The American Food Paradox: Growing Obese and Going Hungry

One third of the US population is obese, even as 50 million Americans often struggle to find enough to eat. And all that in a country where 40 percent of the food made and purchased each year is thrown away, and in which food needs are expected to more than double over the next few decades. Professor Jose Alvarez discusses how the former president of Trader Joe’s is boiling these difficult problems down into one elegant solution in a pilot store in Dorchester, Massachusetts, and blazing a trail toward sustainability in the process.

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TRANSCRIPT

Brian Kenny: It's no secret that the US has an obesity problem. In fact, according to the American Diabetes Association, as much as one third of the population is clinically obese. Many of those people live in our poorest communities. In 2010 the ADA reviewed poverty rates and obesity across more than 3,000 counties in the U.S. and found that people in America who live in the poorest counties are those most prone to obesity. This in a nation where, ironically, up to 50 million people go to bed hungry at times during the year. Today we'll hear from Professor Jose Alvarez about his case entitled "Doug Rauch: Solving the American Food Paradox." I'm your host Brian Kenny and you're listening to Cold Call.

Professor Alvarez teaches in the MBA and Executive Education programs at Harvard. He's an expert in supply chain logistics and, before coming to Harvard, he served as CEO for Stop & Shop and Giant-Landover, a major grocery retailer in the United States. Jose, thanks for joining us today.

Jose Alvarez: Thank you and good morning.

Kenny: If you can start just by telling us, how does the case begin? What's going on with Doug?

Alvarez: Doug is trying to figure out what he wants to do and he comes across this issue, this paradox really, of obesity happening at the same time that we have this massive issue with close to 50 million people who are food insecure. You've got another problem going on in the background, which is that enormous amounts of food, upwards of 40 percent of the food produced in the United States, and really around the world, is wasted and never used by the consumer. Doug hits upon this idea of using that food supply, which would have been wasted, to nourish people in low-income, high-obesity communities. As he evolves the idea and finds a location and different partners to work with him, he ends up in Dorchester, Massachusetts, which is another low-income, high-poverty, high-obesity area in the city of Boston.

Kenny: Okay, let's talk about the food issue in the U.S. How much food are we going to need going forward? How much food are we wasting today?

Alvarez: Okay. A couple of things. If you think about the increase in global population and the increase that's going on at the same time in the middle class around the world, it says that we're going to need about a doubling of food in the next couple of decades. That's obviously a significant issue because we either have to get much more efficient in what we're doing or people are going to have to eat a lot less. And that's probably not going to happen.

One of the things that's interesting is it's not just that population is increasing but it's the fact that, as the middle class grows in developing countries, the need for protein and higher quality food, which is usually less efficient to produce and more energy intensive to produce, increases. That's part of the backdrop here. This need for additional, highly intensive production of food, and at the same time we're wasting upwards of 40 percent of the food that's produced around the world. In the developing world, a lot of that has to do with supply chain. It has to do with cold chain development in those countries. In the developed world, it has much more to do with the kind of standards that we have about what we think is good food. There are a couple of different things going on there. One is what Doug calls in the case “the perfect being the enemy of the good.” We have such high standards that a lot of food which would normally be considered fine to eat in most parts of the world, in the developing world our standards are so high that we say, "Hey, that carrot is not quite straight enough or not quite round enough or not quite orange enough," that it doesn't get moved through the supply chain. The other thing, which is interesting, in the developing world we have these things called code dates on food. Most people look at and say, "Oh look, it's beyond the best buy or enjoy by," or whatever it might say "by date". There's actually no definition legally of what those dates mean. The food that you throw out because you've been trained that that is no longer good as of date X is actually perfectly fine.

Kenny: My wife and I have this argument all the time because I'm famous for throwing stuff out and she'll say, "That's still good," and it's amazing to me that—of course she's right most of the time. Milk lasts a lot longer than the expiration date.

Alvarez: Yes, and you know when milk has gone bad.

Kenny: It tells you.

Alvarez: Right, our senses have been developed to understand when food has gone bad and generally when people have foodborne illness. It has nothing to do with the code date. It has to do with something that happened in the supply chain that compromised the integrity of the product. There are enormous amounts of food that are wasted in the developed world that could be repurposed; that instead of it becoming food waste it could wind up becoming something that people can consume and not just becoming compost or animal feed. Doug's big idea here is that he could take some of this stream that would become waste and instead of having this food become waste, he's able to re-purpose it for high-quality, nutritious meals in a store that he builds, along with high-quality ingredients that people can use to make meals.

Kenny: In the case you go into great detail about the issues affecting people in low-income areas and their access to food. Particularly good quality food. I learned some new terms: food deserts and food swamps. Can you talk a little bit about that?

