- 2 days ago
NYC, Entrepreneurship, & Healthy Living
Howdy, I'm Taylor. I'm a 20 something former management consultant and ivy-league grad from California turned solopreneur in New York City, and I love making videos that follow all of the above. Stick around 😊
Howdy, I'm Taylor. I'm a 20 something former management consultant and ivy-league grad from California turned solopreneur in New York City, and I love making videos that follow all of the above. Stick around 😊
Category
📚
LearningTranscript
00:00This is Erewhon, the most expensive grocery store in the world, but it is so much more than that.
00:06It's a status symbol, a cultural phenomenon, and a place where celebrities go and spend more on a smoothie than most people spend on dinner.
00:13While other luxury grocers like Whole Foods might charge you a premium, Erewhon somehow convinced an enclave of Los Angeles
00:19that purchases like a single $20 Japanese strawberry or $40 sea moss shell, whatever the f*** that is, are reasonable purchases.
00:27And people aren't just willing to pay, they are lining up to pay.
00:31The question is, why?
00:33What's the business strategy that turned a tiny health store into LA's most exclusive food spot?
00:38Because as fun as it is to poke fun at some of this stuff, I figure there's got to be more to it than overpriced produce and celebrity spotting.
00:45So guess what? I dug into it.
00:47And today, we're investigating how Erewhon created a business model that's part grocery store, part venture capital firm for wellness brands,
00:54and part social club for the wellness elite.
00:57Let's discuss.
01:01It's actually really good.
01:03Now, before we get into the business strategy, which is super interesting and a little surprising,
01:08I'm not here to yank your chain.
01:09So we're going to start with the Erewhon experience.
01:12You walk in and are greeted off to the side here with a smoothie bar, lots of prepared food, and a delicious hot food bar.
01:18The overall aesthetic feels very open and airy.
01:21We have light wood finishes, minimal but luxurious design elements like the light fixtures, premium food displays.
01:27Bottom line, it's clean.
01:29It's extremely orderly.
01:31Nothing is out of place.
01:33And it feels healthy.
01:34I feel like I'm in a health food store.
01:37Good job, Erewhon.
01:38But if you think you're going to fill up your entire fridge at a reasonable price, you're sorely mistaken.
01:43Let's look at some of the most unique products.
01:45Cut up dragon fruit for $25.
01:48Fancy balsamic saba dressing for $50.
01:51Some plant protein powder for $60.
01:55That's not that crazy.
01:56Mine's like $60.
01:57Raw manuka honey for $70.
01:59$32 Erewhon socks.
02:01And you already saw the $20 Hayley Bieber smoothie out in Park-y-Mont.
02:04Alongside the other celebrity design smoothie options, all coming in at about $20.
02:08And then, of course, the hot food bar.
02:10Profit margins on these puppies are nice and high, but more on that later.
02:13Some of the most popular items include the mac and cheese and the sushi sandwich.
02:16Oh, my gosh, my gosh, my gosh!
02:20First reaction, first sip, $20 smoothie, which I would never buy, except for a video.
02:27Cheers to you guys.
02:33Holy shit, it's really good.
02:36That's not even a fake reaction.
02:37Try it.
02:38That's one of the best things I've had.
02:39It's like coconutty and delicious.
02:41This is my filmer for the day, by the way.
02:43Seal soup urge me.
02:46It's good, huh?
02:47Oh, wow.
02:48I know.
02:48It's more coconutty than I expected.
02:51It's fun.
02:52As for the customer experience, well, similar to Trader Joe's, these store footprints are
02:57pretty small.
02:58It gets pretty crowded in here.
03:00And remember, we're in LA, so most people are driving here.
03:03They're not pulling up on foot like I do in New York, which also means the parking lot
03:07gets pretty crowded with luxury cars.
03:09And the staff is super friendly and knowledgeable for product recommendations.
03:13Now to wrap this section up before diving into the interesting business model, I should
03:16mention that unlike the sea moss gel and adaptogenic mushrooms, there actually are a decent amount
03:22of items here that are normal and not exorbitantly expensive.
03:25You'll see brands that you recognize at other non-luxury grocery stores like Faye yogurt,
03:30Siggy's yogurt, Kerrygold butter I saw, Driscoll's berries, and a lot of well-known protein
03:35bars.
03:35Plus, just some things that are kind of reasonably priced, like a lot of fun drinks, as long
03:40as they meet the Erewhon standard of ingredients, which we'll talk more about in a bit.
