The Surge in Healthy Fast Food: Not an Oxymoron or Fad

Posted in: Sector and Company Insights, Venture Capital, fast food, healthy fast food, lyfe kitchen, sector insight, tender greens, veggie grill

Healthy Fast Food

A number of new food related startups are taking a healthy approach to fast dining, with consumers (and investors) taking interest.

Fast food restaurants, characterized by restaurant chains serving precooked foods in a packaged form for take-away, started back in the 1920s when the rising popularity of automobiles led to drive-in restaurants. In recent years, however, consumers are becoming increasingly aware of the 'dark side' of this industry. It is believed to be the cause of the obesity crisis, malnutrition in children, as well as diabetes and heart disease. Ask anyone for a word to describe fast food, and you will probably get synonyms of “unhealthy” or “junk food”.

In light of an increasingly well-informed and health-conscious population, a new generation of fast food chains has emerged to fill a long-standing gap: serving fast, convenient food that is also healthy and nutritious. These regional chains have been wildly successful, focusing not only on healthy and low calorie meals, but also striking a chord with environmentally-conscious consumers with buzz phrases such as “locally-sourced” and “sustainably-farmed” in their menus.

2014 is shaping up to be a banner year for food related startups. According to a recent TechCrunch post:

Investments in food-related startups, from delivery services to new restaurant chains to new types of foods and additives, have raised unprecedented amounts of cash in the most recent quarter, as investors dug in to the food business. Food companies raised $89 million in the second quarter of this year alone and have raised nearly $350 million since the second quarter of 2013, the strongest performance for the category over the past five years.

Food StartupsGraph from TechCrunch: 'Food Startups are Riding a VC Gravy Train'

One such example is LYFE Kitchen, whose chief executive, Mike Roberts, is the former global president of McDonalds. LYFE Kitchen, whose revenues exceeded $3 million in its first year, is like the Whole Foods of fast food, with values towards health, community and sustainability. This year alone LYFE Kitchen has raised north of $20M - with significant funding from Eric Schmidt's Tomorrow Ventures.

Another startup in this space is Veggie Grill, a California based vegan chain serving typical fast food dishes such as onion rings, burgers and fries. While not the first restaurant catering to vegetarians looking for an easy dining-out option, Veggie Grill has been actively expanding, and expects to reach 40 outlets in California, Oregon, Washington, Texas and New York by the end of 2014. The company recently made the No. 7 spot in Restaurant Business magazine's annual list of the 50 fastest growing small chains in the US with $26.6 million in sales in 2013 - a 47.9 percent jump from the previous year.

Tender Greens is yet another California-based chain touting the healthy fast food mantra. Besides being an advocate of the “farm to fork” movement, it also has a Sustainable Life Project which offers internships to emancipated foster youth to work at its restaurants and attend culinary classes. A recent NYTimes profile on the the healthy fast food movement states:

Tender Greens, which brought in more than $40 million in revenue last year from just 12 stores; that is over $3 million per restaurant — about 25 percent more than at Chipotle and Panera Bread, chains that are far better established. (from 'Hold the Regret? Fast Food Seeks Virtuous Side)

This fast food revolution is believed to be started by Chipotle, who uses free-range meats that are antibiotic-free and prepares food on premises, resulting in fresher and better quality. Ever since McDonalds’ divestiture of Chipotle in 2006, Chipotle’s founder Steve Ells have been moving the company further and further away from typical fast food practices. While other restaurants were cutting costs and lowering prices, Chipotle raised prices on its burritos and focused on higher quality ingredients. This move proved to be profitable and marketable, setting the trend for a new wave of healthful fast food restaurants.

Healthy Fast Food Chains

An analysis of Datafox scores of 8 popular health-oriented fast food chains show that most of them have a high Datafox score of 65 and higher, suggesting much potential in the market. See our public DataFox watchlist for detailed insights into the private fast food chains in this list:

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Unlike gourmet popcorn or the cupcake craze, healthy fast foods are here to stay. With a growing population of health and community-conscious adults who are willing to spend for a healthy, delicious and convenient meal, these chains are an attractive and sustainable alternative to cooking or traditional restaurant dining. Like what Starbucks did for coffee, healthy fast food chains are quickly gaining popularity and loyalty in coastal states such as California, Washington, Oregon and New York. Thankfully, this is one trend that is clearly good for our future.