find out about "Nutricate"

One of the hot new emerging technology companies in hospitality is Nutricate. I had the opportunity to spend some time at the Nutricate office and find out about the solution and story behind their initiative to "Nutritionally Educate" hospitality venues and guests. It was also a fun reunion as my former boss and mentor, Brad Bennett, is their VP of Products. Before sitting down with Jay Ferro, Nutricate CEO, I was treated to lunch at Silvergreens to experience the Nutricate brilliance.

One of the most interesting things about this interview was hearing about Nutricate's birth from social concern versus financial purpose.

Me and Brad

1. What exactly does Nutricate do?
I guess the problem we're ultimately trying to solve from more of a global perspective is there is an obesity problem on our hands, and the food service industry has responsibility in that. What you hear a lot about is legislation for trans fat and other things. The one you probably don't hear as much about is the need to tell us what's in their foods with nutritional labeling. What Nutricate does is we attempt to solve a problem from both the operator perspective as well as the consumer perspective. We try to create that "win-win" opportunity. What we have is a patented software tool that enables personalized nutrition information to print right on the receipt at restaurants, hospitals, work site cafeterias, or any food service environment. What we end up trying to do is take that opportunity to not only engage the consumer and let them know what they are eating, but also to educate them on how to eat healthier and make recommendations. We call it our "Did you know?" section. For example if you order a chicken sandwich we can put something like, "Did you know if you substituted grilled chicken for crispy chicken you would save this many calories and this much fat." From the operator perspective this is huge because you want to move the accountability off of you the operator and put it on the consumer. It's not that my food is bad for you, you just chose the french fries. You could have chosen the side salad as your side. I'm going to educate you on my options, tell you how to eat healthier, and then of course it's on your shoulders. Don't blame me for how many calories or fat is in this meal because you have plenty of options. Getting the consumer more educated on this is primarily where we are going, and then we will have peripheral products along the way that can add value for both the consumer and the operator.

My actual meal and Nutricate Receipt

2. What triggered the idea to put the nutritional data on the customer receipt?
Well, it was 1994 and I had just graduated from UC Santa Barbara and was writing a business plan for a restaurant. I wanted to go do my own thing and didn't want to work for anyone. I knew Isla Vista and the community here. I said, "I think this place needs a healthy restaurant about salads." Kinda take the salad bar concept and modernize it from the 80's. While I was writing the business plan for that restaurant I started to research nutrition. I didn't know a lot about nutrition, I just knew I thought the market was looking for a healthier alternative at that time. I started thinking I gotta get nutritional information for my restaurant, and then asked, "Wait, why don't restaurants have to do this?" Turns out in 1990 nutrition fact labels were mandated and restaurants were made exempt at that time. It was 1994/1995 at this point and timing was basically bad for the idea. The idea was why not put it right on the receipt, it doesn't change anything from the operator perspective. The customer gets exactly what they're eating. One of the biggest reasons restaurants were exempt was I think 70% plus of your orders at restaurants are customized. Preprinted nutritional information whether on a brochure, poster, or menu board is inaccurate the vast majority of the time to begin with.

3. What is the value proposition that Nutricate offers the venue?
Well, I think it depends on what operator you're going to. We segment the food service industry in two areas. One is restaurants and the other is the institutional market. For restaurants there has to be a tangible ROI. There does on both sides, but the ROI is how can I increase sales, how can I decrease costs, how can I improve customer loyalty, how can I improve brand. We're targeting in the restaurant side those that are maybe socially responsible and trying to position their brands with more of a health conscience perspective. Obviously that's not everyone out there, but they see the trends like everyone else and they know they have to change in some way. So, for those people were saying you have a competitive advantage potentially on what your nutritional information looks like compared to some of your competitors. There are so many dynamics in this because there is a perception versus reality. Subway may be perceived as healthy, but when it comes right down to it maybe they're not. Disclosing nutritional information may be bad for business in that way. But if you're getting just killed from the media like a McDonald's, and your not that bad there may be a good business decision to do it. There are several dynamics within it, and we are way to communicate that. And then of course from real tangible ROI what you find is your drawing attention to a piece of paper that has been thrown away forever. And now you can leverage those new eyeballs for new marketing opportunities or new third party advertising opportunities. What do you want to know that you have some attention on there? It's a new medium of marketing of sorts. That's the restaurant side.

