WEBVTT -  Sweetgreen CEO Neman Talks Cyclospora Outbreak

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News. All Right, we're going

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<v Speaker 1>to say in the restaurant sector, I'll share this week

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<v Speaker 1>Green actually rebound today after a multi day sell off

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<v Speaker 1>after the chain cut its outlook last week over reduced

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<v Speaker 1>demand that it did tie to some of the concerns

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<v Speaker 1>about cyclospora. I had a chance to catch up with

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<v Speaker 1>the CEO and co founder, Jonathan Neeman, to talk about

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<v Speaker 1>the impact and well how he thinks he can turn

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<v Speaker 1>things around.

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<v Speaker 2>Obviously, cyclospora has had an impact on our business, as

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<v Speaker 2>it has had a business, had an impact on really

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<v Speaker 2>anyone selling fresh produce. The good news is is just

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<v Speaker 2>over the last week, the FDA has announced that it

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<v Speaker 2>is safe to eat Iceberg lettuce. So, as we mentioned

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<v Speaker 2>on our earnings call, we had a really big initial impact.

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<v Speaker 2>We have seen some recovery since, but you know, it

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<v Speaker 2>has been a significant impact given this fear customers have

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<v Speaker 2>about having leafy greens. The important thing for Sweekeren, though,

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<v Speaker 2>is that none of our customers or supply chain has

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<v Speaker 2>been implicated in the outbreak.

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<v Speaker 3>We do not serve Iceberg lettuce.

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<v Speaker 2>The outbreak has been isolated to Iceberg lettuce from Mexico.

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<v Speaker 2>Resource all of our greens from the United States. In

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<v Speaker 2>a lot of ways, this is a moment where the

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<v Speaker 2>sweet green supply chain and the direct relationships with farmers

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<v Speaker 2>is so critically important.

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<v Speaker 3>Well, before we get.

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<v Speaker 1>Deeper into that, have you had any sort of contact

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<v Speaker 1>or any of your folks there with the government. We

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<v Speaker 1>had the former acting at deputy director excuse me, for

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<v Speaker 1>the CDC's National Center for Infectious Diseases, and he seemed

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<v Speaker 1>to suggest that, at least based on his data, that

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<v Speaker 1>the outbreak overall a cyclospora was actually starting to sort

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<v Speaker 1>of plateau and taper off, and basically saying that a

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<v Speaker 1>lot of controls that the government had either put in

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<v Speaker 1>place or alerts they have put out there, at least

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<v Speaker 1>for right now, seems to have curbed the issue. What

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<v Speaker 1>contact have you had at all with government health officials.

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<v Speaker 2>They've been wonderful in direct communications with them, and I

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<v Speaker 2>think they've done a good job of explaining what's going

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<v Speaker 2>on and that it's now say, I think it's now

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<v Speaker 2>the responsibility of everyone who said, excuse me, everyone who

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<v Speaker 2>said that you know it's not safe to eat a

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<v Speaker 2>produce to really correct the record, because I think there

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<v Speaker 2>has been a bit of a mass panic hysteria, and

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<v Speaker 2>most people, you know. I was at a barbecue this weekend.

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<v Speaker 2>Nobody was touching the greens. People weren't eating blueberries. Was

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<v Speaker 2>at a supermarket a few days ago, and you're seeing people,

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<v Speaker 2>you know, instead of grabbing, you know, a bag of

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<v Speaker 2>greens or ahead of lettuce, picking up a picking up

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<v Speaker 2>some processed food in a bag. And you've seen some

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<v Speaker 2>of the impact, not just the restaurants has been severe,

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<v Speaker 2>but the impact to farmers. We've seen about a reported

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<v Speaker 2>forty percent impact to farmers that are growing produce.

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<v Speaker 3>So to answer your question, yes, we have been in touch. Again.

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<v Speaker 2>They've said that they believe that the outbreak is under control.

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<v Speaker 2>I think it's now more about that message getting out

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<v Speaker 2>to consumers and them getting back into their habits.

