COVID-19 Special Episode: Seth Cohen, Partner & Co-Founder of Sweetfin
About the Guest
Seth Cohen is currently the managing partner and a co-founder at Sweetfin Holdings (Sweetfin), a fast-casual, chef-driven, California inspired poke concept that has 10 locations throughout Los Angeles and San Diego. Sweetfin was launched in April of 2015 with the goal of providing healthy, nutritious and flavorful bowls and a more approachable way for modern diners to enjoy sushi.
COVID-19 continues to put massive strain on the restaurant industry. In this episode, we talk to Seth Cohen, Partner & Co-founderChief Executive Officer of Sweetfin, about the decision to stay open, why his team is working on the creation of a “ghost” brand operating out of their existing kitchens and their plans for reopening dining rooms.
From fake meat and robot chefs to ghost kitchens and delivery drones. The restaurant industry is rapidly evolving. Welcome to Food Fighters, bringing you interviews with the leading industry trailblazers. I’m your host, Zach Goldstein.
Welcome back to Food Fighters. I’m your host, Zach Goldstein. I’m here with Seth Cohen, Managing Partner and Co-founder of Sweetfin, a fast casual, chef-driven, California-inspired poke concept with 10 locations throughout Los Angeles and San Diego. Sweetfin was launched in April of 2015 with the goal of providing healthy, nutritious and flavorful bowls and a more approachable way for modern diners to enjoy sushi. And look forward to a lively discussion about the birth of Sweetfin and of course, what the brand is doing to manage through the COVID-19 crisis. Seth, thanks for joining us on Food Fighters today.
Thanks for having me Zach.
Absolutely. The last couple of weeks is obviously a complete whirlwind for restaurant operators. And so we’re, we’re getting a whole bunch of perspectives onto the podcast and, and thrilled to have yours. But before we get into the kind of COVID-19 crisis, let’s, let’s just talk about your story and the story of Sweetfin. What had you dive into being a restaurant operator? What was it, what was the opportunity you saw and, and what made you launch Sweetfin?
As a kid growing up, I always had a fascination for food and hospitality and I was that kid that was uh, watching The Food Network before The Food Network was, uh, socially acceptable to watch. So I love food. I love having people over at my house and I knew that once I graduated college at USC that I wanted to build a company in the hospitality space. I grew up in a family that’s very entrepreneurial, so I’ve always had that in my blood. And, you know, like I said, I genuinely love hospitality and, and really nothing makes me happier than having people over at my house. So in 2014, I kind of saw the rise of this healthy, better-for-you fast casual movement taking place on the, on the West coast. You had the likes of Lemonade and Mendocino Farms that were entering the market. And of course I’d seen sweetgreen on the East coast and I thought there’s a real opportunity to bring something fresh and new and exciting to the fast casual market. I grew up eating poke, I love sushi, but I knew that sushi wasn’t super scalable. It wasn’t very approachable and it definitely wasn’t affordable. So I wanted to create something that was healthful and customizable and portable that was similar to sushi. And the idea of Sweetfin was born back in 2014.
That’s great. Seth and, and people, people in Southern California are absolutely in love with Sweetfin. It’s one of these concepts that when you talk to people, they, they rave about it. You see people wearing Sweetfin branded hats and sweatshirts. Tell us about the “pole to bowl” philosophy. What does that mean and how do you turn that into something that really makes your brand unique as the poke market has become a little bit more crowded than it probably was when you first started.
Our pole to bowl ethos really refers to the way that we’re sourcing our seafood and our produce as a whole. When we opened our doors in 2015 as one of the first poke concepts in the country, we were definitely the first to really embrace sustainability and transparency. So we created these fish fact cards that would go with every menu. It would include where our fish was from, how it was caught, and any sustainability ratings associated with it. As we’ve grown, we’ve really embraced that pole to bowl ethos and also make sure that not only are we sourcing responsibly, but we’re also making everything in house at Sweetfin. So we’ve taken a chef-driven approach in our concepts and that means that everything at our stores from pickling our own mushrooms to making our own hot sauce, fermenting that for 21 days, to making our own crispy onions, is made in house. And that chef-driven approach, being sustainable, has really set us apart in the market.