The institutional side we're selling to for a totally different reason. Some of the barriers that may exist from an embarrassment factor ("I don't want anyone to know") that is on the restaurant side are not there. If you are talking to a cafeteria, education, or hospitality that's not their concern. Their concern, certainly from work site perspective, is primarily my health care costs are out of control and I need my employees to be healthier because I need to drive these costs down, and what kind of health and wellness programs can I put into place that can engage these employees of mine and give me measurable data I can give to my insurance company so they can justify lowering my rates. There is this a huge pain out there and that's "dollars". So they're trying to reduce costs by implementing programs like this. Or obviously in K-12 there is a lot of public pressure. It's kinda of like "walk-the-walk" is what's going on in that side. So they're not necessarily saying, "I want this to drive my sales." They're trying to do it for totally different reasons than why a restaurant would do it.

4. How is it that you can integrate with almost any Point of Sale System?
What our technology solution is....well you're the one who is going to tell me if I'm right or not in this because this is your area of expertise.

Here's how we look at it. We have the POS side of things and it's an extremely fragmented industry. I think MICROS is the leader and they have maybe a sixth share of the entire market. That's how many different players there are out there. So yeah, we can build software and it can certainly sit on the POS and we can integrate with it. But do we want to do that with 200 plus POS? When you look at what we are trying to do, we just have to affect the printer. And the printer market as you know is 80% owned by Epson, and the rest are Epson compatible. So that print stream is really easy for us identify and map to. So what we have is a proprietary device that essentially intercepts the print stream and adds all the necessary nutritional information and marketing message based on triggers, makes the receipt look pretty, and then passes it right on to the printer with no speed latency. Everything is managed via of the web so you don't have to worry about where you're at. It can be hard wired via Ethernet or a wi-fi dongle so it can be accessed. Essentially all we are doing is just matching what's coming out of your POS at the item level, and if there are certain things we don't want like a credit card receipt we just pass through. If we want it we make it a Nutricate receipt.

5. Quick service and chain restaurants are obviously a key market segment. Do you see hotel, resort and other high end venues adopting providing nutritional information to their guests?
I think you earlier were talking about the spa market. If you look at where maybe opportunities exist and where it would be more in demand by customers spas are one. Another interesting one in the hotel market is room service eventually. I think that could be a good application. Initially we're not targeting the casual or fine dining for a variety of reasons. Typically you're finding those in hotel atmospheres. I think there are certain places it makes sense in hotels and there are certain places it may not be the right fit today. And as you know many hotels are one-offs. If there is a one-off opportunity I need to feel like it is worth while to go in there and make enough money. The nice thing about chains is I do it once and I can duplicate it by the number of chains. For the institutional market it is our second product offering that excites them more than our first product offering, and that is a totally different revenue model for us that is very very attractive.

So I guess we are not initially targeting the hotels of the world, but I think spas is a good one. LifeTime Fitness sort of fits in the same model. As we look at what we are targeting today it is a big market, and we're choosing quick service and fast casual in the restaurant side. The whole institutional market is pretty good for us, but work sites ultimately are in the biggest pain. They are the one paying all the health care costs and that is where we are targeting.

