SUSTAINABILITY MODEL INVESTIGATION
GOOD FOOD WORKS
Prepared by: Miles Crettien & Peter Martin
Introduction
The purpose of this report is to assist Good Food Works (GFW) in identifying potential
mission-driven pricing strategies that maintain affordability for lower-income customers
while facilitating profitable sales channels to offset or subsidize their mission.
Researchers reviewed existing literature on mission-driven pricing strategies, as well as
conducted a landscape assessment of mission-driven social enterprises. Research
consisted of interviews with select businesses and social enterprises that have
implemented comparable pricing strategies. The project encompasses an evaluation of the
conditions necessary for successful implementation of specific pricing strategies and
recommendations for which strategies GFW should consider exploring further.
Methodology:
The project was conducted thusly:
● Landscape Assessment: A review and synthesis of current thinking and best
practices around mission-driven pricing strategies and their efficacy in various
contexts and geographies throughout the U.S.
● Internal Interviews: Interviews with key stakeholders at GFW were conducted to
understand current pricing strategy, market conditions, and operational model.
● External Interviews: Interviews with key mission-driven organizations in varying
contexts and geographies relevant to GFW’s current and future considerations.
Interviewees included:
○ Sam Polk - CEO @ Everytable Los Angeles, CA / New York, NY (Geographic
Pricing/Set Tiered Pricing)
○ Rachel Schneider - Co-Founder @ Rolling Grocer 19 Hudson, NY
(Membership Tiered Pricing)
○ Mitch Gruber - Chief Program Officer @ FoodLink Rochester, NY (Set
Tiered/Pay-What-You-Can)
○ Gabrielle Grigoli - Owner @ Gab’s Veg Table Kingston, NY
(Pay-What-You-Can/Suggested Pricing)
○ Renée Martin - VP Consulting @ Farestart Seattle, WA (Subsidized Workforce
Training/Catering)
○ Justin Smith - Executive Director @ Catalyst Kitchens Seattle, WA (Subsidized
Workforce Training Network)
● Analysis: The data collected were analyzed to identify primary conditions for
successful and unsuccessful mission-driven pricing strategies and recommend
pricing strategy options that GFW should explore further.
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Major Considerations
GFW as it Operates Today
Initial investigation centered around conversation with Jason Finder, Director of Good Food
Works, and leveraged material including sales data from the Point of Sale system, business
operating data, growth model financial projections, and customer survey data gathered in
the Spring and Summer of 2022.
Key insights included:
● The projected average breakeven point based on cost of goods and operating
expenses (prime cost) is between $12-$13 per unit. We’ve generated a testable
model based on this assessment later in the report.
● Survey respondents indicate the following:
○ The vast majority self report a willingness to pay more for salads, especially
if the added cost contributed to the mission.
○ Most respondents were not eligible for SNAP benefits.
○ The location of the food stand was an important factor not only in consumer
patronage but discovering the stand in the first place.
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Half of respondents would pay more for salads without any conditions, with an additional
41% reporting they would sometimes pay more.
This trend becomes even more exaggerated when respondents are asked if they would pay
more to help discount prices for those who cannot afford the full price. 66.1% of
respondents said they would.
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A majority (74%) of respondents report they are not eligible for SNAP benefits. This, along
with difficulties posed by regulation, influenced our recommendation not to consider SNAP
eligibility as a condition for different pricing models.
And lastly, 80.6% of respondents report they learned about the salad stand by walking by.
Breaking Even
Below we highlight financial information from different enterprises as points of reference.
Scale and Profitability Thresholds:
● Sam from Everytable indicated that they can achieve profitability at around
$500,000 in sales in LA.
● Rachel from Rolling Grocer noted that they run a deficit of $250,000 annually.
However, they believe that reaching $1.5 million in sales could reduce their funding
gap to $100,000 annually.
Labor Costs:
● Sam mentioned an average per store overhead in labor per month ranging from
$50,000 to $150,000, which includes operating hours from 7 am to 8 pm.
● Rachel indicated that a significant portion of their deficit is attributed to labor costs
with 14 part-time employees on the books and $100K in additional admin/officer
salaries.