Alvarez: The idea of the food desert is that you have many populations in the United States that don't have a convenient grocery store nearby. This problem’s gotten a little bit better over the last few years because there's been a lot of emphasis placed on this issue by the large supermarket chains, and Walmart in particular, to try and build stores near customers in low-income communities. For a long, long time we've had many communities that did not have a supermarket in the United States. That happens mostly in poor urban and poor rural areas. The other thing that we talked about in the case is the idea of the food swamp. In many of these communities where you don't have a supermarket, you have a lot of the quick service restaurants like KFC, Taco Bell, Pizza Hut, etc., which sell low-cost meals. But those meals usually are not of the highest nutrition quality and are likely part of what's exacerbating the obesity problem in these communities. The working poor in this country often have multiple jobs, working a lot of hours, have kids that they need to feed when they get off the bus and get home. These food swamps can be a really significant issue as well because they do become the default option for large parts of the population.

Kenny: Deserts lead to swamps in that equation. You also talk about the fact that we have created policies which frankly support the whole swamp structure too.

Alvarez: Right. The agricultural policy in the United States, which is incredibly complicated, and which is one of the things that Doug wanted to attack early on in his work with the Advanced Leadership Initiative— this is a very complex set of problems. Eventually Doug realizes that he's not a policy maker, he's actually a retailer. He decides to dive into this idea of a healthy food store. Food policy in the United States is driven by cheap food, not necessarily nutritious food. The policy makes it easier for people to be able to buy food from some of these not-so-nutritious, quick service restaurants and also things like sugar-sweetened beverages, which have a lot of calories but really not much in the way of nutrition.

Kenny: This is driven by government subsidies where they are giving farmers money to grow crops that are used in making those kind of low value products.

Alvarez: Right. Mostly corn.

Kenny: As Doug goes down this path, he's looking at the revenue model. He's kind of working through some of the issues. What are some of the issues that he's grappling with?

Alvarez: The first issue is trying to make sure that he creates a store that allows people to have dignity and that gives people choice, right? One of the key things, as retailers, that Doug and I talk about is the fact that as a customer you give a score card every day to the retailer. You can either give the retailer your business or not, depending on how well they're serving you. A big part of what Doug wanted to do is make sure that this wasn't a hand-out. It wasn't a food pantry or food kitchen type of situation but it was something where people could have a choice and could give feedback to Doug and his team based on their dollars. There was a lot of work that Doug did in meeting with the community and understanding the needs of the community over a few years here as he was fleshing this out, that really helped him understand how important it was going to be that this was a community store. That the people who worked in the store were part of the community and that it was not seen as the dented can store but really as a place that was every bit as high quality and every bit as personable and service-oriented as the Trader Joe's environment that he had helped create.

Kenny: You talk about the fact that if he's going to be taking this surplus food from area grocery stores, it's hard to predict what he's going to have available on a given day.

Alvarez: That actually leads to one of the important things that he winds up doing. There are two things that happen. One is he's got this variability, because he's never sure what's going to come in the back door on any given day. The other thing is that, as I talked about before, these are really time-compressed consumers, as I think all consumers are. It's not like this community is any less or any more time constrained it's just they're also income constrained at the same time. The idea winds up being that not only is the store going to provide a place for people to buy ingredients to eat but it's also going to have a commissary kitchen that makes ready-to-go meals and salads and sandwiches and smoothies and so on that customers can buy at a highly reduced rate so that it can be completely competitive with a Taco Bell or a Pizza Hut or whatever. You can get a meal that's going to be highly nutritious and very tasty and interesting at a price that would be competitive with one of those options that you have.

Kenny: Has Doug thought about the whole notion that there's kind of an ingrained behavior now in these low-income communities where they're sort of trained to eat unhealthy foods? Is he concerned about them making the switch?

Alvarez: I think that's not just true in low-income communities. I think generally the diet in the United States is not of the highest quality. Again, this goes back to a dignity issue. I think that one of the things that Doug is very clear about is that the customers that he's serving in the store are people. They are dignified people who are working hard to try and make a living and feed their kids and so on. Yes, behavior change needs to happen and it will not be easy but he's got a lot of partners in this. Part of the partnership that he develops is with something called the Codman Square Health Center, which is a local community health organization that serves tens of thousands of patients in the local community. They are helpful to him in reaching out to local community members. Especially those who are diabetic or pre-diabetic or hypertensive. They understand that the store can be helpful to them. Now, one of the things that's interesting here is Doug did not want this to be a sort of a prescription store or a place where you went because you were unhealthy. It was just meant to be a store that had really good food at great prices. It sort of masqueraded as a health initiative at the same time. The idea here was that you would have a store that was interesting, had really fun, tasty food that was really highly nutritious. Part of what Doug did, which I think was fantastic, was not only get the Codman Square Health Center involved but he also got the T.H Chan Center at Harvard and Boston Medical Center, Boston Children's Hospital, and the Boston Public Health Commission to set up the standards for what was healthy in the store. Which, obviously makes it a lot harder to get a full set of products in the store because you're changing what the mix can be. There's a much thinner needle that you have to thread but he's been able to do it.

