I really like this analysis! I am however less optimistic. $31 per order being the point of profitability is way too high for any place outside the Bay Area or NYC.
I think the other thing to be concerned with is how much harder it will be for Sweetgreen to appeal to the dinner crowd. This part is difficult for me to explain, but as someone who moved from NYC to a suburb in Colorado, there's a greater joy of eating dinner at a Shake Shack or a hole in the wall restaurant when you live in a big city culture. That feeling changes significantly when not in that culture. Every time we get salads at a salad place, it *feels* more depressing than getting a salad at a full service restaurant/bar even if the salad is better. Maybe that's just getting older as well, but that reason would make Sweetgreen's dinner prospects even worse.
I think they're going to struggle as much, if not more, than Shake Shack has with expansion.
I loved this letter - particularly the derivatives analysis. I wrote about sweetgreen in my substack last week, and agree that labor is one of their most costly obstacles to profitability - infinite kitchens will help but there is still a while for those to roll out. Didn’t know about the high turnover - super interesting. Love the letter!!!
Well written, just as always. Thank you. So if I read it correctly, I should be able to make a Salad at home for less than $4 :) So I went I got the cost for their Honey Chicken Recipe (close)
Hot Honey Chicken recipe:
Chicken breasts or thighs: $3.5 per pound (assuming boneless, skinless)
All-purpose flour: negligible (most kitchens have this already)
Eggs: $2 per dozen (estimate needing 2 eggs)
Breadcrumbs or crushed cornflakes: $2 per cup (needed about 1.5 cups)
Vegetable oil: $2 per cup (needed about 0.25 cups for frying)
Honey: $5 per cup (needed about 0.5 cups)
Hot sauce: $2 per tablespoon (needed about 2 tablespoons)
Cayenne pepper: $1 per teaspoon (needed about 1 teaspoon)
Chipotle chili powder (optional): $2 (needed about 0.75 teaspoons)
Garlic powder (optional): $1 per teaspoon (needed about 0.5 teaspoons)
Onion powder (optional): $1 per teaspoon (needed about 0.5 teaspoons)
Total Cost:
Chicken: $7 (2 pounds at $3.5 per pound)
Eggs: $1 (assuming needing 2 from a dozen at $2)
Breadcrumbs: $3 (1.5 cups at $2 per cup)
Vegetable oil: $0.5 (0.25 cups at $2 per cup)
Honey: $2.5 (0.5 cups at $5 per cup)
Hot sauce: $4 (2 tablespoons at $2 per tablespoon)
I guess if I count my time of doing all of this - 30 mins to groceries (may be some are at home already but I have to get greens etc) and then 30 mins to prepare.
So basically Sweetgreen is my time arbitrage (which is labor cost) ? Still, whenever I go to their store near here, I am mentally comparing them to Chipotle cost (though might be not a good comparison) which means the price does pinch me.
I'm skeptical of fancy technological panacea in this space. (McDonald's can't even keep their ice cream machines working, as the meme goes.) The "Infinite Kitchen" is in two stores right now; at a cost of ~$500k/each, I can't see Sweetgreen investing $500 million, or anywhere near that, to outfit their desired 1,000 stores—a target which, I agree with you, seems like a stretch.
I really like this analysis! I am however less optimistic. $31 per order being the point of profitability is way too high for any place outside the Bay Area or NYC.
I think the other thing to be concerned with is how much harder it will be for Sweetgreen to appeal to the dinner crowd. This part is difficult for me to explain, but as someone who moved from NYC to a suburb in Colorado, there's a greater joy of eating dinner at a Shake Shack or a hole in the wall restaurant when you live in a big city culture. That feeling changes significantly when not in that culture. Every time we get salads at a salad place, it *feels* more depressing than getting a salad at a full service restaurant/bar even if the salad is better. Maybe that's just getting older as well, but that reason would make Sweetgreen's dinner prospects even worse.
I think they're going to struggle as much, if not more, than Shake Shack has with expansion.
I tend to agree!
I loved this letter - particularly the derivatives analysis. I wrote about sweetgreen in my substack last week, and agree that labor is one of their most costly obstacles to profitability - infinite kitchens will help but there is still a while for those to roll out. Didn’t know about the high turnover - super interesting. Love the letter!!!
Thanks so much Jackie! I will read your letter as well.
Well written, just as always. Thank you. So if I read it correctly, I should be able to make a Salad at home for less than $4 :) So I went I got the cost for their Honey Chicken Recipe (close)
Hot Honey Chicken recipe:
Chicken breasts or thighs: $3.5 per pound (assuming boneless, skinless)
All-purpose flour: negligible (most kitchens have this already)
Eggs: $2 per dozen (estimate needing 2 eggs)
Breadcrumbs or crushed cornflakes: $2 per cup (needed about 1.5 cups)
Vegetable oil: $2 per cup (needed about 0.25 cups for frying)
Honey: $5 per cup (needed about 0.5 cups)
Hot sauce: $2 per tablespoon (needed about 2 tablespoons)
Cayenne pepper: $1 per teaspoon (needed about 1 teaspoon)
Chipotle chili powder (optional): $2 (needed about 0.75 teaspoons)
Garlic powder (optional): $1 per teaspoon (needed about 0.5 teaspoons)
Onion powder (optional): $1 per teaspoon (needed about 0.5 teaspoons)
Total Cost:
Chicken: $7 (2 pounds at $3.5 per pound)
Eggs: $1 (assuming needing 2 from a dozen at $2)
Breadcrumbs: $3 (1.5 cups at $2 per cup)
Vegetable oil: $0.5 (0.25 cups at $2 per cup)
Honey: $2.5 (0.5 cups at $5 per cup)
Hot sauce: $4 (2 tablespoons at $2 per tablespoon)
Spices (cayenne, chipotle chili powder, garlic powder, onion powder): $4 (estimate)
Total Approximate Cost: $22.00
This can feed 4-5 people.
I guess if I count my time of doing all of this - 30 mins to groceries (may be some are at home already but I have to get greens etc) and then 30 mins to prepare.
So basically Sweetgreen is my time arbitrage (which is labor cost) ? Still, whenever I go to their store near here, I am mentally comparing them to Chipotle cost (though might be not a good comparison) which means the price does pinch me.
This is a great comparison. I completely agree. I never regret getting a salad there, but the price always feels high a-priori.
I'm skeptical of fancy technological panacea in this space. (McDonald's can't even keep their ice cream machines working, as the meme goes.) The "Infinite Kitchen" is in two stores right now; at a cost of ~$500k/each, I can't see Sweetgreen investing $500 million, or anywhere near that, to outfit their desired 1,000 stores—a target which, I agree with you, seems like a stretch.
I tend to agree!