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Gross Margin Targets:
● Sam shared that Everytable aims for a 40% gross margin (portion of revenue left
over after direct costs are subtracted) in low-income stores and 50% in high-income
stores.
● Gab from Gab's Veg Table shoots to operate at a target 50% gross margin.
Cost of Goods Sold (COGS): While many of the respondents reported a low gross margin
between 40%-50%, Mitch from Foodlink reported a 66% gross margin (which meets
restaurant industry standard of 33% COGS).
Operational Expenses: Mitch's example from Foodlink, with 33% COGS ($69,489) but
$311,656 in OPEX (150%), demonstrates the challenge of covering operating expenses at a
mission-driven organization, even with a relatively high gross margin.
Scaling up operations, optimizing labor costs, and setting appropriate gross margin targets
are strategies that can be explored to improve financial viability. Additionally, cost control
and efficiency in managing operating expenses play a critical role in achieving long-term
sustainability. Researchers note that many of these elements have already been
considered or put into practice currently at GFW.
Break-Even / Unit
For Good Food Works’ purposes, the following financial model can be applied to all pricing
strategies and we encourage its use to evaluate data from A/B Testing:
[[(Subsidized Price X Number Sold) + (Non-Subsidized Price X Number Sold)] +
[Revenue from Ancillary Activities]] / [Total Sold] = [[COGS (food costs +
packaging/utensils+cc fees) + OPEX ]] / [Total Sold]
Friction at Point of Sale
Friction in Mission-Driven Pricing Models:
The concept of "friction" in this context refers to the level of complexity or barriers
customers encounter when attempting to access subsidized prices or benefits within a
retail food model. Friction can manifest in various ways, ranging from minimal to
significant, and plays a critical role in influencing customer behavior and the overall
effectiveness of the pricing strategy.
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Friction Spectrum:
The bulk of the models we recommend for consideration fall at the lower end of the
spectrum, including set tiered pricing.
Models like tiered membership may introduce more friction into the customer experience,
but in certain instances bring benefits which justify the costs. In the conversation around
higher-friction models, the following items should be considered:
● Which types of customers would encounter higher or lower friction?
● Where in the experience is friction introduced? Is it at the point of sale? With every
interaction or only the initial one?
● Are there ways to relocate points of friction to interaction points outside of the point
of sale? For instance, signing up online instead of at the salad stand.
Balancing Act:
It's worth noting that introducing some level of friction could be acceptable, especially
when it means ensuring the sustainability of the mission-driven pricing model and the
organization itself.
Customer Empathy
In the context of mission-driven retail food pricing models, the concept of a "stigma-free"
meal or space is an important consideration, and one heavily impacted by the pricing
model.
In the determination around choosing a viable pricing model, GFW should consider how
establishing a standard price as normal versus a subsidized price as abnormal could create
stigma for those that need it most.
The reality, however, must be acknowledged that the number of people GFW will be able to
serve if it is unable to maintain financial viability would be zero. We endorse a
conscientious but pragmatic approach to customer empathy.
Catering
Catering, while lucrative, is unlikely to subsidize a mission-driven food service model
entirely. We had the pleasure of speaking with Renée Martin, VP at Farestart in Seattle, who
oversaw a $3M-$4M school lunch and wedding catering operation and community cafe,
altogether operating at 10%-15% profit that helped subsidize their core service - Food
Service Job Training. Renée relied heavily on food subsidies issued by the federal
government during COVID to make their operations profitable. Once those subsidies ran
out, the ancillary businesses ceased to be able to subsidize its core operation.
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While catering and ancillary revenue streams can contribute significantly to the financial
health of a mission oriented service model, typically, it won't cover all operational costs,
and should not be relied on to solely subsidize a mission-oriented model.
However, we would recommend openness to incorporating a catering component to every
model we suggest as a method to offset or subsidize costs of the core program, if not allay
them entirely.
Brand Monetization
We similarly recommend balancing conscientiousness and pragmatism in GFW’s approach
to subsidizing their mission by capitalizing on their brand.