And it really has, as I mentioned, people people throughout Southern California are complete diehards. And that’s part of what makes the current crisis just so painful is you built a brand that had become routine. It has become in many cases, multiple times of week for your consumers which is something really hard to do. And obviously the COVID crisis has disrupted that at least in the short term. And we hope it comes back to normal soon. We’re recording this in early, I guess almost mid April at this point. Tell us about when things really started changing for you in Southern California with regard to COVID. When did traffic change or when did you feel pressure that you needed to close the stores and how did you think about those decisions which are really unprecedented?
We’ve been watching the COVID crisis unfold for quite a while now. I was following the headlines and at the end of January and through February and we started to create contingency plans around recreating our labor models to react quickly if the COVID crisis were to hit Los Angeles specifically, which it did. The second week of March is when we really saw sales start to decline pretty rapidly. Our day traffic dropped significantly and all of the catering orders that we had lined up for the end of March and April started to get canceled. So we’ve really been following this crisis since the end of January and February. And we started to create contingency plans with our labor model to be able to scale down if we needed to and react as quickly as possible.
And when did you kind of finally pull the trigger on doing just that? Because it sounds like for you, one of the immediate triggers was as local, larger local businesses move to work from home, that meant that where your stores were located, the demand was a lot lower. At some point that becomes unsustainable I’d imagine. And you had to make kind of a bigger call of what level of operation does it no longer make sense to stay open?
Yeah, that’s exactly right. I think the day was exactly March 13th where we saw the decline in business drop-off close to 50%. That was the day that the professional sports leagues canceled their seasons or put them on pause. And really a lot of fear and panic started to set in in Los Angeles pretty quickly. I’d say within 48 hours, we were ready to deploy new labor templates for our stores. We cut back hours as quickly as we possibly could. And you know, one of the benefits of our model is that we have a small real estate footprint. So we can pretty much efficiently run our stores with a very lean labor model. 50% of our sales are already take out and delivery. Of course we lost a decent percentage of that due to catering orders that were lost. But with our labor model being lean and being able to maintain a certain levels of level of sales, it made sense for us to continue operations. The costs of reopening stores once they’re closed is very high. You have to retrain, you have to rehire, you have to restock. So we made the decision that so long as a store to operate, even with a small amount of profitability, we’d continue to keep them open.
It’s very helpful to think through what is your threshold for how to determine a store that’s open and how you do that and sounds like scaling it for an off premise model is something that you’re almost set up for. And that had been something you were doing before. I know that you had been one of the innovators in a, in an exclusive relationship with a delivery company and in your case, I think it was Postmates, right? How did you think about the decision to go exclusive with Postmates and lean into third party delivery is one of those channels? What were you seeing back when you made that switch and how is that playing out now that delivery is such a gigantic portion of your business with many of your stores closed?
Sure. So we, we made the decision to go exclusive with Postmates back in February of 2018 and it was a difficult decision, but it was a decision that needed to be made. When we opened our first location in 2015 in Santa Monica, 95% of our business was eat-in and take out. The idea of off-premise delivery didn’t even exist and as we started to open more stores and as these third party companies started to become more relevant, they started to eat more and more of our market share in terms of our eat-in vs. Delivery percentage of sales. We originally only were with Uber Eats and then we started to add all the other players in the game: Grubhub and Caviar and Postmates, and we got to the point where just managing all those relationships, managing all those tablets, managing all those menus, all the marketing for each one became extremely difficult and we more or less needed to dedicate a corporate employee just to to oversee those third party relationships.