One of the things that's really interesting in the food industry today is that most retailers, because they've cut back on labor so much, really do not have the ability to deal with excess product in the store. In the old days, back when I first started in this business, we had more processing that happened at the store level. Today, that doesn't really happen. When I was a young grocery executive, if you had a watermelon that had a bad spot in it, you cut the bad spot out and made the rest of the watermelon into watermelon slices or into watermelon chunks that you could sell. In most retail establishments these days that's not the case. You bring in watermelon chunks or watermelon slices from a third party that's done that work off site in an efficient way and if you have a watermelon in the store, or whatever the product may be, you really don't have the labor or usually don't have the facility to allow you to repurpose that food in the store. Doug purposefully had this commissary kitchen put in place so that he could, one, make the meals, but then also create a lot of flexibility about what he could do with what was left over on any given day.

Kenny: We'll go back to the beginning of the case. He's got some partners that are interested in what he's doing. They both come with their own sets of pros and cons. Can you walk us through that?

Alvarez: Doug has Whole Foods as one option. John Mackey of Whole Foods and the Whole Foods Organization is really interested in what Doug is doing and thinks the idea is fantastic. At the end of the day it doesn't really work out because of a couple things: one, Whole Foods actually does have a fair amount of labor in their stores and does a fair amount of processing so the level of waste that they have compared to other retailers is much lower. That hot lunch that you get at Whole Foods is actually something that would have gone to waste from yesterday's meat counter or the produce counter and so on. Initially, Whole Foods in very excited and says, "Gosh Doug, this is a wonderful idea. We really want to partner with you and set up a foundation, etc." Then as they study a little bit more they find, "Hm, this actually would be a bit of a problem for us to get enough food and, by the way, we don't want to have food coming in from other retailers," so that's a bit of a problem. The other thing is that Doug would also have been constrained by the footprint that Whole Foods has, which isn't necessarily a footprint that goes to all of the cities and all of the neighborhoods that Doug would want to penetrate. The other option is to go out on his own and try and forge partnerships with a lot of different people, which is what he winds up doing, to get the food that is going to be required to supply his store. Also to get the capital to build the first store and then hopefully prove out the model and build additional stores. He winds up finding funders, non-profit funders who pay for the first store and also help him with supply chain and logistics issues so that he can get enough food into the shop. The shop then winds up opening a year ago, in 2015, in Dorchester, Massachusetts.

Kenny: You've discussed this case in the MBA program?

Alvarez: In Executive Education as well, actually.

Kenny: I'm curious in particular how students from outside the U.S. respond to this, given their own food situations.

Alvarez: It's interesting because I think everybody can relate to the problem because I think everyone has had a grandmother, a mother, who has scolded them for wasting food, right?

Kenny: Right.

Alvarez: It's interesting because one of the things that's happening in the United States today is there's actually legislation that's going through Congress to try and change the code dating standards so that we have a consistent standard across the United States. It's one of the areas where you have bipartisan consensus around legislation is this idea of how do we standardize code dating of food so that we waste less food? The MBA classroom is probably about 40 percent students from outside the United States and that's pretty much true as well in the Agribusiness program where this was taught for executives. Although the context may be a little bit different in every country, the issue still rings pretty true with everybody regardless of where they're from and pretty much everybody who sees this model says, "Hey, wait a minute, there's something going on here. Maybe in country X where I come from this actually could work." Doug's gotten enormous amounts of interest throughout the United States and now outside the United States as well to, "Hey, help us build a store or come to our town." He's moving slowly to make sure that he's got a model that works and it is sustainable and that he makes sure that what he's doing allows for him to at least break even in every store so that there isn't reliance on third party philanthropic funds.

Kenny: Is this a model that could be used for other applications? I think about Netflix and how that's been riffed on by the retail industry in other ways. Could you imagine that this is a model that could work for clothing or electronics or other things that are scarce to come by in low-income communities but are plentiful in other places and go to waste?

Alvarez: Oh yeah, absolutely. But in the case of other categories it wouldn't necessarily be about lower income communities actually. I think everybody likes a deal and one of the things that you find when you go to Doug's store, which is called The Daily Table and it's at 450 Washington St. in Dorchester, Boston, is that most of the people who shop in that store are from the community but there are some people from outside the community who shop in the store and it's because everybody likes a deal. In my mind, it's not just about low-income communities, especially in other categories, but it's about how do you make sure that people are getting a great deal in whatever category it is that you're buying in?

Kenny: Eliminate waste at the same time.

