The Plant-Powered Movement to “Make Life Better” at Saxbys

The Plant-Powered Movement to “Make Life Better” at Saxbys

  • Case
  • Teaching Notes
Abstract

Saxbys is a café chain based in Philadelphia, Pennsylvania, which has embraced plant-powered food and drink menu items. The food and beverage team is responsible for the implementation of new menu items, including plant-based options. As plant-based eating becomes more commonplace among Generation Z and Millennials, this target market provides an important opportunity for Saxbys to lead the industry. Evolving customer expectations, including referring to the menu items as “plant-powered,” are highlighted along with the menu pricing of plant-powered menu items versus standard menu items. Students will be asked to assess the opportunities and challenges of navigating a constantly evolving consumer market and provide strategic assessment for the near term.

Case
Learning Outcomes

By the end of this case, students will be able to:

  • discuss the plant-based food industry and the implications of plant-powered food menu items for a modern café;
  • describe the difference between fads and trends in the food industry and discuss if the plant-powered food movement is a fad or trend;
  • assess the cost of plant-powered menu items to determine the pricing and inclusion in the menu of Saxbys;
  • examine the strategic implications of Saxbys strategy for the near to medium-term and discuss the keys for success for their business, including their target of Generation Z and Millennial consumers.
Introduction

David Schylling joined Saxbys as their food and beverage director in late 2018, overseeing Saxbys adaptation of menu items including the introduction and expansion of many plant-powered (vegan) offerings. Based in downtown Philadelphia (Figure 1), this once small coffee shop has now become a regional chain in the northeast, expanding from simple cafés to university and in-office shops over the past 15 years. As Saxbys’ continued to expand, the café industry also evolved, along with their customers’ expectations.

Figure 1. Saxbys Headquarters in-Office Café
A photo shows a woman using a coffee machine by turning back and facing a brick wall at a coffee shop. Two other coffee machines, cups, menu boards are beside her at the counter. Three monitors are in the billing counter of the shop.

Source: Mackenzie Anderson

David was a strategic thinker who was excited to help push the company forward, and better position Saxbys for future years. Meeting with his food and beverage team, they brainstormed ways to appeal more to their younger target market, while staying true to Saxbys’ core beliefs. Specifically, Saxbys expanded their plant-based options across their cafés. Saxbys entered this space sooner than some competitors and plans to grow its presence to be a leader in its offerings.

Saxbys understood that to continue to appeal to all customers it must develop a plan to further expand its brand image, not only as a coffee company, but also as a social impact company.

Background
Saxbys

In 2005, Nick Bayer, Saxbys’ founder and CEO, invested in a small Denver coffee shop. He ultimately transitioned to urban Philadelphia three years later at the request of one of his investors. Having overcome bankruptcy in 2009 after an unsuccessful franchising business model, Bayer and his team re-built Saxbys with financial backing from a private equity firm. Now, Saxbys has more than 700 employees and has earned USD 15 million in sales. In May 2020, two-thirds of Saxbys’ revenues were from beverages, and the remaining one-third were from food items.

Saxbys cultivated their inclusive, youthful culture from within through their casual brick wall workspace, which even includes their own Saxbys coffee bar. Saxbys continues to focus on differentiating themselves on the basis of hospitality and a focus on community, centered around the company’s simple mission to “Make Life Better,” as displayed in their headquarters in Figure 2.

Figure 2. Saxbys Core Value Wall at Headquarters
A photo shows the illustrations of buildings, clouds, and trees on the walls of Saxbys coffee bar. Text above the buildings reads “SAXBYS.” Text in the clouds reads “Make life better,” “Opportunity,” “Community,” and “Others.”

Source: Mackenzie Anderson

Beginning with a focus on expanding in Philadelphia, Saxbys’ scope has expanded to more than 30 cafés, including in-office cafés and university experiential learning program (ELP) cafés, and they are continuing to grow. The university-based program includes 12 cafés and is offered at schools such as Georgetown University, Drexel University, and Lehigh University. The program allows for a learning environment where an undergraduate student acts as “Student C.E.O. (Café Executive Officer)” for a semester for academic credit; also, all employees are university students. This program has also been a test market to try new menu offerings, which in turn has created a focus on the younger population. Looking to the future of food and beverage, David knows customer expectations are currently changing, partly to accommodate allergies, but also in response to customer intolerances and preferences, which include the move into plant-based menu items.