Then we started to notice a real hit to our P & L profitability as more and more third party started to eat into our business. So we knew that the business of adding more third parties wasn’t sustainable. And as we started to add more and more third parties like Grubhub, and Caviar and DoorDash, we weren’t seeing sales increase. They were really just kind of taking each other’s business. So we got approached by Postmates uh, I believe we were their test brand to be exclusive – the first deal they ever did because they really believed in our brand. They believed in our ability to drive revenue both for ourselves and Postmates and they were willing to cut us a deal that we thought was very fair. We were able to bring our commissions rate down significantly. We were able to deal with one company in terms of creating marketing opportunities. Um and overall it’s been a really, really great relationship with them and we’ve really been the Guinea pig as they’ve rolled out their exclusive program. So it is nice to be able to make a phone call and be able to react quickly with different promotions and different marketing within one app rather than having to go through six or seven providers.
And did you end up seeing that indeed overall delivery volume largely sustained as you consolidated or was there a hit and you had to grow back to the total volume?
We are fortunate in that we have very strong regional brand in Southern California and that was kind of the biggest risk that we were taking was well what happens if we’re off Uber, are people who are using Uber exclusively going to want to switch to another app and order Sweetfin? And what we saw was yes that was the case. So it was really a win win for both parties. We were able to bring our costs down significantly as a result of lower commission fees. But Postmates were using us essentially as a user acquisition tool for them, leveraging our brand on their platform. So overall our delivery volume actually increased with the switch from six to one provider.
I mean you highlight probably the big advantage there: the brand affinity being so strong that you can do that. That helps a lot, right? People want their Sweetfin and like I mentioned before, in many cases it’s a multiple times a week type of dining occasion, which is super hard to do in your category. That helps. But it’s amazing that you didn’t see volume decline, especially, Postmates has strong market-share in LA, but it’s not like it’s the dominant provider overall, right?
I believe they actually are the number one third party delivery app in Los Angeles specifically. Maybe not Southern California as a whole, but they do have a strong brand here. But DoorDash, Uber Eats, are all, they’re very prevalent as well. So it definitely was a risk for us to make that jump.
Food Fighters – stay on the cutting edge.
Off premises is key in this crisis. And yet you had some other stakeholders to think about beyond your consumers. How do you maintain your supply chain, how do you support those vendors? And so you made a pretty innovative decision. And one that I know is actually of some debate in LA, which is to open up a fish market and sell your product directly. Tell us about how you arrived at that. What were the motivations and, and what is the consumer value proposition? What are you offering?
We’ve done a few innovative things over the last couple months and, and that’s one of the benefits of being a small company in a crisis is there’s obviously pros and cons. On the negative side is, you know, we don’t have the balance sheet that some of these major companies like Shake Shack have where they can withstand months and months of, of lower revenue. But being smaller allows us to be innovative and act quickly. So we’ve done a few things. The fish market idea was something that was actually brought up by some of our customers. We were seeing a lot of our customers not wanting to leave the house, they were eating at home and they knew that Sweetfin was known for selling amazing and quality fish. So we reached out to our fish suppliers with this idea of how can we leverage our relationship and start to sell the same fish, the same quality pre-portioned out. So six ounce portion, perfect for a meal and then sell in addition to this fish, um homemade sauces, homemade marinades, homemade sides. So a family or a couple could eat and quickly cook at home. And the idea has really taken off. It’s been amazing that so many of our quote unquote sweet fans as we like to call it, our customers, have ordered directly through us for this fish market. So that’s been really amazing. And we also developed fairly quickly, it was something that we were working on before the crisis, but we really kind of expedited the, the rollout. A new brand that is powered by Sweetfin called Plant Shop. Plant Shop is a vegan, one hundred percent vegan, 100% gluten free, 100% real plant-based bowl and salad concept that’s powered by Sweetfin that’s only delivery. So we were seeing over the last, I’d say two years an increase in plant-based bowl sales. We always were kind of an innovator in the poke market of selling plant-based bowls. So we’ve always had close to 40% of our menu filled with vegan options. So we decided to create a new brand that’s called Plant Shop that uses the same innovative California flavors of Sweetfin but is exclusively vegan. And we’re starting to roll that out on Postmates throughout all of our portfolio of restaurants. And that’s starting to take off as well.
