“So, we have the blessing and curse of being a 30-year-old brand,” he said during our Executive Q&A interview published in Sunday’s Philadelphia Inquirer. “The blessing is you’ve got the credibility of having learned a lot. We’ve forgotten more than most people know about the salad business. The curse is you’ve got certain things you’ve done because you’ve always done them. We call them sacred cows.”
Sugrue said that early on, he attended a conference at IDEO, the renowned Palo Alto design studio and think-tank in California. What he learned there was an interesting way to get his leadership team to address these sacred cows.
So what is the technique?
What it is, is they would put a topic up — paper or plastic bags, for example — and then they’d have a line down the middle of the room. People would go to the side of the room aligned with their views. Then the moderator will start asking for questions or comments to justify why you’re where you’re at.
So, one of the questions they put forward — there were probably 25 CEO there. They said with today’s issues and impact and the carbon footprint of producing meat and concerns about animal welfare, blah, blah, blah, should we be focusing on more of a plant-based diet, versus the traditional animal protein diet. About 75, 80 percent of the folks go over the plant side. There was two or three of us on the other side, the meat side. Given my background (he had a long career in the meat processing business), it’s kind of hard not to be true to myself.
The moderator says, `You’re certainly in the minority. What’s your rationale?’ By the way, as you debate this, someone makes a point and you slide on a continuum, either to the other side of the line or stay where you are.
Or you move closer to and further from the line?
Yes, exactly, if you’re kind of on the fence. One of the guys said bacon and about half of this group walked on to my side of the line.
That’s hysterical. I love bacon and just now got a hankering for a maple bacon doughnut. Are you using this technique at Saladworks?
For sacred cows. We polled our leadership team — it’s like ten people. So, we identify things that we ask, `Why do we still do this? Because we’ve always done it.’ The idea was we’d have two individual debate the topic, put that line out.
An actual line? With what?
It was tape that we have and we go back and forth and they would debate. Then we would ask questions. People would move and we would try to come up with some type of agreement.
Do you think it works?
My leadership team said they loved it. I’ve got a leadership team meeting I’m going back to at 1:00. It’s a regular feature.
What’s on today’s agenda?
I’ll pull it up and show it to you. For example, if you eat a salad, you have rolls. We have to ask you, `White or wheat?’ The problem with that is I could be asking you if would you like to try one of our new wheat rolls. That has a $3 ring to it and I could add that to revenue. But, there are only so many things I can ask you while you’re in line. So, we’re saying: Should we a.) get rid of the bread? Answer: No, because we’ve always had that roll. Or, b.) should we just have one [roll] so that it’s not a choice. You just give it to them. So, that was a sacred cow.
People loved the bread too much. We couldn’t get rid of it. But, we’re moving from a big roll. Have you ever had naan bread?
So, at restaurant show we found a naan bread. These are little tiny naan breads — warm, soft, buttery taste, unbelievable. We’re going to test them in our Atlanta store. Our consumers like bread with their salads, so, we didn’t want to get away from bread altogether, but this is a smaller portion. It’s more exotic. A big wheat roll is something you see every place. But, a little kind of mini naan piece of bread.
Won’t I feel ripped off there? I mean to go from a nice big role to some little naan disc — I’m not sure about that.
You might. That’s why we’re testing it in a market where we’re not currently there. We’re establishing it for the first time. We’ll find out how well it works. We’ll bring our franchisees down there to see it and then we’ll bring it back if it’s a good idea. There’s some science to what we do, but there’s a lot of art.
It seems like there’s a lot of science too.
We’re looking to expand into what we call Saladworks 2.0. Saladworks 2.0 is really a double-entendre. It’s kind of a second version of Saladworks for the next 30 years. It also means that we’re looking at our sales-to-build-out, which is a very key metric in the restaurant business. What are your annual sales? What is the initial cost to be able to create that business?
What’s a good ratio?
We’re currently at about 1.7, 1.75. So, you’ll do — $840,000 will be our average unit volume sales. It will cost you right at $500,000 to build that restaurant out.
So, in one year you’ve made it back?
In one year your revenue, not your profit, but your revenue is 1.75 times your initial costs.
Is that a good?
It’s not where it needs to be. 2.0, or in other words, if we get a million and it costs us $500,000, or a million and we bring that cost down to $400,000, we become a 2.0 to a 2.2 to 1 ratio. It makes all the economics of rent and initial return on investment and cash on cash returns — it makes all of those happen faster and better and at a lower break even. That’s also why we call it 2.0. We’re going to do things different, but we’re also doing to do it with the idea of, for example, can we have a little smaller restaurant? Can we find ways through technology to take some expense out?
More sacred cows.
For example, there are two cash registers there. Typically, you’d spend $15,000 initially to go buy those cash registers and the point-of-sale system that goes with them. Now, what we’ve got is a software-as-service. So, instead of paying $15,000 upfront, you may pay $500 a month so that your initial upfront investment isn’t as high. It’s kind of like leasing a car. The difference is when it breaks down or it needs to be serviced, it’s all part of your payment. So, the cost of ownership is much lower. That’s an example of how to bring the cost down. Then, there’s our decor. Again, this is the cool thing to do from a vanilla shell, not having to have drop ceilings and all that. It looks cool, but it’s also less material — reduce, reuse, recycle, and it has a lower cost.
Patrick, when I first started this job I interviewed the son of the founder of Melrose Diner, a famous Philly diner. He told me his father, who was an engineer, built a model of the restaurant in the basement to see if he could make the space more efficient. I’ve always been fascinated with that kind of time and efficiency research. Are you doing anything like that?
One of the things we’ve got to do is be more efficient. This is a factory. Raw materials come in that back door. The finished goods go out this front door. So, with a manufacturing background, I’ve gone in with my team and our executive chef and some of our equipment manufacturers, and we’ve looked and said, `Where are we doing double work? Where are we moving things twice?’
What did you find?
That we move lettuce back and forth three or four different times and we put it in two or three different containers.
Explain that a little more.
So, it’s chopped fresh every day and we put that into a big bin. Then we put it into a smaller bin. Then we put it in the final bin that goes out here in the case. There’s washing of all those bins.
So, why not put it in the small bins right away?
A pretty simple idea isn’t it.
Stack them nicely in the walk-in.
Exactly, like the inventory method of FIFO, first in, first out. So, it flows right. You get the freshest product. Why store it in the back room when in the middle of lunch, I need a fresh one, because I finished this one? Why wouldn’t I have it stored underneath? So, instead of walking into the back room, I just reach and I pull this up.
You wouldn’t have enough capacity to store all of it.
What we’ve done in high-volume stores, we’re getting more frequent deliveries. So, we’re not quite just in time, but we’re trying to move closer to that. These are all manufacturing philosophies and it’s working from the back to the front, not touching things more than you have to, not handling and doing re-work. Then, again, first in, first out is good for food safety. It’s good for freshness. So, these are all kind of manufacturing concepts that you build in.