As noted by Saxbys’ vice president of marketing and product, Russ Wilkin (personal communication, May 6, 2020):

Saxbys is primarily focused on serving the needs of our college-age guests, so we’re constantly spending time with them to learn how they define an interesting & inclusive menu. While plant-powered options tend to be more difficult to procure with tighter profit margins – we also believe in our commitment to having a dynamic & inclusive menu from both a consumer & a sustainability standpoint. We’re proud to continue expanding these plant-powered options to our young guests.

Plant-Powered Products in the Coffee Shop Industry

The coffee shop industry has existed for hundreds of years. According to IBISWorld (Hyland, 2020), one of the most important shifts recently in the United States is the inclusion of more health-conscious menu options. Several top coffee chains, including Dunkin’, Tim Hortons, and Saxbys, have implemented plant-based options to their menus. Specifically, Dunkin’ partnered with a global plant-based meat substitute company to incorporate their sausage alternative into a nationwide breakfast sandwich option at their cafés in mid-October 2019 (Dunkin, 2019). In Spring 2020, Tim Hortons pledged to “start offering more than one type of milk for customers, including skim milk and a dairy alternative, almond,” according to Global News (Sagan, 2020). However, Saxbys has led the industry in plant-based menu item incorporation since early October 2019.

Another example of a shift in the coffee shop industry is the increased use of soy, almond, and oat milk rather than cow’s milk. Saxbys has embraced non-dairy milk options; surprisingly, oat and almond milk are more popular at Saxbys cafés than traditional cow’s milk.

The Rise of Veganism
The Origin Story

The concept of veganism, and with it vegetarianism, have roots dating back to 500 BCE. Pythagoras, most commonly known for the Pythagorean theorem, preached benevolence to all species. In addition, there are religious roots to vegetarianism through Buddhism, Hinduism, and Jainism, in which all practitioners were expected to follow this diet.

The modern term vegan was coined by Donald Watson, an animal rights advocate, in 1944, for the vegetarian and non-dairy foods that he and some of his friends ate. The word vegan is simply a concise and shortened version of vegetarian.

The Evolution of Veganism

Although only a small percentage of the population considers themselves to be vegan, a larger population is reducing their consumption of animal protein. More specifically, 80% of Americans want to replace meats with plant-based proteins. This is mainly due to a “consumer concern regarding animal welfare, personal well-being and the health risks linked to eating meat (especially red meat),” according to Forbes (Schroeder, 2019). In addition, Journal of the American Heart Association researchers observed in 2019 that “plant-based diets are associated with a lower risk of incident cardiovascular disease” (Hyunju, 2019). The trend to reduce animal protein may also be a response to concerns about climate change. The evidence that consumption of animal proteins may put one at risk, further pushes consumers toward more plant-based protein consumption. More specifically, Figure 3 shows food purchasing decision drivers, according to research completed by the Plant Based Foods Association.

Four vertical bars are in the graph with factors and their percentage of influence on the top. The factors are tabulated below:

Factors

Percentage of influence (%)

Taste

52

Health

39

Environmental impact

13

Animal welfare

11

Text on the bottom left corner of the graph reads “Source: Mintel, 2017.”

Figure 3. Food Purchasing Decision Drivers
A vertical bar graph shows the various factors that influence the food purchasing decisions based on a research study.

Source: Plant Based Foods Association

The first plant-based products began with the implementation of more non-dairy milks, such as soy, almond, oat, and rice milks. The non-dairy milk industry is now flourishing, as the “demand for alternative dairy products will grow, despite competition from organic milk” according to IBISWorld (O’Connor, 2019). As the price of soybeans has risen in recent years, almond milk has increased in popularity, becoming the top-selling product of the non-dairy milk industry.

The reason for higher pricing of plant-based food and beverage alternatives is not due to the price of fruits and vegetables, as oftentimes fruit and vegetables are lower priced, but rather due to the cost of producing plant-powered engineered products. Specifically, engineered products are two to four times more expensive than regular meat and cheeses.

Plant-Based: Trend or Fad?

Skeptics of plant-based diets may wonder if this diet is a trend or a fad. Understanding the difference between these two terms is vital to distinguishing which plant-based foods are a trend or fad. According to Dictionary.com, a fad is “a temporary fashion, notion, manner of conduct, etc., especially one followed enthusiastically by a group.” In contrast, according to the same dictionary, a trend is “the general course or prevailing tendency; drift.” The key difference between these two words is that one is temporary, whereas the other is more permanent.