03:43However, most of the stuff here is more expensive when you compare it to competing
03:47grocers like Whole Foods.
03:49So what exactly are you paying for at Erewhon, and why are so many people willing to spend
03:54$300 or more on a single grocery run?
03:57Let's look into the founding principles of Erewhon and the business model today.
04:01Beginning with Erewhon's origin, I knew that it had Japanese roots before writing the script,
04:05but I didn't know the specifics, so here's the rundown.
04:07It was founded in 1966 by husband and wife Michio and Aveline Kushi, who emigrated to
04:12the U.S. from Japan about 20 years earlier.
04:14The name Erewhon was derived from an 1872 satirical novel by Samuel Butler, which was
04:20about a utopia in which people were responsible for their own health and prosecuted for the
04:25crime of being ill.
04:26Obviously, this place doesn't exist.
04:28It's a nowhere place.
04:30And fun fact, Erewhon is an anagram of the word nowhere.
04:33And this is interesting.
04:34The original Erewhon health food market was based on a Japanese macrobiotic diet, and
04:39this is all about balancing the supposed yin and yang elements of food and cookware, which
04:43in practice all comes down to reducing animal products, eating locally grown food that's
04:48in season, and consuming meals in moderation.
04:50Erewhon then expanded to Los Angeles in the 70s, filed for bankruptcy in 81, and the chain
04:56was then purchased by entrepreneur Tony Antochi in 2011.
05:00Big Tony.
05:02No, nothing.
05:03Since Tony took over, Erewhon has expanded to one location to now 10 locations across
05:08LA.
05:08And Erewhon is looking to expand to different cities.
05:11More on that later.
05:12So that's the interesting origin and ownership change.
05:15But now let's take a look at the store's product strategy and the store economics.
05:20Fun fact, the product strategy was actually my favorite part to learn about when doing my
05:23research for this video.
05:24It's actually really cool.
05:25So let's discuss.
05:26You've probably deduced by now that Erewhon has a very strict standard for the items that
05:31it decides to sell.
05:32But you probably didn't guess that it was this strict.
05:36No refined sugars, no high fructose corn syrup, no artificial colors, flavors, or preservatives.
05:41All produce is organic.
05:42All dairy is grass-fed.
05:43All meat is grass-fed and free-range.
05:46Zero GMOs.
05:46You get the idea.
05:47And this has been dubbed the Erewhon standard, and they do not make compromises.
05:52I checked.
05:52But here's what I find the most fascinating.
05:54Erewhon has effectively become an incubator for up-and-coming health and wellness brands.
05:59When a brand approaches Erewhon, they face a vetting process that includes more than 100
06:04different criteria, and every single ingredient is scrutinized.
06:07Products routinely get rejected for containing certain ingredients that most people wouldn't
06:11think twice about.
06:12Even certain natural flavors don't make the cut.
06:14Another really cool part, Erewhon often works directly with the brands to reformulate
06:18products specifically for their stores.
06:20So imagine being a small health food startup and hearing from Erewhon, we love your concept,
06:25but these specific three ingredients gotta go.
06:27Some brands even spend 6 to 12 months reformulating their products just to fit the Erewhon standard.
06:32And even after being accepted, the products remain on probation.
06:36If they don't sell well enough, they're out.
06:38But for these brands, it seems like it's all worth it.
06:40Because once you get that Erewhon stamp of approval, other retailers start calling.
06:44Industry insiders actually call this the Erewhon effect, which is why so many emerging health
06:49brands try to launch exclusively at Erewhon first.
06:52From a business perspective, what Erewhon has created is brilliant.
06:55It's a two-sided marketplace where they curate brands for their consumers who trust their
07:00judgment while offering those brands access to their tastemaker audience.
07:03This isn't just a grocery store.
07:06It's basically a startup accelerator for kombucha and adaptogenic mushroom powders.
07:10Jokes aside, this is a big reason why a lot of people are down to dish out at Erewhon
07:14instead of going to Whole Foods.
07:16Erewhon, silly as it might sound, is on the cutting edge of these trends.
07:19They're first movers and they're not just selling you food.
07:22They're selling you first access to the next big thing in health.
07:25So if you're part of that target demographic that's wealthy, health conscious, trend aware,
07:30you can see how Erewhon is kind of the place to go.
07:33Now, let's talk numbers.
07:35You know I'm not going to analyze this bad boy without going over some store economics.
07:38So as I mentioned, Erewhon's footprints are pretty small at about 10,000 to 15,000 square
07:43feet compared to traditional grocers at about 45,000 square feet.