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<v Speaker 1>I do want to be clear though, I mean, because

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<v Speaker 1>there are two separate events. Obviously, the cyclospora outbreak associated

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<v Speaker 1>with lettuce, which which as you've stated, a sweet green

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<v Speaker 1>not actually use that type of lettuce that was known

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<v Speaker 1>to be infected. There was a separate issue with regarding

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<v Speaker 1>a recall of halapenos I believe related to salmonella. And

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<v Speaker 1>my understanding was you do use those jalapennos in your dressing.

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<v Speaker 1>Has that issue been addressed?

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<v Speaker 3>That issue has also been addressed.

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<v Speaker 2>We, out of abundance of caution, removed jalapenos from twenty

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<v Speaker 2>three restaurants that that source from that supplier. We have

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<v Speaker 2>no indication of any illness from that or any trace

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<v Speaker 2>of Manila anywhere in our supply chain. We do only

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<v Speaker 2>source that jalapeno only goes in two of our sixteen dressings,

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<v Speaker 2>so it's a very small bit of halopeno we use

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<v Speaker 2>in our restaurant, and out of abundance of caution, we

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<v Speaker 2>removed jalapeno's entirely from those restaurants.

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<v Speaker 3>Impure.

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<v Speaker 1>Yeah, I'm curious what steps you want to take next.

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<v Speaker 1>I mean, you were giving this anecdote about people kind

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<v Speaker 1>of being afraid of raw produce, and let's face it,

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<v Speaker 1>I mean, the primary your primary business traffics primarily in

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<v Speaker 1>raw produce here.

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<v Speaker 3>So how do you convince people.

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<v Speaker 1>To not only come back to sweet growing, but overall

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<v Speaker 1>just to trust what you're selling. Have you sort of

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<v Speaker 1>planned any sort of marketing campaigns any more? Maybe greater

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<v Speaker 1>disclosures about the farms and other sources of your food?

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<v Speaker 3>Yeah?

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<v Speaker 2>Absolutely so going back nineteen years ago and we started

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<v Speaker 2>Sweet Green, we had this pretty bold idea that we

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<v Speaker 2>were going to list every single farm that we source

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<v Speaker 2>our food from on the wall and to be fully

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<v Speaker 2>transparent for every single restaurant in every single city.

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<v Speaker 3>And we still do that today.

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<v Speaker 2>So if you go into any of our restaurants today,

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<v Speaker 2>you will see a chalkboard listed with dozens and dozens

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<v Speaker 2>of ingredients and where each where those ingredients come from.

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<v Speaker 2>What we do differently than most restaurants versus going directly

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<v Speaker 2>to a distributor to source our food. For the vast

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<v Speaker 2>majority of our products, we source directly with farmers. We

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<v Speaker 2>spend a lot of time with them and making sure

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<v Speaker 2>they are how they're taking care of their soil, the

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<v Speaker 2>conditions on the ground there are coming are delivering food

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<v Speaker 2>that is not only safe, but delicious and nutrition.

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<v Speaker 3>I want to address another point.

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<v Speaker 2>You know, while Sweegering is known mostly for salads, and

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<v Speaker 2>that's how we started, over fifty percent of our products

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<v Speaker 2>mixed today is warm bowls and wraps, so salads are

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<v Speaker 2>actually less than fifty percent of the product mix today.

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<v Speaker 2>We have a huge portion of cooked foods, you know, chicken,

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<v Speaker 2>rice wraps. We launched wraps just a few months ago,

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<v Speaker 2>it's already mixing in at twenty percent. So I think

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<v Speaker 2>it's a little bit of a misconception with the name

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<v Speaker 2>of sweekering that it only sells fresh raw produce. While

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<v Speaker 2>we're great at fresh rock produce, we also serve a

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<v Speaker 2>lot of cooked, delicious cooked food.