According to survey results, GFW has already established an excellent reputation in the
communities in which it operates. Additional opportunities may be explored such as
merchandising, events, or even donation-based content development that will help
generate black ink for the organization to maximize its impact.
Renée from Fare Start insightfully said that: “People feel good about catering with us
because their profit goes back to good.” Coupled with enthusiastic survey results and
personal anecdotes about customers loving Good Food Works, there seems to be a sizable
reserve of support that could be tapped to generate additional funding.
As with catering, we recommend exploring these options in conjunction with any tiered
pricing model GFW pursues.
Real Estate Approach
Good Food Works currently employs production in a centralized kitchen and distribution
via semi-mobile salad stands. This model offers practical advantages, even as the operation
scales.
Centralized production keeps real estate costs more manageable
Sam Polk from Everytable indicated his profitability in the LA market was due to
“centralized production and small footprint stores to keep costs low.” Conversely, he
reports “We don't have a central commissary in NY, and rent is more expensive. We are not
profitable in NY at the moment.” Maintaining centralized production facilities is an effective
way to consolidate specific operational costs.
Salad stand model underscores the importance of location.
Whether brick and mortar or stand-based, location is a critical part of GFW’s mission and
potential success. Survey results indicate that the vast majority of brand exposure and
continued patronage is based on convenience, while GFW’s mission is to provide healthy
affordable options according to geographic availability. Prudence in choosing locations for
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future retail operations will ensure that services are reaching the right people in a way
that’s accessible and convenient.
Pricing Model Assessment
Of the pricing models considered, we’ve determined the following best inform GFW’s
potential options. For context, we provide brief illustrations of businesses currently
employing these models and the considerations associated with each.
Geographic Based Set Tiered Pricing
In our conversation with Sam Polk, CEO of Everytable, we gained insight into the
geographic-based and two-tiered pricing model.
Everytable’s approach, setting prices at $5-$7 for low-income areas and $7-$9 for
higher-income areas, is rooted in a broad qualification method using zip code-level income
data. This method aims to offer affordable options while ensuring profitability, but it comes
with its challenges, particularly in scaling the venture to a complex market like NYC.
Challenges in Scaling to NYC: Scaling the model to NYC presented significant challenges,
including increased variable costs such as rent and decreased customer demand per
transaction (possibly due to customers carrying less with them on foot/on subway than in
the LA market). Moreover, the use of zip code-generated pricing levels might skew
customers' willingness to pay (not charging enough, or charging too much in some heavily
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gentrified neighborhoods), posing a challenge in accurately reflecting each neighborhood’s
economic diversity.
In summary, geographic-based pricing is not viable for GFW or NYC.
Tiered Membership Pricing (Self-Reporting)
Tiered membership models are informed by our conversation with Rachel Schneider,
Co-Founder of Rolling Grocer 19, a brick and mortar grocery store in Hudson, NY.
Tiered Pricing Model Overview: Rachel Schneider emphasizes that the Food Justice
Project at Rolling Grocer 19 is not solely targeted at individuals with lower incomes; it's a
project for everyone. Their tiered pricing model reflects this inclusivity, offering three tiers
to ensure that individuals can access high-quality food at price points they can afford. The
tiers include:
● Blue Tier: 10% above wholesale
● Orange Tier: A 25% above wholesale
● Green Tier: A 38%-40% above wholesale
Notably, the two lowest-priced tiers account for 65% of total sales, while the highest-priced
tier contributes 30%-35%. This indicates that the operation is fulfilling its purpose by
winning repeat and consistent business with members that benefit from subsidized pricing.
Additionally, the green tier has the highest number of unique customers, indicating that
blue and orange tiers represent return customers.
Membership Sign-Up Process: Rolling Grocer 19's sign-up process operates on a complete
honor system. Customers fill out a simple form, akin to a postcard, providing their name,
address, email, and selecting a color tier. Additionally, they are asked to share household
size and income, which helps in determining the appropriate tier.
Ongoing Subsidization Challenges: Despite successfully reaching its target demographics,
Rolling Grocer 19 has faced ongoing challenges related to funding and subsidies. They have
historically run at a deficit ($250K), with a substantial portion attributed to labor costs.
