Jul 19, 2011

Innovating Schools, One Lunch at a Time

 

Why did you start to sell your own line of products?
Tobey: We knew we wanted to expand and achieve scale. We always had a mission that we wanted at least 80 percent of our meals to go to low-income kids and kids that qualify for free lunches at school. It's a very low margin; we can't raise prices just to make sure that we have a comfortable margin, there's really a ceiling on the price that we can charge to schools. In developing this business model, we realized that one of the things we could do is to have other business lines that supported the school meal program. One of the things we looked at was this idea of selling a retail product—essentially a higher margin product line—and we ended up partnering with another company called the Nest Collective to create that product line.

Richmond: That happened pretty early on. In our first year, Whole Foods approached us and said, "We really believe in this mission, and we really believe that consumers would believe in this mission." I think they saw a trend of consumers wanting to focus on buying things that made a difference. That was the real premise behind the launch, so we launched it in our second year. Since then, the product line has grown tremendously. Now, we've got distribution at Toys R Us, Babies R Us, Whole Foods, and Target (in pilot form). We have lots of distribution and the product line's expanding pretty rapidly.

Tobey:  I'm a mom and I pack my kids' lunches every day because there isn't a program at my daughter's preschool, and it's just incredible to have handy things to throw into the lunchbox without having to think about it.

How do you go about pitching to schools?
Tobey: A lot of schools come to us through word of mouth. They hear about what we're doing through other schools and from the NewSchools Venture Fund, one of our investors that funds several charter school organizations and other school support organizations.

For schools that we're going out to and pitching the idea to, it's a pretty logical conversation to have. If you give kids a healthy breakfast and a healthy lunch, kids aren't tired in the afternoon, they don't fall asleep in class, and they're not having sugar highs and lows throughout the day. We see a lot of behavioral and academic positive impacts as a result of the program.

How do you choose which schools or regions to target?
Tobey: We chose the Bay Area because that's where we lived and that's the area that we knew the most. It seemed pretty logical. With Denver, we were actually pulled in by a group of foundations and community leaders who were trying to solve the school lunch program locally and they couldn't find anybody within Denver who could provide healthy meals in schools. We knew there was a huge need in D.C., that there were a lot of schools that have a very low income population of kids who had no access to healthy meals, and the same is true in many cities across the U.S., which is part of why we're going into Houston and Newark. It's a combination of there being a real need and a lack of access for low-income schools.

Richmond: It's really a function of community. Even though we're national, we're still really grassroots in our approach. Everything starts with community need, parent activism, and school leaders reaching out. As we get a little older, we're also looking for partnerships with groups that can help us access facilities financing. We're a big job creation engine, so we create a lot of jobs through our program. Newark, for instance, was an example of an area that was really interested in attracting Revolution Foods for the job creation aspect. We're getting a little more sophisticated in that new market process, but it really comes down to community need and community support.

Have you ever turned down any schools because you just don't have the finances?
Richmond: Yes, we have turned down regions. I get outreach all the time that we're not able to meet as quickly as we'd like to, so we're also figuring out ways to scale our model more quickly.

We'd obviously like to get out to everybody, but at the same time, we also don't want to compromise our viability, because then we won't be able to get out to anyone. It's trying to be realistic, yet as aggressive as possible. We're always guided by our desire to impact as many kids as possible, and that's a really powerful incentive. That drives us more than anything else, in terms of our desire to grow and be impactful.

What's been your greatest obstacle so far in pushing this initiative?
Richmond: I think there's always a financial reality of cost. We've got schools that are undergoing a lot of fiscal pressure with their budget, we've got commodity prices that are rising—fuel's rising, dairy's rising—and we're trying to make this super high-quality high-integrity program fit in a budget that keeps getting smaller.

Tobey: The National School Lunch Program's reimbursement rate is a challenge, and we're working with under $3 per meal to put a healthy meal together for kids. It's not an easy equation; it's not impossible, but it requires a lot of work, a lot of culinary talent, a lot of great relationships within our supply chain. We're seeing some good momentum with the Obama administration and the recent passage of the Child Nutrition Reauthorization Act. We're seeing some momentum at the policy level to bring a higher level of reimbursement to low-income kids, but it's not enough to really make a huge difference to make this accessible to every single school. Most of the schools we work with are schools that don't have a big existing kitchen and food service infrastructure.

Richmond: It's like the best and worst of times. People know this is the way school food should be going, they know that health and wellness for kids is the right thing to do. They know that the cost of obesity and what's happening to our country right now—the fact that it's going to consume 25 percent of the national healthcare budget in the next couple of years. The fiscal realities of what we do are complex and challenging, but I think we've managed to do a great job.

Are you profitable at the moment?
Richmond: Right now, we have made a conscious decision to invest everything into growth, into scale, and adding on more regions and serving more students. Overall, as a company, we're not profitable yet, although our per market unit economics are meeting budget expectations.

Tobey: If you look at some of the larger regions that we're serving on an operating basis, those regions are covering their costs. I wouldn't say they're grossly profitable, but the business model is working as a sustainable business.

What are your plans for the future of Revolution Foods?
Tobey: We plan to add some new products to the food line, and we also have plans to make some of the packaged products more accessible to schools directly. Right now, we sell a lot through retail but we see that there's huge need within school programs to have access to healthier packaged products. We plan to grow our core meal program, both by increasing the number of meals that we're serving within our existing regions, and also we're looking at new regions to possibly grow into.

Richmond: We're definitely going to be expanding our product line and we're definitely going to be furthering our nutrition education platform. But right now, I think we're just focusing on the demand out there for healthier meals for kids. We're at this inflection point where we're going from a start-up to trying to build a very long-term polished model. We're just heads down on that right now, and I'd say our overall vision is to continue to transform the way we feed our kids. We've seen catalytic impact, we've seen systems starting to shift, and we want to continue to see that and be on the cutting edge of that momentum.
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