07:47The amount of SKUs that it carries is not publicly available, but you can tell that it's
07:51a lot fewer than traditional grocers at 30,000 or more, and it's very tightly curated.
07:56So it's a lot like our friends at Trader Joe's with very picky product selection
08:00in smaller storefronts.
08:01Here's where it's different.
08:02The average transaction size at Erewhon is between $85 and $100 compared to $40 at Whole
08:09Foods.
08:09Not only that, the profit margins are pretty nice and juicy compared to other grocers.
08:13For prepared food and beverages specifically, which account for almost half, 40 to 50% of
08:18Erewhon's sales, profit margins are about 35% compared to industry average of about 12%.
08:24So Erewhon is basically half restaurant, half grocer.
08:27And finally, given all that we know about Erewhon, it's no surprise that all 10 locations
08:32are in ultra-premium neighborhoods of Los Angeles.
08:35Beverly Hills, Studio City, Silver Lake, Pacific Palisades, Santa Monica, Venice, Calabasas,
08:39West Hollywood, Culver City, and Pasadena.
08:41And these ultra-premium locations, of course, are aiming for a very specific target audience.
08:46Let's discuss.
08:47The core Erewhon customer, imagine that friend who casually brings up their wellness journey
08:52in every single convo, has eight-pack abs, drinks from coconuts in Bali, has at least
08:57three different non-dairy milks in their fridge, 25 to 45 years old, household income well over
09:02$150,000, very health-conscious and trend-aware, they're active on social media, maybe an entertainment
09:08industry professional or a celebrity influencer.
09:11That's your guy.
09:11The way that Trader Joe's gets social media coverage for its kind of weird and quirky
09:15products, Erewhon gets it for its extremely high prices and very, very niche, health-focused
09:21products.
09:21Plus, Erewhon has the added element of being only in LA, the entertainment capital of the
09:26world.
09:26So, regular celebrity sightings include the Kardashians, Miley Cyrus, Andrew Garfield,
09:31Jake Gyllenhaal.
09:32Last time I was here, I was in line directly next to David Dobrik.
09:35I don't see any in here today, though, besides this up-and-coming YouTuber who likes to talk
09:40about grocery stores that she finds interesting.
09:42Anyway, to target these customers, naturally, Erewhon only finds itself in these ultra-premium
09:46locations.
09:47But as always, there is more to it than it just being expensive food for celebrities.
09:51There is a value proposition alignment going on, where Erewhon leverages health as luxury
09:56positioning, using wellness signaling and clean eating as a status symbol, which it kind of
10:02is.
10:02So, this is a whole other rabbit hole that I went down in my research.
10:05The economics of food access in the U.S.
10:08According to the latest numbers from the U.S. Department of Agriculture, there are about
10:1240 million Americans in the U.S. that live in designated food deserts, which are areas
10:16where it's either difficult or impossible to have access to affordable, healthy food.
10:21And different retailers have approached this market reality differently.
10:25Some, like Erewhon, focus exclusively in the premium segment, while others, like Kroger's
10:30or Walmart, have developed models that serve a broader demographic range.
10:33So, there is a distinct market segmentation, and Erewhon certainly plays within the premium
10:38segment exceptionally well.
10:39But, in some ways, it does feel wrong that healthy food is a status symbol when it is,
10:45in reality, out of reach for so many people.
10:47At the same time, I don't think it's Erewhon's responsibility to fix that.
10:50I think its very existence is perfectly fine.
10:52But, yeah, it's a tricky one.
10:54Let me know your thoughts on this in the comments below.
10:55So, we know the prices are high, but are they justified?
10:59Well, it's subjective.
11:01On one hand, Erewhon sources from small batch producers with local and beyond organic requirements,
11:07and it has limited distribution channels.
11:09So, naturally, that's going to cost.
11:11And a lot of that cost gets passed down to the consumer.
11:13On the other hand, at some point, it kind of feels like robbery, like this was $20.
11:17But, there's clearly a market for it.
11:19And there's something to be said for the psychology behind premium pricing.
11:23It adds a layer of perceived value.
11:25So, whether or not this fresh-pressed elderberry syrup from Erewhon is higher quality than an
11:31elderberry syrup that you might find at Whole Foods, you probably subconsciously assume that
11:35it is because it's more expensive.
11:36This health as a status symbol and exclusivity is reinforced through these higher prices.
11:41My personal take is through a bit more of an objective lens.
11:44So, even if I can't justify myself to buy this $22 brown butter something-something,
11:51because my perceived value of this brown butter something-something does not outweigh how
11:56much I value $22.