Sales Growth and Future Prospects:
Rolling Grocer 19's recent sales growth, reaching over $800,000 in 2023, exceeding
projected revenue of $750,000, showcases their potential for financial sustainability. The
increase in sales was partly attributed to a USDA local foods promotion grant that enabled
them to enhance their store infrastructure.
They firmly believe that hitting the $1.5 million sales milestone will be instrumental in
reducing their reliance on subsidies and securing a sustainable future.
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Tiered Membership could be a viable option for GFW as it scales: despite challenges to
stay solvent, Rolling Grocer 19 is successfully serving vulnerable populations in its
community, as evidenced by return customers and volume of subsidized sales. It should be
considered, however, that Rolling Grocer 19 is a fixture of the community that is regularly
available and dependable. Conversely, GFW currently has limited hours and a limited daily
stock of product. Other models may be more suitable to GFW until it is able to expand to
more consistent operating hours and scale to additional locations.
Pay-What-You-Can/Suggested Tiered Pricing
Gab's Veg Table in Kingston, NY operates a fully Pay-What-You-Can pricing model.
Previously, she had advertised suggested pricing between $4-$13 per item. Currently, she
provides a single suggested price and emphasizes that people can pay what they can at the
point of sale.
Gab reports that 90% of customers pay the suggested price. Around 5% slide down to pay
less, and 5% slide up to contribute more than the suggested amount. Interestingly, Gab
reports that people tend to select whatever price is portrayed to them. In her experience,
most select the higher price.
To illustrate:
● When Gab presents a single suggested price of $10 and emphasizes that customers
may pay what they can at checkout, 90% of customers will pay $10.
● When she presents a sliding scale price of between $4-$13 for an item of the same
value, most people pay $13.
Gab observes that most of her customers pay the top tier when pricing is presented on a
scale, but this may be the demographic among which she is operating – a destination
neighborhood in a small exurban city (Kingston, NY) with a mix of tourists and local
professionals.
Gab’s experience gives us insight into how the customer is reacting to various tiered pricing
models. In particular, she observes:
● Anchoring Effects: The presence of a pricing scale can serve as an anchor,
influencing customers' perception of what is an acceptable price range for the
product. People tend to use the initial offered price as a reference point for their
decisions.
● Removal of Anchoring and Ambiguity in Fully Pay-What-You-Can: With the
removal of the pricing scale, the ambiguity of what others are paying might create
uncertainty for customers. Gab observed that some customers are hesitant to ask
for sliding down the scale, indicating a potential challenge in encouraging those who
genuinely need the lower price to take advantage of it.
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Gab's Veg Table's Pay-What-You-Can model operates successfully, but Gab recognizes the
need to fine-tune the pricing structure to ensure sustainability while remaining accessible.
Suggested pricing is a viable option for GFW and would be easy to test.
GFW could experiment in select locations with adding the option for pay-what-you-can and
refining their approach based on data collected. Variables could include advertising a
sliding scale with a single suggested price or multiple pricing options to see how customers
respond.
Recommendations
Targeted testing offers invaluable strategic data with little risk.
Early in our research GFW offered the possibility of doing targeted A/B testing. We
wholeheartedly recommend this approach but recognize it may lend itself to some models
over others.
Use the Breakeven / Unit equation as the rubric for evaluating test data.
[[(Subsidized Price X Number Sold) + (Non-Subsidized Price X Number Sold)] +
[Revenue from Ancillary Activities]] / [Total Sold] = [[COGS (food costs +
packaging/utensils+cc fees) + OPEX ]] / [Total Sold]
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As the variables for the equation are determined, sales data from an experiment can be
evaluated using the rubric for instant feedback on viability.
Start with Sliding Scale.
Building off of the insight gathered from Gab’s Veg Table, we recommend beginning testing
with iterations of a sliding scale / suggested price model. Variables could include:
● Prominently advertising a pay-what-you-can model vs. imparting it to the customer
at checkout.
● Offering a single suggested price vs. a price range.
● Offering two separate prices – one subsidized and one that would be profitable.
