The Upstarts

How these 33-year-olds are taking Sweetgreen from a dorm room start-up to the 'Starbucks of salad'

How Sweetgreen became the Starbucks of salads with a valuation over $1 billion
How Sweetgreen became the Starbucks of salads with a valuation over $1 billion

Sweetgreen is the first-ever unicorn salad start-up, luring lunchtime lines across the country with its millenial- and Gen Z-friendly $12 salads. Now ,the brand that brought the farm-to-table trend to fast-casual dining wants to be "the Starbucks of salads."

"If I had told you 25 years ago, when Starbucks only had a few locations, that someday it would be a global phenomenon … nobody would have believed that. ... But, that's what happened," Sweetgreen investor and billionaire Steve Case told CNBC. Today, Starbucks has a market value of nearly $90 billion. "And so that's what we feel with Sweetgreen."

Like Starbucks, Sweetgreen started with a single store.

Sweetgreen's first-ever location on M St. in Washington, D.C.
Source: Sweetgreen

The brand was founded in 2007 after then-Georgetown students Jonathan Neman, Nicolas Jammet, and Nathaniel Ru (who met in an entrepreneurship class) got tired of the unhealthy and uninspiring food options around campus and decided to do something about it.

"The most delicious food, the coolest food … was all the least healthy," Jammet tells CNBC Make It. "None of them made us feel that good, and we wanted to solve that problem."

Neman, Jammet and Ru, all now 33, settled on the concept for Sweetgreen — fast but healthy meals that taste good and feature ingredients from local farmers — before they'd even finished taking their finals, and they hosted taste tests of future menu items with other students in Jammet's dorm room.

"We even had these little anonymous surveys people could fill out," Jammet tells CNBC Make It. (An early iteration of the chain's Guacamole Greens salad was the most popular dish then, he says, and it remains one of the store's biggest fan favorites.)

The friends raised over $300,000 from 50 investors — mainly family and friends — and three months after graduating, opened the first Sweetgreen in a 560-square-foot shack near the Georgetown University campus.

The bathroom was bigger than the kitchen, Ru and Jammet remember. "We really had no idea what we were doing," Jammet says.

Source: Sweetgreen

But customers kept coming.

Within a year and a half, Sweetgreen opened two more locations, another in D.C. near Dupont Circle and one in Maryland. And it kept growing. By 2013, when Sweetgreen made it to New York with store number 20, the company had raised over $35 million.

Now, nearly 12 years in, Sweetgreen has a loyal following of customers who absolutely eat up the brand's ethos: to make "simple, seasonal, healthy food." The company has 91 locations in eight states — 30 of which were opened in the last two years — and plans to open 15 stores in 2019. Fifty percent of the company's orders are placed online, including its app, which has been downloaded by over 1 million people. (For comparison, digital orders at Chipotle, a much larger fast-casual chain, accounted for roughly 11 percent of overall sales last year, and more than 23 million people reportedly use Starbucks' mobile payments app.)

A private company, Sweetgreen declined to share revenue figures with CNBC Make It. But the company has raised a total of roughly $365 million in funding from outside investors, including its latest fundraising round of $200 million from a group led by Fidelity Investments in November that valued the company at more than $1 billion.

Other investors include restaurant moguls like Shake Shack founder Danny Meyer as well as Revolution Growth, the venture capital fund co-founded by former AOL CEO Steve Case.

The Sweetgreen brand continues to grow, with the company scoring a partnership with WeWork and collaborations with celebrity chefs like Momofuku's David Chang and Blue Hill's Dan Barber. Celebrities from Justin Bieber to Kendall Jenner and Democratic presidential hopeful Cory Booker have reportedly eaten at Sweetgreen, and Goop, actress Gwyneth Paltrow's influential lifestyle brand, has said they're "big fans."

"Is salad a hot trendy growing category? Absolutely not," NPD Group food industry analyst David Portalatin tells CNBC Make It. But with innovation around a supply chain that partners with local farmers, a focus on sustainability, a strong digital footprint and millennial-friendly marketing that's included sponsored music festivals and popular loyalty rewards programs, Sweetgreen has created growth in what is otherwise a pretty flat marketplace, according to Portalatin.

Sweetgreen has been criticized for its high prices, but the company says prices have gone up over the years to increase wages and benefits for its employees.

Sweetgreen's Guacamole Greens salad.
Source: Sweetgreen

And it still has a long way to go before it's on par with giants like Starbucks, which has over 28,000 locations worldwide or even a brand like Chipotle (2,250 locations), which could be seen as a precursor to Sweetgreen since it launched 25 years ago with a focus on fast food made with locally sourced, non-GMO ingredients.

Plus, Sweetgreen isn't the only popular salad chain that's expanding. It could face challenges from the likes of Chopt and Los Angeles-based TenderGreens. So that's a lot of ambition for a company with under 100 stores.

But Sweetgreen does have the benefit of the massive influx of cash from its investors, which the company will put to use to open more locations (the next one will be in Houston, Sweetgreen's first Texas location). Sweetgreen will also continue to build its digital platform, including growing its mobile payments app and even investing in blockchain-based technology that will allow Sweetgreen and its customers to trace a salad's ingredients back to the farm where they were grown, the company said in November.

It's not a pipe dream for a company with a business model that's already working to eventually become a global powerhouse, according to Jeff Fromm, a millennial marketing expert and president of consumer trends consultancy FutureCast. The key for Sweetgreen's ascendancy is whether or not the brand can continue to scale while staying true to the local, farm-to-table ethos at the root of its success, Fromm tells CNBC Make It.

"If they can, then I think they're going to be very successful at creating an iconic brand that consumers love, because they'll be able to get the flavor they want, the menu changes seasonally, the value prop is strong," Fromm says. "But time will tell whether they can make that balancing act work."

The bottom line is that Sweetgreen's millennial co-founders do not plan to stop growing anytime soon. "We think that as we get bigger, the opportunity also gets bigger and were just getting started," Ru says.

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