Sweetgreen: ‘Romaine’-ing Sustainable While Scaling

Sweetgreen’s customer promise of sustainable, locally sourced ingredients poses a supply chain challenge as the company scales, and exposes Sweetgreen to significant climate change risk.

Climate change could threaten Sweetgreen’s customer promise

In the 10+ years since Sweetgreen first opened, it has grown to over 70 locations nationwide, with a mission to become the “Starbucks of salads” [1]. However, Sweetgreen is not just any fast-casual salad chain. It promotes sustainability and local sourcing as key components of its customer promise [2]. These elements are apparent throughout Sweetgreen’s locations – from chalkboards listing the sources of each ingredient to fully compostable packaging [3].

Chalkboard listing local suppliers

Sweetgreen’s sourcing philosophy, focused on local, sustainable farms, has many benefits for the environment. Research shows that “organic farms can emit as little as half the carbon dioxide generated by industrial farms” per acre, and use less fossil-fuel energy [4]. Local sourcing also reduces greenhouse gas (GHG) emissions by decreasing food transportation, which averages 1,500 miles from farm to table in the U.S. [5].

However, agriculture-based businesses like Sweetgreen are among the most exposed to climate change risk, due to the sensitivity of plants, livestock and fisheries to changes including temperature, precipitation and CO2 levels.  Farms are also highly susceptible to more abrupt weather changes like droughts and floods, that can cause crop shortages, price volatility, and inconsistent quality [6]. Sweetgreen’s local sourcing model further exacerbates their supply chain risk from climate change. If a single farm or metro area experiences disruption causing a shortage or price fluctuation, Sweetgreen will have limited availability to mitigate the immediate impact on their supply chain.

Therefore, climate change is and should be a key consideration for Sweetgreen’s leadership as they continue to grow and execute on their customer promise.

Sweetgreen plans for sustainable growth

Sweetgreen plans to tackle the challenge of sustainable growth by scaling slowly, developing local supply chains in each market, creating menus based on availability, and using centrally-sourced produce when necessary. In each new market, Sweetgreen spends ~1 year building the local supply chain – selecting sustainable suppliers, building relationships and developing menus– before opening stores. Menus change seasonally and are designed to accommodate local crops. Furthermore, Sweetgreen does not promise that all ingredients will be local. When products are not in season locally, they are typically sourced from “a big supplier in California.” This hands-on supply chain development is a very time- and resource-intensive approach to new markets. Therefore, Sweetgreen is only targeting markets with the potential for 5-10+ locations, to gain some economies of scale from the local supply chains [7].

Sweetgreen appears focused on long-term sustainability. One of their core values states, “make decisions that last longer than you will” [2]. However, there is no clear long-term plan for how Sweetgreen will handle the worsening effects of climate change in their supply chain.

Looking forward

As the impact of climate change becomes an increasingly pressing reality, Sweetgreen needs to do more to mitigate related risks to their supply chain.

  1. Help farmers adapt: Sweetgreen should work with their suppliers to modify farming practices to reduce GHG emissions and adapt to the long-term impact of climate change. Agriculture is estimated to contribute up to 33% of all GHG emissions [4]. Sweetgreen can play a role in reducing that contribution by ensuring their suppliers are at the forefront of sustainable farming methods. Also, since the impact of climate change is expected to vary regionally, Sweetgreen can tailor its support to the needs of each market’s suppliers. For example, in the Midwest and South, farms are expected to have 10-20% lower yields in the next 5-25 years unless they adapt new farming practices, making it a ripe market to prioritize for near-term support [8].
  2. Develop back-up suppliers: Sweetgreen should develop a robust system of back-up suppliers for key ingredients to mitigate risk of stock outages and price fluctuations. While Sweetgreen does already have some alternative suppliers when local produce is not available, even those alternative suppliers, primarily in California, are exposed to climate events such as droughts. As climate change-related events become more frequent and disruptive, having multiple suppliers for key ingredients will become increasingly important.
  3. Communicate: Sweetgreen has not articulated a long-term goal tied to sustainability in their supply chain, nor have they published the criteria by which they select their local farm suppliers. Sweetgreen should publicize a clear goal and clear supplier selection criteria to guide internal decision-making and build external credibility.

