29 Jan 2015

Every New Yorker Wants to Open a Restaurant 

When I told a few friends about this idea I had for a soup restaurant, I got responses of laughter, smirks, puzzlement: “Everyone who lives in NYC wants to open a restaurant at some point. It's like a rite of passage.”

Rather than ameliorating their confusion, I'd respond, “Yea, I want to do a restaurant like that too, but my idea for a sitdown NYC restaurant is a totally separate project. This soup spot is more of a healthcare company” – my turn to grin, eyes twinkling. Life is just more fun when people think you're crazy.

But, since I actually do care more about some of the motives and thinking around the backstory here than I do about my own entertainment, I decided to spend a little time laying out this idea in a bit more depth.

As anyone who knows me will tell you, I care quite a bit about nutrition and fitness. For a holiday gift last year, a friend got me a matching set “Eat more kale” and “Do more yoga” embroidered throw pillows. I grew up loving sports and the outdoors, and started paying more attention to nutrition around the time I started college, when I was drinking enough beer that I figured I had to compensate for the extra calories by eating a bit healthier. I cut sweets and tried to eat more salads and vegetables (which I had grown up not enjoying at all – my favorite childhood “vegetables” were corn and potatoes).

Towards the end of college, I got interested in Crossfit, and through that community got into researching things like the Paleo diet. Generally, the idea of “eating like a cavemen” and avoiding processed foods made a lot of intuitive sense to me, so I started experimenting with Paleo.

Cutting refined carbohydrates from lunchtime meals was the first time I could really feel viscerally the effects of a change in diet. I noticed that my usual afternoon crash simply disappeared when I didn't eat refined carbohydrates or dairy during lunch. I had come to accept the urge for an afternoon nap as a necessary annoyance that had to be endured and was shocked to find I could avoid it simply by changing what I ate for lunch.

I think it's worth dwelling on this shock reaction for a second. I imagine that most people who have not radically experimented with their diet would actually have similar expectations to mine, doubting that changing your diet would lead to any effects other than losing some weight and feeling hungrier. But if you think about it, it shouldn't be all that shocking. Food is the fuel for our bodies. We should feel invigorated when we eat the right things. What should really be shocking is the idea of a “food coma.”

Having observed the profound effects of eating habits on my own health and the health of others I know–both positively and negatively–I spend a lot of time soapboxing about how the Western / US approach to healthcare is backwards. Today, we spend the majority of our money treating symptoms rather than preventing causes.

Most of the leading causes of death in this country are all preventable, many of them with diet and nutrition. In my more cynical days I'd complain that the people with the discipline to establish healthy eating habits have to subsidize with tax dollars and higher insurance costs the poor decisions of the third of Americans who are obese and another third who are overweight.

My astute friends have always been quick to point out social/economic/geographic advantages that have made it easier for me to establish healthy habits than many others in this country. They'll argue that eating healthier, fresher foods is more expensive. Access to these foods is more difficult and less convenient, if available at all, in less affluent neighborhoods. And, the foods that are cheaper and available often taste better because they are laced with unhealthy amounts of sugar and salt, ingredients that also make them addictive.

I used to think we might be able to solve this problem just by better equipping people with knowledge of how to eat a healthy diet. It was easy to point a figure at the USDA–the old food pyramid was a joke, and even now the updated USDA recommendations include obviously unhealthy things on their suggested menus like flour tortillas, dessert after every dinner, margarine, and all sorts of other poor food choices. If people were simply getting the right advice, you might argue, then we could place the burden of responsibility on each person to make the right choices. If we could eliminate the propaganda (devised by big food companies paying the government to put a stamp of approval on their poisonous products) and get truthful nutrition recommendations to people, they would eat healthier.

But the older I have become, the more I have come to appreciate the limits of agency and free will. While I believe individuals can use the power of hard work, knowledge, and creativity to change their circumstances, I've also become more aware of (and humbled by) how much of our successes and failures depend on things outside of our control, on luck and context, beginning with the genetic lottery.

As a result, I have begun to reframe a lot of my thinking about adoption of behavior, products, and services to be less focused on individual preference / choice and to incorporate more awareness of systems of incentives that determine behavior. I found the Obama presidency quite informing of this view. Until Obama ran for president, I had been pretty disenchanted with politics, and my interest in entrepreneurship was driven mainly by the theory that distributing behavior changing products and services, as well as making money which you might use to influence politicians and policy changes, was a higher leverage way to cause meaningful change in the world than was entering the political machine. Obama gave me some hope in politics for the first time in my life. But, I now see his presidency as a confirmation that everything I believed about politics in this country to be true. Even with the best intentions, charisma, intelligence, and team, all of which I think Obama had, you can't really do much good inside the political system. I see this as the result of a system of perverse incentives and bureaucratic inertia rather than a failure of Obama's. In fact, perhaps we may come to view his presidency as a success in that it may help other people who care about doing social good realize that the political system is not an effective place to accomplish this, prompting them to look for other ways to do good without entering politics.

