60-second business plan
THE PITCH: Americans spent $112 billion on fast food last year, including an average of $53 million a month on McDonald's Happy Meals. The total fat count alone -- never mind all those plastic toys rattling around under car seats -- is enough to make Gary Hirshberg cringe. Hirshberg is betting that a significant percentage of American consumers share his disdain for typical takeout fare. Hence O'Naturals, a proposed chain of natural/organic fast-food restaurants aiming for a share of the nearly $20-billion natural-foods market.
Hirshberg, president and CEO of Stonyfield Farm, a Londonderry, N.H., yogurt company, conceived of O'Naturals four years ago on a family drive up the Pacific Coast. He had assumed that health-conscious California would offer meal choices beyond greasy burgers and fries. Wrong. "We were hostages to limited choices on the road," he says.
Now Hirshberg, who is O'Naturals' chairman, and a cadre of private investors are set to expand the fast-food universe with three or four O'Naturals restaurants in wealthy New England locales in the next three years. The first O'Naturals opened its doors last May in tony Falmouth, Maine, a town near Portland that typifies the target demographic: on-the-go, highly educated, upper-income families craving fast, tasty, healthful food. The Falmouth store is already posting daily average revenues of $2,000 to $3,000, roughly on par with the typical Burger King.
"I don't think anyone has tried to put together something that is family-friendly, tasty, natural, and organic fast-food," says O'Naturals cofounder and president Mac McCabe. D'Lites, a chain of restaurants that stressed low-fat, reduced-calorie offerings, bombed in the 1980s partly because it didn't deliver on taste. McCabe promises that O'Naturals won't make the same mistake. The restaurant offers flat-bread sandwiches (made with bread baked on the premises), Asian-style noodles, soups, and salads, as well as macaroni and cheese, baked chicken nuggets, and tortilla dogs for the kids. And it's leveraging Stonyfield's brand recognition with fruit and yogurt shakes. The average register ring is between $5 and $8 -- higher than the big chains' but well within the typical range for premium fast food.
For now Hirshberg and McCabe are sticking to a grassroots marketing strategy. They're lining up environmental groups, youth museums, and other nonprofits to run on-site programs for children and adults. And they're playing up the restaurant's environmental mission big-time: according to the company's job application, even kitchen assistants are expected to "become passionate around the recycling program of O'Naturals."
McCabe says those values -- along with the company's $7-an-hour starting wage -- are attracting topflight employees. "We're getting extraordinary kids from the best high schools," he says. Hirshberg is optimistic that the softer real estate market will ease the company's planned move into other Northeast locations. Once those restaurants are operating, O'Naturals will roll out the concept nationwide. But Hirshberg is in no hurry. "We're trying to find that fine line between seizing the opportunity and not growing so fast that we burn ourselves out."
The Quick Once-Over
Formal Projections: $1.5 million in sales from one store, net loss in 2001; $4 million in sales from two stores, net loss in 2002; $7 million in sales from three or four stores, breakeven in 2003
Daily Revenues: $2,000 to $3,000 per store
Total Capital Raised: $2.3 million from 12 investors and personal savings from cofounders
Biggest Expense: Capital investment for renovations, equipment, and architecture. "The total is a moving target," says Hirsh- berg.
First-Year Total Expenses: $2 million (cost of goods sold, restaurant overhead, corporate overhead)
The Weigh-in: Our Panel Rates the Plan
Healthy Start or Fat Chance?
WHO: Scott Van Winkle, specialty-food and beverage analyst at Adams, Harkness & Hill, a Boston-based investment-banking firm
RATING: 8 (on a scale of 1 to 10, with 10 being the highest)
"The organic market is growing 20% annually and the natural one is growing 10%, so [O'Naturals is] positioned in a rapidly growing category with good demographics. Research tells you it should be successful, but in the food industry taste does matter. The kids aren't going to take you to O'Naturals, so the core success of the business will depend on whether they can demonstrate to parents that the products are good enough to justify a price premium. They have to appeal to parents, but they have to deliver to kids. [Hirshberg] should stay regional until he's proved the concept.
"What's important in a model like this, where you have a clearly differentiated format, is you have to hire appropriately. The people have to exemplify the store. In places like Falmouth, there's a much better opportunity to attract higher-quality help."
WHO: Frank Lampe, editorial director at Natural Business, a natural-products- industry newsletter based in Broomfield, Colo.
"I think the upper-management structure and their board are very well positioned to make this thing successful. They're the first ones to integrate values into the product offering; Stonyfield has done that very successfully. But will the target demographic embrace values when making their meal choice? It's clear that the market drivers are in their favor: the amount of food dollars spent away from home is growing, there's increased demand for fresh, quick-service food, and natural food is becoming more popular. But there's no history that a values- or mission-driven fast-food chain will work -- it's uncharted territory. They have the opportunity to be as successful as Whole Foods if they can execute on their plan, but do they have the marketing clout to support the operation until it gets to critical mass?"
WHO: Jeff Davis, executive vice-president at Sandelman & Associates, a Villa Park, Calif., market-research company specializing in the food-services industry
"The quick-service-restaurant (QSR) segment is huge, so you'd think there's enormous opportunity. The problem is that the natural segment is very, very small and untested at this point. Typically, a health-conscious selling position has not been a particularly strong one. But I do think there's great possibility here. Among QSRs, there's a growing fast-casual segment that offers QSR service but better food and atmosphere at a higher price. They're doing well because baby boomers are willing to pay a little more for a better experience.
"O'Naturals should promote a star product for its great taste. Ideally, it should be something that people wouldn't normally prepare at home, but it should be recognizable and understandable. The fact that it's all natural and is better for you should speak for itself. But my bigger concern is that if it doesn't taste great, people won't pay substantially more, even if it is healthy and natural."
WHO: Terry E. Maloy, chief marketing officer at Wild Oats, based in Boulder, Colo., a chain of 109 natural-foods grocery stores
"One of the challenges they face is that there's a limit to the premium consumers may be willing to pay. A consumer may be well educated and have a high income, but no one is willing to overpay for anything. They'll also need to staff the stores with associates that share the same passions and values, and they'll have to appeal to kids -- those may be challenges as well. There's a lot of history of stores expanding too fast too soon and being spread out geographically too far before they have a solid foundation."
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