Winner Winner, Chicken Dinner

Business Model

Overview

Born out of frustration with the lack of healthy food alternatives (and exact nutritional information), Snap Kitchen was started in 2010 by friends, Martin Berson and Brad Radoff.  They sought to provide customers with a health food concept that was both a convenient and transparent take-away option for breakfast, lunch and dinner.  Opening two stores in Austin and a flagship store in Houston, they tested the idea in two very different Texas markets.  And it didn’t take long to prove the idea.

After early success, Snap attracted the attention of private equity investor, Catterton Parters, who helped fund the company’s early stage growth phase.  Less than two years later, Catterton provided a second round of funding as well as a seasoned CEO, David Kirchhoff, who is the former CEO of Weight Watchers.  After speaking with him in connection to this assignment, David described this opportunity as unlike any concept he had seen before.  He was most impressed by Snap’s ability to marry “crave-able food” that is “ridiculously good for you” at “maximum convenience,” a combination he had not yet seen executed well.

The business has expanded from its Austin headquarters to four cities: Houston (12 locations), Austin (7 locations), Dallas (10 locations, 1 additional opening planned) and Chicago (7 locations).  Philadelphia is slotted to be its next expansion target.

Value Proposition

As an innovative food retailer, Snap promises to offer its customers “consciously crafted food” and “chef-driven creations prepared with the highest quality ingredients.”  Variety, quality ingredients, and convenience are combined to offer customers a superior product offering in each store.  Not surprisingly, Snap charges a premium for its “creations.”  For example, a 16 ounce juice is priced at $7.99, and typical dinner entrées cost between $8.00 – $15.00 per item.  The hefty price tag is, in part, a result of premium ingredients costs that are passed along to the consumer.  Snap is designed to be a one-stop-shop for even the pickiest of foodies.

Operating Model

Kirchhoff articulated that he sees Snap as three distinct companies disguised as one.  Its business model depends on effective implementation of all three.

Company #1:  Small-Batch Kitchen

Snap uses a “commissary kitchen” model where larger kitchens are built and meant to supply finished product to the surrounding storefronts within each of its target demographic.  Small batches of menu items are prepaid in these kitchens, packaged and finally transported in refrigerated trucks to the surrounding storefronts.  These commissary kitchens act as distribution centers and allow Snap to consolidate its operations.  For example, ingredients and materials are delivered to a minimum number of locations, and food preparation and packaging activities are streamlined.

While traditional restaurant kitchens strongly emphasize culinary skill, their operations tend to be hectic and messy behind-the-scenes.  On the other end of the spectrum, assembly line or {very} traditional commissary kitchens tend to operate more efficiently but lack in quality and taste.  To realize the benefits of both, Snap utilizes a small batch production process to maintain consistency and quality, key company value propositions, while still maintaining a culinary edge.

In addition to creating consistent, high quality products, Snap also offers customers variety.  Because Snap offers such a wide range of SKU’s, its small-batch kitchen process is ideal.  In fact, because its menu is so broad, mass production wouldn’t be possible.  The menu items are designed to address a nearly exhaustive list of dietary needs and restrictions, including clear ingredients labeling.  Customers can will find products that address various dietary needs and preferences; example labeling includes “Non-Dairy,” “Carb Conscious,” and “Paleo.”  For each menu item, the calorie count, ingredients list, and preparation instructions (if applicable) are clearly visible.

Company #2:  Specialty Retailer

When customers walk through a given store’s door, they will find an intentionally designed layout that is optimized for quick choices.  The vast and broad take-away menu items are sorted in an open floor plan according to breakfast, lunch, dinner and snack categories.  Storefronts vary in their product and service offerings: some offer customers prepared and packaged menu items only while others offer customized solutions such as a salad bar.

These storefronts receive daily deliveries and are typically much smaller than food preparation centers.  Because these stores require less capital investment and real estate, Snap can open more of them.  Applying this concept to their target markets helps Snap execute on one of its core values: convenience.  By building more of these smaller stores, Snap increases its footprint and makes itself a more accessible option to customers.

Complementing its chosen store design, distribution strategy and food packaging, Snap’s ingredients sourcing reinforces its commitment to transparency, health, and most of all, quality.  As a specialty food retailer, Snap sources as much of its ingredients from local sources as possible.  The result is a rotating menu that changes according to the season and availability of those fresh ingredients. Examples of the local establishments from which Snap sources its ingredients in Austin, Houston and Dallas include:

Live Basil – Bluebonnet Hydroponic Farms, Schertz, TX

​Honey – Good Flow Honey, Austin, TX

Zucchini, Jalapenos & Eggplant – Pedernales Valley Farms, Fredericksburg, TX

Pastured, Certified Humane Eggs – Vital Farms, Austin, TX

100% Grass-Fed Ground Beef – Burgundy Pasture Beef, Grandview, TX

Watermelon – Haily’s Best, Edinburg, TX

Further evidence of Snap’s local sourcing can be found in its recent SPE 3-star certification (SPE’s highest rating), which evaluates foodservice operations on the basis of sourcing, sustainability, nutrition, menu balance, training and transparency.

Company #3:  E-Commerce

Although only four months into the job, Snap’s new CEO, Kirchhoff, is focused on the company’s next step: its website.  Currently, SnapKitchen.com functions as a blog and information source for Snap products.  Kirchhoff and his team see Snap’s e-commerce presence as crucial to its growth and also to its mission of maximum convenience.  While Snap has succeeded in establishing convenient and accessible locations in their current markets, customers are demanding more.  A digital option for order placement and delivery is a logical expansion of Snap’s commitment to convenience.  Snap has already hired a chief technology officer to lead the charge and is currently in the midst of building a product development team to support this operational expansion.

What’s Next?

Snap entered the market as the health conscious trend was ramping and has now established itself as an effective, scalable business.  As Snap grows, it must continue to focus on achieving greater food preparation efficiencies and streamlining its supply chain.  With a seasoned CEO at the front and an experienced private equity sponsor in the backdrop, Snap has all of the ingredients to continue down its path of success.

 

SOURCES:

Internet Research

• http://www.snapkitchen.com/
• http://www.philly.com/philly/blogs/the-insider/Get-set-for-Snap-Kitchen-a-healthy-takeout-specialist.html
• http://www.bizjournals.com/houston/print-edition/2015/02/20/how-i-created-a-health-foods-brand-with-20-stores.html
• http://specertified.com/how/certification
• http://www.catterton.com/Brands.html#!/current/x/snapkitchen
• http://nrn.com/mergers-acquistions/snap-kitchen-receives-investment-catterton-partners
• http://nrn.com/people/former-weight-watchers-exec-named-ceo-snap-kitchenhttp://foodtruckr.com/2014/02/start-food-truck-learn-commissaries/

Interview

• Dave Kirchhoff, CEO of Snap Kitchen – December 8, 2015