Fascinating. I want to talk about both of those actually cause it’s pretty interesting. The idea of selling what LA County was calling groceries at one point was, was in debate. And I know that LA has now relaxed those restrictions, but innovative restaurants like yours offering their product directly to consumers was part of that. Is this something you expect to keep doing? Is that an unknown and you’ll, you’ll feel it out? How much of what you’re doing right now is reactionary to a near term need and how much of it is innovation that you think could sustain?
So I think the fish shop idea or the fish market idea and produce boxes, we’ll take it day by day and we’ll see what demand looks like. I foresee a time, hopefully in the very near future where people are not going to want to cook every meal at home. I believe that the demand for that product will probably slowly dwindle away. But what we are developing and what I do think is a very longterm play is utilizing our kitchens, our downtime and our employees to be more efficient and create some ghost concepts that we can run directly out of our own stores without having to utilize a ghost kitchen. So Plant Shop is the first brand that we’ve rolled out. And we’re working on a couple others, but having a partner that’s an executive chef, again, having innovation in our DNA is really important and maintaining those chef-driven principles as we start to roll out these ghost brands – I think that’s the future of the business. Of course we’re excited to welcome our guests back and eat-in as soon as we possibly can, but we need to leverage our kitchens and utilize all of our square footage, all of our labor resources to drive incremental revenue to our business. And I think part of that is extending our product offering and creating these new brands around Sweetfin and really leveraging the good will that we built with the Sweetfin brand.
I picked up on the “powered by Sweetfin” and the fact that you’re building brands around Sweetfin. So it sounds like you’re not branding these independently, but you do see value in branding them separately as related to Sweetfin.
Yeah, exactly. We spent the past five years really building brand awareness around Sweetfin. And all of the things that we’ve talked about: being sustainable, our pole-to-bowl ethos, being chef-driven, making sure that all of our products are homemade and handmade from scratch daily. All of those ideas will resonate or continue to resonate with our guests and we might as well leverage our brand and again, utilize the good will that we’ve built to create new brands. And Sweetfin has a lot of power in terms of brand power in Los Angeles and Southern California. So it’s something that we want to leverage.
Taking a different angle on the fish market, it is very challenging to forecast demand when you’re seeing 40 50 60 or more percent swings in volume because of a crisis that comes on so fast like this and nowhere is that harder I would assume than in the supply chain for fish or you don’t exactly have shelf storage. So how did you think about working with your suppliers to adjust demand? I’m assuming some of that played into the concept for fish market. What are they experiencing right now?
It’s really been a challenge. Supply chain has, for the first time in five years really been inconsistent. For the fish market, I think we took the smart approach. We are only accepting orders 24 hours in advance, so we’re taking no risks in terms of bringing fish into our stores that we’re not going to sell. So someone preorders and picks up or grabs their delivery the next day. But just in general for Sweetfin, we have seen challenges with overall shortages of our product. For example, our albacore: that comes in daily from Fiji. Not so long ago, you’d have 10 flights a day coming in from Fiji to Los Angeles. Now there’s maybe one flight a day. So our fisheries that we’re working with are having trouble getting their product on airplanes. So for the last two weeks we’ve had shortages of albacore on and off. So we’ve really had to start thinking differently. Maybe we need to utilize a different fish or maybe we take that product off the menu for a period of time. Fortunately, we have a very diverse menu. We don’t rely on one protein. We do have the majority of our menu, almost the majority of our menu’s plant-based. So that’s very easy to get in stock. But yeah, we have had challenges with suppliers.