Under this systems view of behavior, I think the failure of our country to keep our citizens in good health has primarily been driven by a mismatch of incentives, not only between the politicians in office and the citizens, but also between corporations and their customers. One set of companies, which feeds the majority of the population, is trying to maximize profits by selling calories, calling the product food. Optimizing their price per calorie ratio results in products that degrade the health of their users. Another set of companies is selling medicine and services to treat the symptoms of degraded health to the same people, calling the product healthcare. What I think we need is more companies selling food and calling the product healthcare (or vice versa–the point is, they are the same, not separate).

A key upshot of reframing things in this way is that it makes explicit the true costs of poor nutrition, namely, the resulting healthcare spending, and the savings we might realize for the country if we change the national diet. According to the CDC, “the estimated annual medical cost of obesity in the U.S. was $147 billion in 2008 U.S. dollars; the medical costs for people who are obese were $1,429 higher than those of normal weight.”

So really, Americans might spend an extra $4/day on healthier food to slim down and avoid diseases of obesity, see a decrease in their healthcare costs, and spend the same amount of total amount money per year on food+healthcare.

I don't think, however, that we can expect individual consumers to adopt this view of the economics and understand food+healthcare as a single “account” to spend on. Consumers will use whatever is their current spending on food as their baseline, and I think a big reason we haven't seen healthy food product adoption among lower income demographics is that healthier products can be prohibitively expensive. But price won't be the only adoption driver. I think the full list of requirements (necessary, but not sufficient, to change the way people eat at scale) is comprised of “four factors.”

  1. Cheaper than (or at least as cheap as) popular cheap alternatives (eg, McDonald's)
  2. As accessible / convenient / fast as alternatives (eg, McDonald's, bodegas)
  3. As tasty as alternatives (eg, fast or preserved food laced with sugar + salt)
  4. Healthier than / as healthy as the healthiest pricey food (eg, fresh produce from Whole Foods / farmers markets)

Typically, this is the sort of list one looks at and says something like, “pick two,” and you decide to narrow the market you are going after, once you have freed yourself from some of the constraints. In my opinion, that's just lazy problem solving. I prefer the way my friend Esther thinks about this sort of thing: when someone asked her what percent market share Venmo has, she promptly answered, “100%! Venmo does everything 100%!”

You might also say that no one is doing this because it's not possible to build a single product that satisfies all of these four factors, but my hypothesis is that historically it has just been easier to compromise on one or more of these (typically #4) and still build a big business.

My hope is that the smartest people who care about public health will start to realize that politics / policy is not the highest leverage way to accomplish goals like getting the citizens of our country as healthy as possible and reducing deaths from preventable diseases. A better way to drive behavioral change at scale is forming a business that works toward the same goals they would have tried to accomplish in the public sector. I think we're finally starting to see some decent attempts to solve this problem in the private sector with companies like Hampton Creek, Soylent, Farmer's Fridge, Sprig, Thistle, etc. While it seems to me that each of these companies still has some work to do on optimizing at least one of the four factors I outlined, they at least seem philosophically aligned with hitting all of them, which I find exciting.

Beyond the four factors of adoption I outlined above, there are several other considerations I believe could be important to a winning solution, all of which taken together ultimately led to my idea for a soup restaurant.

I think one of the first open questions you need to answer about a healthy food company is how far down the stack you start, ie, whether or not you grow all of the produce you use as ingredients in the food you are selling. I imagine at a certain scale this makes sense, and you might get creative with setting up vertical / indoor farms on premise, above or below actual retail spaces where you sell to consumers. (Insert bad joke about “vertical” integration ;) here.) This probably adds an unnecessary amount of logistical complexity at the beginning, but might make more sense as the other parts of the operation reach scale and are running smoothly.

A related question is whether traditional agricultural (which I would consider vertical farming and hydroponics variants of, not departures from) can scale to feed the human population we'll have on earth in ten and twenty years. Part of what I think is highly interesting about Soylent is that if the answer to this question is “no,” they may be working on a viable alternative.

The next big question is how you get your product to end customers–through supermarket shelves, retail shops, or direct to consumer delivery. I'd probably rule out supermarket shelves as that would entail more shopping/prep/cooking work for customers, and it doesn't feel as convenient as prepared food alternatives. Retail shops are a bit of a double edged sword. I believe in them as a marketing opportunity and way to get customers to try your product for the first time, on an impulse, as they pass by. On the other hand, retail shops entail high fixed costs and large capex, and they can only reach fairly limited geographic pockets of customers. If I imagine myself as the customer, I'd probably prefer to get my meals via on demand delivery. In the 20th century, convenience meant drive-through fast food or microwavable frozen dinners. Today, customers are used to using GPS enabled mobile devices to summon goods and services to them on demand, and hopefully the transport/routing infrastructure is getting built up enough to the point where it's economically feasible to provide on demand delivery of fresh meals at a reasonable cost.

