Opening a Healthy Fast-Food Chain
Eating Healthy on the Go
I recently switched to a plant-based diet advocated by documentaries like Food Inc., What the Health and Forks Over Knives. Although I love learning to cook healthy meals at home, I often take road trips across Washington State and can’t seem to find a healthy alternative to processed meats smothered in processed cheese.
I put on my business cap and started doing some research on the fast-food market and here are some interesting things that popped up.
Did You Know?
80% of Americans eat at fast-food restaurants multiple times a month.
BUT—19% of Americans eat at fast-food restaurants less than once per month (that’s 58 million people).
So there is a huge opportunity. Although processed foods currently dominate the fast-food market, there is a large segment of the population avoiding fast food or hardly ever eating it because of it’s tarnished brand. Enter a fast-food chain that can provide healthy food, conveniently, and at a competitive price, and you’ve got yourself a business opportunity.
- Green = Countries where Subway has the most outlets
- Red = Countries where McDonald's has the most outlets
- Pink = Countries where KFC has the most outlets
- Yellow = Countries where Pizza Hut has the most outlets
- Grey = No Data
Subway leads fast food companies in number of outlets in the United States.
So Subway markets itself based on “fresh” branding, meaning it is the “healthiest” option in the fast-food market. If you do your research, Subway’s healthy food claims fall apart and you’re still alienating health food enthusiasts. There IS a demand for healthy food, people are just being tricked into "eating fresh."
Red meat consumption is on the decline while chicken consumption is skyrocketing.
So people are switching to the cheaper option for meat. There is plenty of misleading information saying chicken is the healthier option when choosing between red meat and poultry, but chicken’s dominance is being driven by the ingenuity of its processing that has driven prices down.
So so what?
A healthy fast-food chain would have to compete on price. Conventional fast-food chains have industries working in their favor to produce satiating proteins, fats, and salts at bargain prices. Health food does not have to be any different. Using chickpeas, brown rice, lentils, and tofu with a bulk purchase of spices, healthy food could be a cheap alternative to the conventional fast-food diet.
There are 2.7 fast-food restaurants per 10,000 people in Washington State
So real estate is important. I did a search for real estate equipped with a drive-through and fast food kitchen and found a former Jack in the Box in a less than ideal location for sale at $3.7 million dollars. This means there is a huge capital outlay required to establish a chain, and most of those dollars will go towards real estate. But, to compete with fast food, you need that pillar of convenience which will cost you.
In 2012, fast-food marketers spent $4.6 billion on total advertising.
So this is why there aren’t any healthy fast food restaurants. Although healthy food may not be as palatable to Americans, the primary driver of revenue in the fast-food industry is advertising. Brand recognition is so powerful, that hunger is synonymous with fast food brands in the consumer’s mind. So building a brand is up there in expenses with being convenient.
Poll: Would you eat a healthy fast food alternative to popular fast food chains?
Would you eat healthy fast food once a week if it were available?
Putting It All Together
The "healthy business pyramid" of a successful fast-food chain is made up of cash flow, convenience, and taste. Each pyramid item has its own base nutrients that enrich the business, making it strong and live a long healthy life.
Cash Flow: Nutrients - variable costs, price (combine to make contribution margin)
Putting together a menu that is cheap and healthy is not the difficult part of opening a healthy fast-food chain. Although sourcing fresh foods may be a challenge, dry ingredients that make up the base of a healthy plant-based diet have a cheaper wholesale price than their comparative meat alternatives, are easier to ship, and are cheaper to store. Using the plant-based diet food pyramid above for inspiration, you could easily source brown rice, nuts, dry beans, chickpeas, lentils, spices, herbs, and the list goes on. The next step would be to see which fresh veggies and fruits you could get at a competitive wholesale price, with sustainable shipping costs, that would sell enough to avoid unnecessary food waste and spoilage...maybe your restaurant would specialize in seasonal fruits as a side alternative to French fries, and maybe local farmers would be happy to make the same deals with you that grocery chains like Trader Joe's specialize in for their unique produce.
Whatever the menu, the two basic "nutrients" to keep in mind are variable costs, how much it costs you to buy, ship, prepare and store your ingredients, and the price you can charge in excess to your variable costs.
Your price - your variable costs = your contribution margin.
The higher the contribution margin, the higher your cash flow per order.
Convenience: Nutrients - location, consumption
Real estate is expensive, but there is plenty of capital available for businesses with proven cash flows. To overcome the capital requirements of a successful chain, a powerful brand and location that could attract 200+ customers daily would be needed. The average fast-food restaurant earns $6 in revenue per customer with over 300 customers daily. So your first "nutrient" for convenience is location.
Fast food is easy to consume, meaning it doesn't make a mess in your hands, or come spilling out of the wrapper, it's even consumable while driving! So your second "nutrient" for convenience is consumption. You want a consumption time of 10mins or less. This is not a posh sit-down restaurant. You want your store designed for quick service, easy cleanup, and long lines that don't take long to get through. From order to compost, your restaurant should shoot for 20mins. This will require thinking through how food is prepared, how the staff interacts with customer orders, and how the store feels (welcoming yet encourages a rapid consumption rate.)
Market: Nutrients - taste, brand awareness
The third and most difficult pillar is the market. Will enough people buy the healthy alternative once its available? With the increasing market for Organics and the recent purchase of Wholefoods by Amazon, the next big wave in food is convenient whole foods. There is a huge segment of the United States that is educated about their eating habits and are eager to find the healthy foods they love at an affordable price and a convenient location. You need to be waiting there with food that tastes great, and a consistent quality experience that matches the promises you make from your marketing. Every McDonald's burger tastes the same, whether in Beijing or Minnesota, will you be able to match the same quality with the system you develop for your menu? Will you be able to get the message out that the healthy alternative to processed foods is waiting within driving distance?
Will your health food store be waiting to catch the health food wave of money swelling off the coasts of New York, Orlando, San Francisco, Las Angeles, and Seattle?
I hope this article inspires the next Ray Kroc (proprietor of McDonald's) to bring America, and the world, a healthy alternative to eating on the go. If you have any further questions, please feel free to reach out to me. Thanks for reading.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2017 Nhagew