6. Why do think there has been a lag in the adoption of providing nutritional information to guests?
I think it is a couple reasons. One is the potential embarrassment factor, there is no doubt about it. You have the media making it sound really bad and beating restaurants up. I think the media has just done a terrible job of everything. We are kind of finishing out the "Supersize Me" era. From mid 1990 to mid 2000, in that ten year stretch bigger was better. If you could give me more french fries I would go to you because that is more value in my eyes. As portions sizes continued to grow over time it turns into a really really bad time to expose nutritional information. It's all about quantity, which is why the casual dining market is so bad for us and them. If you get a BigMac and fries at McDonald's and you get a burger and fries at Chili's you feel better about yourself for eating the one Chili's; maybe because it is being served or because you think it is a higher quality of food. But you are eating two to three times the amount of calories and fat, and that is not because it is worse for you but because that is how big everything is. But we don't think like that from a consumer perspective. The last thing Chili's needs to do is tell people now, "You just had 2000 calories." And McDonald's can say, "You had the BigMac and fries and your the one beating me up when it is only had 800 calories here." I think it is different reasons for different venues, but ultimately the market is so nervous about how consumers are going to respond and react. "Are we going to get killed on this or appreciated. How mature is the audience out there?"

Two, if you look at what alternative methods there are to disclose this nutritional information, outside of Nutricate's solution, there are no good methods. They're going to put it on the web, but who goes and accesses the web before they eat. It just really doesn't happen very often. They are going to put it on posters on the the wall. But the problem with posters or brochures is customized orders. You cannot put that in a preprinted format of any use to a consumer. No one is going to go find their specific desire and then order it. It is just impractical. If you put it on a menu board there are tremendous problems. Logistically finding the space for anything on a menu board is hard. What it could potentially do to line speed is also a problem; operationally another variable that confuses my customer and makes them ask questions potentially negatively affects line speed. But I think still at the end of the day venues would figure out a way to do it if they felt comfortable there would not be a backlash. They are not looking for everyone to say, "Wow, I'm going to eat out more often now."; really they just don't want people to eat out less. So we are obviously being very selective with who we target because our solution may not be the right solution for half of the restaurants out there.

7. Who are some customers that "Got Nutricated"? What has their customer feedback been?
Right now there are four. Silvergreens was the initial restaurant, which was the restaurant I founded, so it was the perfect place to put in a product that hopefully would work. There were a lot of questions like, "How is the technology going to work." When we put it in in April '06 at Silvergreens we had Maitre'D and we integrated it. There was not an agnostic piece to it. We did it and it was painful. 99% of the things the POS did we didn't care about but we still had to make it work with. So it was a long frustrating process. What we were trying to do was figure out 1)does the technology work, 2)what happens to the restaurant's sales, and 3)what was the customer's response. We needed to test this and do a market test on it. All of those, with the possible exception of the technology, went great. Sales went up 20% unbelievably! It's crazy! It is hard to say it because I know people don't believe it. Here's the reason it did - you get PR out of this thing. It's different. It's unique. We had news people come; we got some articles printed on us. Already when that happens you're gonna get new people trying your restaurant. But we're in Isla Vista, and for anyone coming into IV it is tough enough with the competition. Also people don't want to challenge the bikes and are intimidated of IV outside of the students and those that are accustomed to it. So we got a new batch of people that were saying, "Wow, this new kind of restaurant." Whether that was because of the Nutricate receipt, the food, or a combination of both is hard to determine. But we got the PR to get them in and prove ourselves.

Also, I think the coupon aspect on the receipt works pretty well. It is a very inexpensive way to target your current customer. Hopefully it doesn't cannibalize sales, but overall if you grow your volume you're going to be fine. Usually you target. If it's lunchtime and you're trying to drive breakfast business, you know that person can come in so your going to try and target breakfast or a new menu item. Whatever it is, there is a lot to the tool of couponing. It's neat and it's based on lot of triggers.

The consumer response was fantastic. We did a bunch of market research independently. CSP did it and surveyed tons of people. There was really positive response to the receipt. It's an interesting market, not to get on a side not here. College students for the most part don't care as much. As you get older your body responds differently to what you eat. If you can be successful in a market where people don't care as much as when you become more educated on nutrition I think it's pretty impressive.

Then there are three locations in San Diego. Two Extreme Pita's, a pita concept out of Canada trying to penetrate the US market. They have probably 30 restaurants in the US and a couple hundred in Canada. They are competing with the "bigger is better" mindset in the US. It's hard, but they are inherently healthier and they have a good nutrition story. We have tested in those two locations and are now putting it in Phoenix, their biggest US market. Then they will test it out in Canada.

