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Idea File

Is Natural Fast Food a Healthy Business?

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Remember the glory days of 1998 and 1999, when just about any bozo who scrawled an idea on a napkin could raise a few million bucks of venture capital?

Well, those days are over. The start-up era itself, however, isn't. It has simply matured -- from gangly adolescent to young adult. The pressures are greater, the standards more severe. These tougher times demand smarter thinking. And that's the point of this column.

Once a month, I'll come up with a business idea -- and run it through its paces. I'll talk to venture capitalists and other investors, leaders in that particular industry, and potential customers for those goods or services. Sometimes my idea will rock. Sometimes it will sink like a rock. But each time, I hope, we'll learn something about what it takes to launch a new enterprise.

Now to this month's idea, which begins at the juncture of three facts.

Fact 1: Fast food is big business. In 1970, Americans spent $6 billion a year on fast food. At the end of last year, the national fast-food bill came to $110 billion, according to "Fast Food Nation: The Dark Side of the All-American Meal" (Houghton Mifflin, 2001), Eric Schlosser's fascinating new book on the industry. "Americans.spend more on fast food than on movies, books, magazines, newspapers, videos and recorded music -- combined," Mr. Schlosser says.

Fact 2: Obesity is, er, a growing problem. The U.S. has the highest obesity rate in the industrial world. Some 44 million adults -- more than one-third of the adult population -- are obese. Fast food isn't the only culprit, but it contributes to America's expanding waistline.

Fact 3: There's a remarkable consensus about what constitutes a healthy diet. Physicians and nutritionists peddle the same recipe. Cut back on red meat and saturated fat. Eat plenty of fresh fruit and vegetables -- along with other complex carbohydrates. Get your protein from fish and soy.

Toss all three facts into the shake machine, and you get the following notion: A national fast-food chain that sells healthy food.

The business you could start would be a chain called Freshy's. It would look and feel like Mickey D's, but it would serve veggie burgers and salmon burgers instead of Big Macs and Quarter Pounders. Fatty french fries would give way to sweet-potato tater tots. Soy shakes and fruit smoothies would replace those deliciously high-cal milkless shakes. The new chain would combine the low price and convenience of fast food -- with the sensible nutrition families supposedly desire. Can't miss, right?

Maybe it can. The fast food industry would tell you that it's plenty healthy already. Many outlets sell salads. Some sell low-fat meals. And most offer grilled sandwiches alongside their deep-fried offerings.

The trouble, say those who know, is that not many people buy this stuff. In 1990, McDonald's Corp. introduced a low-fat burger it called "McLean Deluxe." In 1995, it McPulled the item from its menu. Sales were dismal. A few years ago, Taco Bell introduced a line of eight "Border Lite" meals. The idea flopped like a soggy tortilla. "People tend to talk thin and eat fat," says Allan Hickok, senior restaurant analyst at U.S. Bancorp Piper Jaffray Inc.

Maybe Freshy's is a great idea without a market.

"I'm not so sure," counters Andrew F. Smith, a culinary historian who's chronicled the industry's rise in books such as "Popped Culture: A Social History of Popcorn in America" (University of South Carolina Press, 1999.) "Ten years ago, the demand might not have been there. But there's much greater interest in nutrition today, so it might work."

Stephen Spinelli, professor of entrepreneurship at Babson College in Massachusetts, says that Freshy's might fly -- but only if its creators properly segment the market. The core market for fast food, says Mr. Spinelli, is young people, particularly men. "They don't calibrate the fast-food experience in terms of fat and cholesterol. They're on the go, the food tastes good, and they don't make the calculation," he says.

Freshy's needs a new target, he says -- perhaps women, traditionally more health-conscious than their Whopper-gobbling husbands, sons and brothers. But the challenge there, Mr. Spinelli says, is to develop a menu that will both lure women and produce the economies of scale fast-food operations need to survive. Salad bars (invented in 1970 in Chicago, Mr. Smith notes) provide plenty of options for fat-fighters -- but it's hard to scale these mom-and-pop salad shops into a national chain.

Another critical factor, of course, is taste. Bad as it may be for your arteries, fast food actually tastes pretty good -- thanks in part to the industry's flavor scientists and their sophisticated chemistry. "Carrot sticks are nice for rabbits, but not for me," says Mr. Smith. "They'd have to get much more creative about it. It would have to be healthy food that actually tastes good."

That's not impossible, of course. Consider the success of Jamba Juice, which began as a storefront smoothie shop in San Luis Obispo, Calif., and today sells healthy fruit drinks and soups at 300 locations in 17 states. But even Jamba, popular though it has become on the West Coast, doesn't sell sandwiches. And I haven't seen one on the Pennsylvania Turnpike.

So is Freshy's just a healthy fantasy -- the lofty dream of a carrot-cruncher?

Perhaps. As Mr. Spinelli and others point out, a healthy fast-food chain -- even if its founders can identify the right market segment -- requires people to change their behavior. People eat healthy food -- but usually at home. Fast-food brands connote speed, convenience, and taste -- but not nutrition. So Freshy's would have to put some serious muscle behind building its brand. And that takes bucks.

Fast-food chains spend $3 billion annually on television advertising. Burger King alone spent $70 million on its failed 1997 advertising campaign to dethrone McDonald's as America's french-fry leader. Freshy's could work on a national scale, the experts say, but only if an investor were willing to devote an enormous sum of money -- we're talking tens of millions of dollars -- to launch the brand.

So if you know a vegetarian venture capitalist, this might be the business for you.

From StartupJournal.com
Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved

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