Several food trends and fads have occurred during the past few years. Notable fads include cronuts (croissant-donuts), the cupcake era, and celebrity-branded sauces. On the other hand, several food trends focus more on lifestyle changes such as less consumption of carbonated sugary beverages, new cuts of meats, and non-wasteful recipes. Current data, according to the Plant Based Foods Association, as displayed in Figure 4, shows the three-year increase of plant-based food sales ending in December 2019. One explanation for this increase could be the greater numbers of Americans incorporating plant-based foods into their diets. According to Nestlé, 87% of both vegans and meat-eaters are consuming more plant-based proteins. Specifically, two-thirds of that 87% are “doing so one or more times a week.” Although users are consuming non-dairy milks, the increase of meat alternatives is also significant. One of the most notable examples of this latter trend is demonstrated by Impossible Foods, which is “setting new sales and production records month over month following the 60X expansion of its retail footprint and nationwide rollout of Impossible Sausage Made From Plants,” according to their website (2020). Impossible Foods has even partnered with national food enterprises such as Applebee’s and White Castle.

Image is divided into four segments separated by horizontal lines. Text in the first segment reads “Three-year PLANT-BASED FOODS Dollar Sales.” Three vertical bars are plotted as a graph in the second segment. Text above the bars reads “3.9B,” “4.5B,” and “5.0B.” Text on the left side of the third segment reads “Source: 52 weeks ending December 2019 Commissioned data from SPINS.” Logo of Plant Based Food Association is on the right side of the third segment. Text in the middle of the fourth segment reads “plantbasedfoods.org.”

Figure 4. Increase in Plant-Based Food Sales, 2017’2019
An image shows the increase in sales of plant based food for a period of three years.

Source: Plant Based Foods Association

The Consumers

Overall, the younger generations—Millennials (those born between 1981 and 1996) and Generation Z (those born from 1997 onward)—are embracing a plant-based diet. As displayed in Figure 5, 79% of Millennials are already consuming plant-based meats, while 30% are trying to eat more plant-based foods. As Millennials represent 30% of the current population, this represents great potential for the plant-based foods industry. In addition, as Generation Z continues to mature, representing 32% of the current population, 79% eat plant-based foods one to two times per week, and more importantly, 60% want to eat more plant-based foods. Since this is a young generation, as they continue to mature and accumulate more wealth, this will likely push the plant-based industry further to success.

Image has four pie charts grouped into two segments by two rectangular boxes. Text in the two pie charts in first box is listed below:

  • 30% OF MILLENNIALS are trying to eat more plant-based foods*
  • 79% OF MILLENNIALS already eat plant-based meats**

Text in the two pie charts in second box is listed below:

  • 60% OF GEN-ZERS want to eat more plant-based foods
  • 79% OF GEN-ZERS eat plant based 1–2 times a week
Figure 5. Young Generations and Plant-Based Foods
An image shows the percentage of including plant based foods in their diets by both millennials and Gen-Zers.

Source: Plant Based Foods Association and Aramark

Following the Cultural Shift
Evolving Customer Expectations at Saxbys

Saxbys cafés are located in urban downtowns and on college campuses, with a primary target market focused on Millennials and Generation Z. With the rise of healthy eating, Saxbys explored the development of plant-powered recipes for both food and drink menu items. The coffee shop knew that both getting the terminology correct and properly adopting the menu items was vital to the success of the sales of these new products. Saxbys was very strategic in introducing and marketing these new items. Although the intent behind the creation of these menu items was to make them vegan-friendly, Saxbys avoided using the word vegan as it is perceived by consumers as polarizing. Specifically, Figure 6 displays data from a 2019 study provided by Saxbys finding that 61% of those surveyed did not like the term “vegan.” Conversely, they also found that 65% did like the phrase “plant-powered.” This data is part of what drove Saxbys to use “plant-powered” in the name of their new products, as it connected more with the coffee company’s energizing brand.

Heading of the graph reads “UK: “How appealing do you find the following food and drink product concepts/claims?” (According to GlobalData’s 2019 Q3 UK consumer survey).” The level of appeal toward the words is plotted along the x-axis and the percentage of appeal for the terms “vegan” and “plant-based” is plotted along the y-axis. Percentage values from the graph are tabulated below:

Level of appeal

Percentage of appeal (%)

Vegan

Plant-based

Don’t know

4

6

Not at all appealing

34

11

Not very appealing

27

18

Somewhat appealing

23

39

Very appealing

12

26

Vertical bars plotted above the “Not at all appealing” and “Not very appealing” categories are grouped together within a rectangular box labeled “61% Don’t like the term “Vegan”.” Vertical bars plotted above the “Somewhat appealing” and “Very appealing” categories are grouped together within a rectangular box labeled “65% Like the phrase “Plant-Powered”.”