● Experiment with how the pricing is communicated to customers.
As a starting point, we are most excited to see results from the following scenario:
● A tiered, self-selected pricing model with zero friction at checkout.
● One price, advertised as standard would be $5.00 – the current price GFW charges.
● A second price, advertised clearly as subsidizing the meals of others, would be
displayed at $15, which GFW projects to be sufficiently profitable at scale to cover
the subsidy required for a $5 salad..
The number of units sold at each price point could be plugged directly into the Breakeven /
Unit equation to generate quick feedback.
Consider Tiered Membership (Self-Reporting) as Business Scales: Based on the insights
gathered from the interviews and surveys, a tiered pricing model similar to Rolling Grocer
19's approach could be effective for Good Food Works. Two or three distinct tiers, similar to
the blue, orange, and green tiers at Rolling Grocer 19, could create a clear structure.
Implementing a simple, self-reporting sign-up process, similar to the system used by Rolling
Grocer 19, ensures inclusivity. Moreover, a robust communication strategy about the tiers,
their benefits, and the impact on the community can enhance customer understanding and
support.
Additional possibilities could include a way for the membership process to be moved
online, which would redirect the point of friction away from the point of sale, and would
additionally offer a more discreet method for people to take advantage of subsidized
prices. Of course, GFW would have to guide participants who do not have access to the
internet through this process in some other discreet manner, such as a paper/post card
sign-up similar to what Rolling Grocer 19 uses.
We recommend this approach as GFW scales rather than for initial consideration because
stands currently operate on limited days and have limited inventory before they sell out.
Members would benefit most from something more regularly dependable.
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Centralized Food Production vs. Dispersed Rental: Leveraging the existing centralized
kitchen or future centralized (ideally owned) point of operations is pivotal. By optimizing its
use, exploring strategic subsidies, and focusing on gross margin enhancement, Good Food
Works can ensure ongoing efficient operations.
Expansion Strategy: The internal survey data strongly supports a model with an emphasis
on affordability, especially in neighborhoods that need them the most. Strategic, deliberate
location selection will significantly enhance accessibility and brand exposure.
Supplementing Operations Through Ancillary Revenue Sources: In the pursuit of
financial sustainability it's crucial for Good Food Works to explore options to subsidize its
operations. While the GFW mission includes providing affordable and nutritious meals,
exploring ancillary revenue opportunities can significantly contribute to the organization's
overall financial health. Here are key areas to consider supplementing core operations:
1. Catering Services: Catering should be considered as a complement to any eventual
model pursued by GFW, though data suggests that it’s unlikely that catering will
generate enough revenue to fully subsidize operations on its own.
2. Merchandising and Brand Monetization: Creating merchandise such as branded
apparel, reusable bags, or even specialty food products can serve a dual purpose.
Not only does it act as a revenue generator, but it also amplifies the visibility of
Good Food Works.
3. Donor Opportunities and Community Engagement: Engaging with the
community on a deeper level could yield substantial financial support. Establishing
donor opportunities through events or sponsorship programs could foster a sense
of ownership and pride among community members. GFW is positioned uniquely to
offer patrons perceived value while maintaining authenticity. GFW reports that a
handful of customers have already offered, unsolicited, to donate enough to
support providing a meal to those who cannot otherwise afford them.
Ongoing Community Engagement: Engaging with the community to understand their
needs, involving them in feedback loops, and potentially incorporating their suggestions
can foster a sense of ownership and loyalty.
Conclusion:
The Sustainability Model Investigation conducted for Good Food Works has provided
valuable insights and recommendations for the organization's mission-driven pricing
strategies. By carefully considering the findings, engaging in targeted A/B testing, and
embracing flexibility in pricing models, Good Food Works can continue to fulfill its mission
of providing affordable, nutritious meals to all while ensuring its long-term financial
sustainability.
Success will lie in striking the right balance between affordability and profitability,
leveraging community support and brand reputation, and remaining open to adaptation as
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it scales and serves diverse communities. With these considerations, Good Food Works can
navigate the complexities of mission-driven pricing and contribute positively to its target
populations.
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