And I would imagine that means that can be painful to their own longterm sustainability because you’re not able to get the product, but that means they’re not making any money off of it. And your business obviously relies on the sustainability of those hand selected suppliers that you’ve chosen.
They rely on us to be open and I think while many restaurants have decided to temporarily close we made the decision both for our suppliers, our investors, our team members that we would do anything possible to remain open. And that’s really important to us and you know, we’ve done a really good job I think reacting quickly, being innovative and doing our best to take care of all of our, our key stakeholders.
As you think about the decision to go back to allowing consumers in the restaurants and have dine-in obviously there are government regulations and shelter in place rules right now. Do you expect to reopen as soon as the city of LA or San Diego allows you to? Or are there other considerations that you need to take into account, whether that’s staffing or health of customers and employees or demand? How are you thinking about that decision?
We’re ready to go. We will of course listen to all the guidelines that are given to us by the CDC and the city of Los Angeles. And the state of California as to how we should reopen. Our customers we feel are ready to come back in. We want to rehire the employees that we’ve unfortunately had to furlough. That is just the nature of this situation, unfortunately. But we’ve taken measures to make sure that all of our employees are wearing protective equipment, masks, gloves at all times. When you have timers in the restaurants, every 30 minutes there’s a timer that goes off where employees stop what they’re doing and wash their hands. We’re making sure that we’re sanitizing all parts of our restaurant and making sure that they’re cleaner than they’ve ever been before. So we’re taking it seriously, but we are ready to reopen whenever we’re given the green light to do so.
That’s great to hear. Well, Seth, this is a fantastic conversation and I know you have 15 things going on as you’re trying to balance this new normal. As you look forward, Sweetfin restaurants or back to business, perhaps demand still looks a little a little weird for some period, but hopefully it rebounds quite quickly on the other side. What do you think are some of the longterm impacts here and how are you positioning yourself to be prepared to not only bounce back, but to actually emerge stronger longterm coming out of the crisis?
There are so many questions, so many unknowns and no one knows how this is going to play on the next six months. I think the most important thing that we can do to position ourselves, to be in a strong financial position is to work with our real estate partners in a realistic way to renegotiate or reconfigure our rents so they’re on a gross rent. So we want to pay a percentage of our sales as we start to re accelerate our sales. If we were to jump back into the rents that we were paying at the top of the market, at the height of our sales, it would financially crush us. And I think our real estate partners are understanding of that fact, and I think that, you know, unfortunately for them there aren’t many options in terms of replacing restaurants with another restaurant. So we really value our real estate partners and we think that for us to really be successful and for small and medium size restaurants to really be successful as we come out of this crisis, we need to anticipate the worst.
And we don’t anticipate sales to come back to where they were for at least six months. So during that ramp up phase, we need to make sure that our rents and our occupancy costs are in a good sustainable place for us to reopen appropriately. There are so many questions about how the consumer is going to be impacted. Is the consumer going to or be able to spend $10 to $15 on a fast casual, healthy lunch? If they are, is that replacing a more expensive meal that they were going to have? So we’re really taking it day by day. We look at the numbers by the hour to see and the data to see how things are improving. And fortunately we are seeing the initial shock and scare start to wear off and things start to normalize a little bit in terms of our customer base. So we’re very optimistic about the future. I think we’ve made great moves in terms of starting to develop these brands that will be powered by Sweetfin. They’ll come out of our kitchens, they’ll drive incremental revenue to our stores and it will allow us to be more efficient with labor because we’re going to need it. Things are definitely going to change. It’s just a matter of how much they change and for how long they change, so we’re taking it really day by day at this point.
I think that’s the only way you can. I wish you absolutely the best. I look forward to seeing the expansion of the brand, both as you open up these new concepts and perhaps as you look to other geographies as well. Thanks for joining us on Food Fighters and sharing what you’re doing to make it through the coronavirus crisis.
Thank you for having me. Really appreciate it.
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