Figure 6. Histograms Displaying Customer Perception of the Word “Vegan” Versus “Plant-Powered”
A vertical bar graph shows the opinion of people about their appeal toward the terms “plant-powered” and “vegan” foods based on UK consumer survey.

Source: Saxbys

Understanding this shift, Saxbys launched the Plant-Powered Breakfast Sandwich, made with just egg, vegan pesto spread, and tomato on a toasted bagel in August 2019. Within two months, the Plant-Powered Breakfast Sandwich, as shown in Figure 7, represented 10% of all made-to-order (MTO) breakfast sandwich sales at Saxbys. This positive reception from Saxbys’ customers encouraged the company to continue to build their plant-based menu. Within 18 months, Saxbys had more than 29 plant-powered menu items, ranging from overnight oats and cookies to burritos. In spring 2020, 49% of all available menu items are plant-powered and more importantly, 64% of sales are from plant-powered items.

Figure 7. Plant-Powered Breakfast Sandwich
A photo shows a vegan sandwich and a coffee cup beside the sandwich placed on a table.

Source: Saxbys

Plant-Powered at Saxbys

As Saxbys’ plant-powered items continue to gain momentum among its clientele, the café has made sure to price these products competitively, but with price sensitivity as well. Although the price of all products at Saxbys varies by category, there is an overall small premium for those who desire to eat or drink plant-powered. For drinks, there is an upcharge of USD 0.75 for oat or almond milks, as opposed to regular skim or whole milk. As for sandwiches, such as the Plant-Powered Breakfast Sandwich, there is an additional USD 1.00 for these plant-based menu items. However, there is no price difference for plant-powered cookies and air-fried tots, as well as several other food items, because these items are now only available in plant-powered, as the other versions have been replaced.

Although the plant-powered menu items are more expensive, the profit margins for plant-powered offerings, compared with other products, are actually lower. On average, the margins are about 10% lower for plant-powered products relative to their comparable non-plant-powered versions, even when pricing is factored in. For example, a plant-powered breakfast burrito is USD 1.00 more than a regular breakfast burrito, but the profit margin is 12% lower.

Implementing New Menu Items

When adopting these new menu items, such as those displayed in Figure 8, the roll out process begins several months in advance with David and his team of chefs and product marketers. They start by forecasting food trends and begin development of various menu items for feedback and testing in their cafés. This process continues every quarter, as Saxbys is constantly introducing new recipes to balance their core menu items.

Figure 8. Saxbys New Plant-Powered Menu Items (Spring 2020)
A photo shows a plate of sandwich, three cups of juice and drinks, and a plate of cookies arranged on a wooden table, A stack of paper cups placed upside down one over the other and a cup with straws is also placed beside the plates.

Source: Jeanette K. Miller

Specifically, when putting new plant-powered items on Saxbys’ menu, the team is very cognizant of price, just as they know their customers will be. Although plant-powered menu items may cost more to make, the team will tweak the recipe to achieve a price–taste balance. Saxbys found that plant-powered options often come with a higher price, and their guests are willing to pay a slight premium.

To continue sales growth, accurate marketing of new menu items is very important. However, it has proven difficult to convince customers to try foods labeled “plant-powered,” even with superior taste and flavor. Saxbys partnered with Root 9 Baking Company to supply their cafés with high-quality, vegan cookies. Saxbys initially tagged these cookies in the glass case with the name “PLANT-POWERED CHOCOLATE CHIP COOKIE.” After obtaining both guest and team member feedback, Saxbys found that although it is important to note if an item is “plant-powered,” it is not as important in the bakery category. Therefore, Saxbys revised their cookie tags to read “CHOCOLATE CHIP COOKIE.” Below this product name is a secondary message, set in a smaller type, that reads “Plant-Powered (v).” Here, (v) indicates vegan. The cookie tag is shown in Figure 9.

Figure 9. Updated Bakery Item Tag
Text in an image reads “Chocolate Chip Cookie Plant-Powered (v) USD 2.25”. A logo of Saxbys company with text “Saxbys” is beneath the text.

Source: Saxbys

Saxbys Customer Response

Owing to the positive customer response, Saxbys has fully invested in plant-powered menu items for both food and drinks. These new menu items are featured at all locations, as they like to have a consistent menu café to café. The response from customers, both financially and morally, has been very strong. Saxbys will continue to innovate around plant-powered menu items, utilizing dairy-free and meat-free ingredients. However, price continues to provide a roadblock as Saxbys attempts to balance innovation with price sensitivity.