As the healthy fast-casual market gets more crowded, Sweetgreen will likely need to increase their speed to market, and reduce their 1+ year lead time in developing the local supply chain in new markets. Going forward, it remains to be seen if and how Sweetgreen can accelerate launch timelines while maintaining their customer promise of a local, sustainable supply chain.

(778 words)

 

[1] Mickey Rapkin, “The Founders Of Sweetgreen Are Building A Farm-To-Counter Empire, One Bowl At A Time,” Fast Company, November 21, 2016, https://www.fastcompany.com/3065372/the-founders-of-sweetgreen-are-building-a-farm-to-counter-empire-o.

[2] “Our food ethos,” Sweetgreen, http://www.sweetgreen.com/food-ethos/

[3] Denise Yohn, “Sweetgreen serves society with more than salads,” Conscious Connection, November 19, 2015, https://www.consciousconnectionmagazine.com/2015/11/sweetgreen-serves-society/.

[4] “Agriculture, Energy and Climate Change,” GRACE Communications Foundation Sustainable Table Food Program, http://www.sustainabletable.org/982/agriculture-energy-climate-change.

[5] “How far does your food travel to get to your plate?” Center for Urban Education about Sustainable Agriculture, https://cuesa.org/learn/how-far-does-your-food-travel-get-your-plate.

[6] “Geo-5 for Business: Impacts of a Changing Environment on the Corporate Sector,” United Nations Environment Programme, 2013.

[7] Lindsay Blakely, “How Sweetgreen Hopes to Turn Sustainable Salad Into a National Movement”, Inc Magazine, October 2017, https://www.inc.com/magazine/201710/lindsay-blakely/sweetgreen-supply-chain.html.

[8] “Risky Business: The Economic Risks of Climate Change in the United States,” Risky Business Project, June 2014.

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Student comments on Sweetgreen: ‘Romaine’-ing Sustainable While Scaling

  1. This is a great read! Thanks for sharing your take.

    I’m curious as to your thoughts on how competition in the healthy fast-casual market may help Sweetgreen’s supply chain through increasing demand on suppliers? As you point out in your paper, Sweetgreen is currently making investments in helping local suppliers develop their capabilities in the lead up to launch. In the future, as more restaurants look to leverage a similar supplier base do you think this could de-risk Sweetgreen’s supply chain or do you think it will add competition on the small pool of suppliers that currently exists?

  2. Thanks for the thorough analysis, especially in regards to potential solutions. One idea I’d like to present is developing early and exclusive partnerships with vertical farms located in urban areas, such as Urban Crops.

    Urban Crops create vertical farms in former warehouses, factories or offices. For example, in one farm a large frame is designed to hold conveyor belt-shunted trays of young plants under gently glowing blue and red LEDs. Vertical farming yields more crops per square meter than traditional farming or greenhouses do. Vertical farming also uses less water, grows plants faster, and can be used year-round. This enables vertical farms to have a lower carbon footprint than traditional farms.

    Also, the system is largely automated; the hardware allows the plants to be fed light and nutrients throughout their growing cycle. Then, they can be harvested when the time is right. Moreover, each species of the crop has a “growing plan” tailored to its needs, determining its nutrient uptake and light. The facilities also can, in theory, be built anywhere.

    By creating exclusive partnerships with vertical farms such as Urban Crops, Sweetgreen can lock-in supply and pricing for years, uphold its dedication to locally-sourced food and help decrease the carbon footprint of the agriculture industry.

    Source: http://www.bbc.com/future/story/20170405-how-vertical-farming-reinvents-agriculture

  3. Thanks for the great read. One of my key takeaways is that Sweetgreen’s sourcing strategy inherently places a limitation on its expansion plans (given the need to build local supply chains and market-specific menu development). The fast casual segment has seen significant investor interest and companies have been ascribed sky-high valuations upon going public – Shake Shack is a great example of that. The difference, however, is that Shake Shack’s store count growth has been enormous – year to date, the company has grown locations by 36%, and the combination of this growth with same-store sales momentum is a big driver of the multiples that investors place on the business. What will be interesting to see is how strong the resolve that Sweetgreen will be if/when it decides to go public, if it is faced with a trade-off between dollars coming in and maintaining a slow, steady, and deliberate expansion plan.