11:57I do think the prices are justified in the sense that there's obviously a market equilibrium
12:02happening here where supply is meeting demand.
12:04So, I don't fault Erewhon for setting these prices.
12:07I'm a businesswoman.
12:08At the same time, I do care about there being healthy, affordable foods.
12:11So, again, a little tricky and hard to say a definitive yes or no to the prices being justified.
12:16Now, I find this section particularly interesting for Erewhon, the future of the store.
12:22Beginning with growth plans, Erewhon is planning on expanding to other markets, including New
12:27York City and Miami.
12:28In doing so, yes, it could target high-income and health-conscious zip codes, but it would
12:34also run some huge risks.
12:35First of all, maintaining exclusivity while scaling.
12:38If you open up a whole bunch of new locations, it just kind of becomes less cool and exclusive.
12:43That's obvious psychology.
12:44What I'm more curious about is how would it fare in those cities?
12:48Sure, you have the expensive zip codes and health-conscious population, but what would
12:52Erewhon's distribution look like?
12:53Erewhon is known to source locally, and California alone produces a third of the vegetables and
12:58two-thirds of the fruits and nuts in the U.S.
13:00Of course, you can ship things across the country, but Erewhon's supply chain starts looking
13:05a lot different if it opens up on the East Coast.
13:07And as someone born and raised in Los Angeles and living in New York for the last four years,
13:11I feel uniquely equipped to weigh in on this.
13:15I don't think Erewhon would work as well in New York.
13:18There, I said it.
13:19Yes, I could see a location opening up in Williamsburg or somewhere in Manhattan and it technically
13:24being successful, but the core audience for Erewhon just feels so distinctly LA.
13:29The healthy scene here is different than the healthy scene in New York.
13:33It's hard to explain, but in LA, wellness here feels more like a lifestyle statement.
13:38Looking good, feeling good, living your best life.
13:41In New York, it feels more about optimization and efficiency.
13:44Biohacking your way to surviving the city's intensity.
13:47Huge generalization, but that's how I feel.
13:49Now, would I still be happy if one opened up in New York?
13:51Of course.
13:52More broadly, a challenge that Erewhon and other luxury grocers face is vulnerability during
13:57an economic downturn.
13:58So, turning to microeconomics for a second, food as a whole is generally considered an
14:03inelastic good, meaning that changes in price will not drastically affect consumer demand,
14:09which makes sense.
14:09We always need food.
14:10We're always going to need to buy it.
14:11This is not the case for luxury food.
14:14When people need to save some cash during an economic recession, even Erewhon shoppers
14:18might turn to Whole Foods or, in LA specifically, Bristol Farms or Gelson's, which also have
14:23that healthy luxury positioning, but with slightly lower prices.
14:26Then, there are other industry trends impacting Erewhon, like increasing scrutiny of health
14:31claims.
14:32Is CMOSGEL actually delivering the health benefits that it promises?
14:35Let's see the research.
14:36There's also greater democratization of health products going on, where more affordable
14:40retailers like Amazon and Target are opening their own clean beauty and health and wellness
14:45brands at a fraction of the cost.
14:47So, Erewhon will really need to stay ahead of the curve to maintain their first mover image
14:52in the space.
14:52However, as it stands, as far as I see it, Erewhon is seriously winning in a couple key
14:58areas.
14:58A dual market dynamic for up-and-coming brands and customers who know that any product in
15:03that store is going to uphold the Erewhon standard, the strong celebrity association
15:07and cultural cachet, and at the heart of it, the impressively high bar of health metrics
15:12that Erewhon upholds when deciding what products to stock on its shelves.
15:15Now, whether or not the prices that they charge in return feel justified to you, I would
15:19still say that the grocer is doing a few things right.
15:22Question for you.
15:23Do you think it's a total ripoff and a huge gimmick, or do you think it's a cool business?
15:27Let me know in the comments.
15:28Also, let me know if you like these business cases, because I like researching them.
15:32I like writing them.
15:32I have a fun time making them.
15:33So, let me know if you want more.
15:35And until next time, Turtle, out.
15:38I'm going to do my, you know?
15:42Yeah.
15:42I kind of like the dual Porsches.
15:50Hey, if you like this video, I can assure you'll probably also like this one.
15:54Take a gander.
15:56Okay, bye.
Recommended
13:50
|
Up next
1:00
23:25
20:43
21:53
0:42
0:59
0:23
0:54
0:39
0:18
0:46