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<v Speaker 1>Well, a point take in I am curious though about

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<v Speaker 1>just foot traffic overall, and how much of the contraction

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<v Speaker 1>that we saw in the most recent quarter and what

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<v Speaker 1>was baked into your forecast, how much of that could

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<v Speaker 1>actually directly be linked to the fears over a cyclists spora,

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<v Speaker 1>and how much of that was just sort of longer

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<v Speaker 1>term trends that Sweet Green had already been dealing with

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<v Speaker 1>prior to this outbreak.

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<v Speaker 2>So, you know, while the quarter was overall challenged and

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<v Speaker 2>we have a lot of work to do, we did

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<v Speaker 2>see sequence improvement month over month, and in June transactions

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<v Speaker 2>were flat. Ten days into July, we were seeing some

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<v Speaker 2>really good momentum and it was a product of a

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<v Speaker 2>few things. First and foremost just consistent execution in our restaurants, said,

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<v Speaker 2>the right staffing, the right leadership, the right hospitality, and

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<v Speaker 2>delivering on food quality is starting to take hold. Secondly,

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<v Speaker 2>our menu innovation things like wraps and more to come.

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<v Speaker 3>We launched yesterday a new collaboration with Fishwife.

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<v Speaker 2>And to your earlier question, we have a really robust

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<v Speaker 2>marketing calendar for the balance of the year with a

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<v Speaker 2>combination of seasonal items and new menu launch lunches to

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<v Speaker 2>really get new customers back and both acquire new customers

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<v Speaker 2>and engage existing customers. So cyclospora really began to impact

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<v Speaker 2>us about ten days into July. Has a huge impact

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<v Speaker 2>so far on the quarter. Our guide has it, you know,

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<v Speaker 2>our high end of the guide has it getting better

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<v Speaker 2>by the end of September. We're not sure how long

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<v Speaker 2>it's going to impact guests, but we're doing everything in

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<v Speaker 2>our power to deliver a great experience, great marketing, and

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<v Speaker 2>great new food to welcome guests back into our restaurants.

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<v Speaker 1>There have been so many restaurant chains over the years

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<v Speaker 1>that have dealt with food born illness outbreaks, whether it's

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<v Speaker 1>of their own fault or not their fault at all,

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<v Speaker 1>whether they actually had the ingredients or didn't have the ingredients,

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<v Speaker 1>And there's been a lot of lessons learned over the

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<v Speaker 1>years about how you approach this, how you approach the customer,

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<v Speaker 1>how you try to get them back and win their

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<v Speaker 1>trust back. Have you had a chance to talk to

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<v Speaker 1>any or your peers in the restaurant space that maybe

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<v Speaker 1>have gone through this before and sort of how they

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<v Speaker 1>dealt with it.

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<v Speaker 3>Absolutely.

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<v Speaker 2>I have a number of my leaders that were at

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<v Speaker 2>Chippotla Post Foods, either at during the time of the

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<v Speaker 2>food safety crisis or afterwards.

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<v Speaker 3>Including one of my board members.

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<v Speaker 2>I'm in touch with many other leaders in that restaurant industry,

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<v Speaker 2>and I'll tell you a few of the things that

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<v Speaker 2>I've learned. One is transparency and speed of communications, so

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<v Speaker 2>acting quickly when you know something and being honest with customers. Two,

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<v Speaker 2>it's really securing your supply chain, having the right checks

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<v Speaker 2>and audits in place, the right food safety standards in

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<v Speaker 2>the restaurant. And then the last piece is the importance

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<v Speaker 2>of traceability. Traceability is really really important for many reasons,

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<v Speaker 2>but in these instances, knowing in the case of a recall,

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<v Speaker 2>being able to know which lot number is impacted and

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<v Speaker 2>being able to pull that product immediately. And we have

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<v Speaker 2>that technology and the ability to pull to understand which

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<v Speaker 2>farms any product at any of our three hundred restaurants

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<v Speaker 2>around the country comes from.

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<v Speaker 1>And that was Jonathan Neeman. He's the co founder and

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<v Speaker 1>the CEO of Sweet Green