The next essential factor to developing a food solution that is actually aligned with long term customer health is a strong corporate mission directed towards this goal. While I think services like uberFRESH and AmazonFresh are probably the best positioned in terms of infrastructure to figure out on demand meal delivery at an affordable price, I feel like to really move the needle in changing the diet and health of a massive number of people, your mission needs to be focused on health not commerce. Otherwise, when you need to make difficult prioritization decisions, it will be too easy to compromise on nutritional value of the product you are delivering.

With a strong enough mission focused on public health, you might get some surprising side effects. For example, if executed well, I don't think recipes will be proprietary or a competitive advantage (I suspect advantages will be operational, technological, purchasing power, economies of scale). If this is indeed the case, it would be in alignment with the mission of making the world healthier to open source all recipes developed and used by the company. Beyond sharing information with the world that should further the mission, I think opening recipes to collaboration is an excellent way to foster community engagement. The upshot would be both marketing and innovation advantages.

Taking another cue from the technology sector, you could get creative with using data to understand impact. Measuring success should not just be a matter of “billions served.” You would need richer KPIs to measure actual progress towards the mission, like “pounds lost (and kept off),” “healthcare dollars saved,” “number of additional years of life expectancy per customer vs non- customer,” etc. If you got sophisticated at capturing this sort of data and showed real results, you might then be able to funnel off some of the billions of dollars our government wastes on healthcare treatments of symptoms of preventable diseases into subsidies that would make your healthy food product even cheaper for the lowest income families. Or, opening up this data might also enable you to get contracts to provide food in schools–I imagine many others like myself would prefer that their tax dollars paid for students to eat healthy food at school rather than the junk food that is currently served.

Moving towards more customer facing considerations, a big problem with currently available healthy eating options is that there are a number of places where you can get a healthy meal, but there is not really a single place where you can go and know with certainty that every single thing on the menu is ridiculously healthy. Chipotle uses fresher ingredients than most fast food restaurants, but each flour tortilla alone contains 300 empty calories. Whole Foods is a great place to get fresh produce, but they also sell lots of preserved foods and sweets. Juice Press sells a few great low calorie healthy green juices, but most of their juices are sweetened with large amounts of high sugar apple juice. Even at salad spots like Sweet Green you need to take care what potentially high calorie / low nutrient dressing and extras you add to your salad.

Right now, If you want to eat a healthy meal, the cognitive effort is too high. First, you have to think, “where are the places I could order a healthy meal?” Then, once you are there, you have to be careful about your order, because in pretty much all cases suboptimal choices sneak into the menu. To me, as a customer in the market for healthy food, this is the biggest problem with trying to eat healthy today (other than maybe cost).

Ensuring that every single option at a shop is insanely healthy, with a high ratio of micronutrients to macronutrients and no hidden sweeteners / fats / hormones, would make it 10x easier to eat healthy. All you'd have to do is go to this healthy food shop, and you could literally throw a dart at the menu and have 100% confidence you are getting the healthiest meal possible. I would eat at a place like this everyday.

So after all of this, why did I think soup was a good answer? Beyond doing a good job of satisfying all the requirements I think are necessary for a winning solution, soup just feels very scalable to me. You can front load a lot of the cook time to early morning, perhaps to an off site commissary, and then just keep the soup simmering at the counter where you order. It's easy to transport if you are doing on demand delivery. There's no customization of soup–unlike a salad place, or even Chipotle, where all of the customization options just (1) add cognitive effort and more decisions for the customer and (2) slow down the time to process a single order. Soup has pretty high margins compared to a lot of other fresh prepared foods, such as salads, and my hunch is there would also be higher yield / less wastage (it's more appealing to sell a day old soup at a discount than a salad). I also think it's a feature that soup contains a relatively high percentage of water weight–this could translate either to the higher margins for the restaurant or to lower cost for the customer. And, the additional water weight makes for a more satisfying and filling meal for a lower number of calories.

Soup, of course, is not a silver bullet, and has its own problems you'd have to figure out, like seasonality, but I do think it has a number of advantageous scaling and efficiency properties that would add up and perhaps eventually allow you to achieve pricing that's competitive with fast food restaurants (I can't imagine fresh salads getting this cheap). To summarize the idea in a way I did that seemed to resonate with my acupuncturist: “It's a healthcare company disguised as a restaurant. By lowering the cost and friction of adopting healthy habits, it would help drive behavioral change in customers that prevents the causes of disease (rather than treating symptoms). Imagine if McDonald's was healthy, if you created a fast food empire that makes people healthier instead of giving them diabetes and heart disease.”


Thoughts? Email me: andrew.kortina@gmail.com

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