8. Recently the the New York City Board of Health voted to require all chain restaurants to post caloric data on their menus. How long do you think it will take for this trend to reach other cities?
It's a good question. I mean that's legislation. Obviously that is a great driver for us. Nutrition disclosure strategy is on the board agenda this year, so it is something restaurants have to think about and try to figure out. It is going to make some of the bigger players out there think, "How do I want to do this? Do I want to be proactive? Do I want to be reactive? Where are we with this?" What New York City has done now is chosen the method of putting it on the menu board, and that is a very easy one to fight because it is such a bad choice of solution. One, it is very dangerous. You could give someone extremely inaccurate nutritional information just with the customization of it. If a venue puts one on their menu how in the world are they going to know what a guest actually orders? If the item defaults with wheat bread and no mayonnaise or cheese someone is thinking they are eating 400 calories when it is actually 700 calories. You can put up whatever you want to put up, so it is very dangerous I think in that regard. As well with meal totals and other things that are going on. The restaurant industry has got lots of legs on this one.

And, why would you think this would possibly work? Since nutrition fact labels have been put into work our obesity rate has doubled. So this really is the same thing but even worse than what we have been doing. Essentially the restaurant association sued again, because this happened twice. Essentially we are focusing in California. Something similar happened in California and went all the way up to Arnold, and Arnold vetod. It was a good thought and I agree the restaurant industry has to do something, but it was the wrong solution for a variety of reasons. Obviously we're now getting active and saying look at the Nutricate solution and why we think it makes sense for everybody. But I think cities and states is where it is going to be driven. It is going to pop up all over, and then at some point go federal. The chains want it to go federal because they can't have different legislation in different cities all over, it is just too much for them. So there is a point where they will say, "Let's just find out what it is and just do it, and and move past this so we can go back to making our burger and fries."

And this is the perfect place for technology to come in! They are so far behind in technology anyways at least use this as an advantage for you.

9. Starbucks is now offering a pamplet with nutritional information. They have upward to 87,000 drink combinations. Would Nutricate be a good fit for an operation of this size?
That is where we excel! That is the reason we're relevant is because you order your latte your way. We can key off any of that stuff, that's what we do. That is what Brad is doing. We are basically building that flexibility. If you want a "grande mocha" with six pumps of chocolate I'm going to come up with the number whether you want it rolled up, by item, or by individual pump. The venue gets to choose because there is marketing there. Do I want my customer to see it all rolled up? Or is the whole milk such a bad part of it that I want to show them it's not me, and then recommend skim milk via "Did You Know". And skim milk costs me less per gallon, but the drink costs the same so I save money! The point of "Did You Know" is to educate the customer and hopefully do it in a way that makes the customer healthier and the venue more money.

That is where Nutricate is of huge value to the coffee segment.

10. As someone arguably successful in both the restaurant and technology market, what advice would you give to entrepreneurs wanting to provide a technology solution to the hospitality space?
You should ask me when I become successful as I'm still trying to figure this out a little bit. I founded a technology company with no technology background. I have all food service. Being somebody who is pretty hands on and wants to know about everything, that is the space I couldn't dive deep in. If something was wrong it was just wrong. For me, it is just get the right people. As you know in Santa Barbara that is such a challenge. But it is no different than any other business. Get well funded so you can afford the right people and the right technology.

11. You have an "Ask the Dietician" section on your website. What is the weirdest question that has come in?
(laugh) Unfortunately I'm not even a participant in that. We have our dietician who does that and I don't know how much it is used or not. I could make one up for you, but I honestly don't really know even one question that has been asked.

I was immensely grateful for the opportunity to sit down with the team at Nutricate. They are truly onto something great and everyone there is deeply passionate about the solution and the benefits of it for society in general.

The Nutricate team hard at work

If you are interested in finding out more about Nutricate you can visit their website or contact them here.

For more information about kevin sturm Consulting please visit my website.