills later.

These farmers drive so far to New York because they can hardly do business where they live. Betsy Brander, who grows tomatoes and cucumbers in upstate New York, brings 40 or 50 boxes of produce to Union Square each time and comes close to selling out every day. She says the residents around her farm buy only cheap vegetables at big supermarkets like Walmart. John Adams, a small farmer who sells arugula and bean sprouts at the market, says he once tried to start a farmers' market in his own town; it barely held on for two years before he gave up. "The locals can't afford this stuff," he says. Some small-farm prices really are hard to believe — spinach that costs $4 a pound at a big supermarket goes for as much as $48 a pound at the most expensive stall at Union Square, and people still line up for it.

Nicolas Jammet admits the salads he sells are not cheap food. "Good ingredients cost more. We're responsible not only to our customers but to the small farms — we have to pay them a fair price."

This is a business built on people's sense of food security, and behind it stands an agriculture shaped by industrial mass production and now under pressure to change. Whether such a business can "change the world," as its founders say, is a very, very complicated question.

Photos in this article by Ouyang Hedi

Some images from Yelp.com; the Sweetgreen cover image from techcrunch.com, berkeleyside