    This concern could potentially be somewhat mitigated by the company demonstrating a tried-and-true ability to “go deep” in the geographies that it is currently in and market itself off of a “hub-and-spoke” model, but only time will tell if the strategy has to “evolve” to garner the favor of public market investors.

  4. Sweetgreen has an admirable commitment to sustainability and locally-sourced ingredients; however, it remains to be seen how effective (and how committed) the company will be in maintaining these values as it continues to scale.

    In particular, I agree with the author that the company should outline a concrete vision and measurable targets with respect to its sustainability goals. Absent such goals, it is difficult to take Sweetgreen seriously when it claims to be “transparent”; for example, the company’s website includes a series of vague claims about its sustainability without concrete data to back them. Absent additional information, it’s difficult to assess how effective the company is — and makes sustainability look more like a marketing ploy than a business goal.

    Further supply chain digitization could help the company achieve such transparency going forward. Today, Sweetgreen demands that its suppliers (e.g. Jayleaf for greens in California and Keany Produce in Maryland) regularly log into its supplier portal to provide data on produce sourcing, production volume, supply to each store, etc. [1] The company should attempt to (1) aggregate this information and provide it to consumers; (2) begin to specify and quantify how it is working with suppliers to improve their processes; and (3) build upon its existing information collection processes by including information on crop yields, farm water consumption, and overall environmental impact. By providing this information to both internal and external stakeholders, the company will demonstrate an authentic commitment to its sustainability mission — and make its mission more achievable at scale by providing and sharing information about best practices amongst its suppliers.

    [1] https://www.inc.com/magazine/201710/lindsay-blakely/sweetgreen-supply-chain.html

  5. Really enjoyed reading about the underlying mission of my favorite salad spot — thank you! As you mentioned, being one of the first to champion sustainable sourcing at large scale means Sweetgreen has to sacrifice a high level of profit and growth in the foreseeable future. This can be concerning as Sweetgreen may never reach enough scale for its sustainable sourcing practices to have a meaningful impact on climate. To mitigate this risk, it may make sense for Sweetgreen to lobby for harsher regulations around restaurant sourcing (potentially alongside other companies with similar missions, such as Starbucks). This strategy has two benefits: 1) it levels the playing field in the space to allow Sweetgreen to compete and grow, and 2) it increases the scale of impact as more players follow the same sourcing practices. Of course, a clear downside of this strategy is that regulation takes years, if not decades, to go into effect. Given that, is there any benefit in being the first mover here? Or will players that follow Sweetgreen’s footsteps benefit from these initial years of costly investments?

  6. Thanks for the great read! I love reading about the business models of companies that promote healthy habits and sustainability. However, I am a bit skeptical about the viability of local supply chains in reducing GHG emissions and challenge your point that food miles and GHG emissions are directly correlated.

    In a German study published last year, researchers investigated if commodity foods produced locally resulted in lower GHG emissions than food sourced from another continent. The study analyzed the difference between choosing to optimize (1) distance between production and consumption or (2) total CO2e emissions during cultivation, processing, and transportation. Results showed that the latter scenario produced significantly lower emissions. Reason being, the percentage of the total emissions that was caused by transportation was quite small. Therefore, to minimize total emissions, it is better to select the global region that can cultivate, process, and transport the crop with lowest emissions.

    This being said, this study looked specifically at commodities (wheat, sugar, oil, barley, maize); however, Sweetgreen’s inventory includes many unique, seasonal ingredients that may not produce the same conclusion in this study. Futhermore, there are unfortunately many factors that prevent a global production model that optimizes for GHG emissions from being instituted – including natural security concerns and positive consumer preferences around local sourcing.

    Source: Kreidenweis, Ulrich, et. al. “Regional or global? The question of low-emission food sourcing
    addressed with spatial optimization modelling” Environmental Modelling & Software. https://www.sciencedirect.com/science/article/pii/S1364815216301153

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