Saxbys Video

Additional information on Saxbys’ strategy for plant-based menu items is available in an interview with its food and beverage director, David Schylling, at https://www.youtube.com/watch?v=kkfpMSqAQ2I&feature=youtu.be.

Discussion Questions
  • How would you advise Saxbys on their near-term (6 month) strategy and their long-term (3–5 years) strategy?
  • Considering trends vs. fads in the food industry, do you believe that plant-powered products are a trend or fad?
  • To what do you attribute to the success of Saxbys’ plant-powered foods sales?
  • Should Saxbys strike a balance between the high price of plant-powered foods, or pass on the cost to their customers?
  • How can Saxbys leverage their position as a first mover in the plant-powered food and beverage café space? Does their smaller size provide an advantage or disadvantage?
Further Reading
Choi, C. (2018, August 24). ‘Plant-based’ replaces ‘v-words’ to appeal to carnivores. The Christian Science Monitor. https://www.csmonitor.com/The-Culture/Food/2018/0824/Plant-based-replaces-v-words-to-appeal-to-carnivores
Dimock, M. (2019, January 17). Where Millennials end and Generation Z begins. Pew Research Center. https://www.pewresearch.org/fact-tank/2019/01/17/where-millennials-end-and-generation-z-begins/
Lempert, P. (2016, June 16). Food trends vs. food fads. Forbes. https://www.forbes.com/sites/phillempert/2016/06/16/food-trends-vs-food-fads/#43ef192b3655
Plant Based Food Association. (2019, July 12). U.S. plant-based retail market worth USD4.5 billion, growing at 5x total food sales. Plant Based Foods Association. https://plantbasedfoods.org/2019-data-plant-based-market/
Saxbys. (n.d.a) Experiential learning. Saxbys. https://www.saxbyscoffee.com/experiential-learning/#1-kfc1
Saxbys. (n.d.b) Our mission. Saxbys. https://www.saxbyscoffee.com/our-mission/
Saxbys. (n.d.c) One woman’s quest to create the perfect vegan chocolate chip cookie. Saxbys. https://www.saxbyscoffee.com/news-item/one-womans-quest-to-create-the-perfect-vegan-chocolate-chip-cookie/
Shelly, J. (2015, October 30). CEO Q&A: Nick Bayer of Saxbys Coffee. Philadelphia Magazine. https://www.phillymag.com/business/2015/10/30/nick-bayer-saxbys/
Stafford, J. (2018). 10 top food trends for 2018. Travel Channel. https://www.travelchannel.com/interests/food-and-drink/photos/10-food-trends-for-2018
Suddath, C. (2008, October 20). A brief history of veganism. Time. https://time.com/3958070/history-of-veganism/
The Vegan Society. (n.d.) History. The Vegan Society. https://www.vegansociety.com/about-us/history
References
Dunkin. (2019, October 21). Great taste, plant-based. Dunkin. https://news.dunkindonuts.com/news/beyond-meat-dunkin
Fortune. (n.d.). Impossible Foods. Fortune. https://fortune.com/change-the-world/2019/impossible-foods/
Hyland, R. (2020, April). Coffee & snack shops in the US. IBISWorld. https://my-ibisworld-com.ezaccess.libraries.psu.edu/us/en/industry/72221b/about
Hyunju, K. (2019, August 7). Plant-based diets are associated with a lower risk of incident cardiovascular disease, cardiovascular disease mortality, and all-cause mortality in a general population of middle-aged adults Journal of the American Heart Association. https://www.ahajournals.org/doi/10.1161/JAHA.119.012865
Impossible Foods. (2020, August 13). Impossible Foods closes $200 million in new funding to accelerate growth. Impossible Foods. https://impossiblefoods.com/media/news-releases/2020-08/impossible-foods-closes-200-million-in-new-funding-to-accelerate-growth
O’Connor, C. (2019, February). Soy & almond milk production. IBISWorld. https://my-ibisworld-com.ezaccess.libraries.psu.edu/us/en/industry-specialized/od4195/about
Sagan, A. (2020, February 10). Tim Hortons moving to milk alternatives, better bacon to help boost sales Global News. https://globalnews.ca/news/6531792/tim-hortons-basics-approach/
Schroeder, B. (2019, June 18). Plant based food products started with milk, now taking on meat, what’s next? Forbes. https://www.forbes.com/sites/bernhardschroeder/2019/06/18/plant-based-food-products-started-with-milk-now-taking-on-meat-whats-next/#4e03a06221da
Schylling, D. (2020). Plant powered [PowerPoint slides]. https://drive.google.com/open?id=1a10KUqPoj2FSO1EFj92n2HLXjWbiwZNY

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