Alvarez: Eliminate waste at the same time, absolutely. There's waste in, or at least mismatching of inventory to demand, in every category that's out there. We don't have perfect information as buyers and category managers. Whether it's shoes or belts or cars. That's one of the craziest markets that is operating in the world I think. Especially in the U.S. The way that the auto sale process works. There's a lot of mismatching of inventory to demand and finding ways of repurposing or selling in different ways that mismatched inventory I think is very effective. There are a lot of chains that have sprung up that do those sorts of things.

Kenny: Let's hope that there's some young executive out there in a different industry who's listening and maybe comes up with a great model.

Alvarez: Sure, that'd be great.

Kenny: Jose, thank you so much for joining us.

Alvarez: Thank you.

Kenny: You can find the case on “Solving the American Food Paradox,” along with thousands of others in the HBS case collection at HBR.org. I'm your host Brian Kenny and you've been listening to Cold Call, the official podcast of Harvard Business School.

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TRANSCRIPT

Brian Kenny: It's no secret that the US has an obesity problem. In fact, according to the American Diabetes Association, as much as one third of the population is clinically obese. Many of those people live in our poorest communities. In 2010 the ADA reviewed poverty rates and obesity across more than 3,000 counties in the U.S. and found that people in America who live in the poorest counties are those most prone to obesity. This in a nation where, ironically, up to 50 million people go to bed hungry at times during the year. Today we'll hear from Professor Jose Alvarez about his case entitled "Doug Rauch: Solving the American Food Paradox." I'm your host Brian Kenny and you're listening to Cold Call.

Professor Alvarez teaches in the MBA and Executive Education programs at Harvard. He's an expert in supply chain logistics and, before coming to Harvard, he served as CEO for Stop & Shop and Giant-Landover, a major grocery retailer in the United States. Jose, thanks for joining us today.

Jose Alvarez: Thank you and good morning.

Kenny: If you can start just by telling us, how does the case begin? What's going on with Doug?

Alvarez: Doug is trying to figure out what he wants to do and he comes across this issue, this paradox really, of obesity happening at the same time that we have this massive issue with close to 50 million people who are food insecure. You've got another problem going on in the background, which is that enormous amounts of food, upwards of 40 percent of the food produced in the United States, and really around the world, is wasted and never used by the consumer. Doug hits upon this idea of using that food supply, which would have been wasted, to nourish people in low-income, high-obesity communities. As he evolves the idea and finds a location and different partners to work with him, he ends up in Dorchester, Massachusetts, which is another low-income, high-poverty, high-obesity area in the city of Boston.

Kenny: Okay, let's talk about the food issue in the U.S. How much food are we going to need going forward? How much food are we wasting today?

Alvarez: Okay. A couple of things. If you think about the increase in global population and the increase that's going on at the same time in the middle class around the world, it says that we're going to need about a doubling of food in the next couple of decades. That's obviously a significant issue because we either have to get much more efficient in what we're doing or people are going to have to eat a lot less. And that's probably not going to happen.

One of the things that's interesting is it's not just that population is increasing but it's the fact that, as the middle class grows in developing countries, the need for protein and higher quality food, which is usually less efficient to produce and more energy intensive to produce, increases. That's part of the backdrop here. This need for additional, highly intensive production of food, and at the same time we're wasting upwards of 40 percent of the food that's produced around the world. In the developing world, a lot of that has to do with supply chain. It has to do with cold chain development in those countries. In the developed world, it has much more to do with the kind of standards that we have about what we think is good food. There are a couple of different things going on there. One is what Doug calls in the case “the perfect being the enemy of the good.” We have such high standards that a lot of food which would normally be considered fine to eat in most parts of the world, in the developing world our standards are so high that we say, "Hey, that carrot is not quite straight enough or not quite round enough or not quite orange enough," that it doesn't get moved through the supply chain. The other thing, which is interesting, in the developing world we have these things called code dates on food. Most people look at and say, "Oh look, it's beyond the best buy or enjoy by," or whatever it might say "by date". There's actually no definition legally of what those dates mean. The food that you throw out because you've been trained that that is no longer good as of date X is actually perfectly fine.

Kenny: My wife and I have this argument all the time because I'm famous for throwing stuff out and she'll say, "That's still good," and it's amazing to me that—of course she's right most of the time. Milk lasts a lot longer than the expiration date.

Alvarez: Yes, and you know when milk has gone bad.

Kenny: It tells you.

Alvarez: Right, our senses have been developed to understand when food has gone bad and generally when people have foodborne illness. It has nothing to do with the code date. It has to do with something that happened in the supply chain that compromised the integrity of the product. There are enormous amounts of food that are wasted in the developed world that could be repurposed; that instead of it becoming food waste it could wind up becoming something that people can consume and not just becoming compost or animal feed. Doug's big idea here is that he could take some of this stream that would become waste and instead of having this food become waste, he's able to re-purpose it for high-quality, nutritious meals in a store that he builds, along with high-quality ingredients that people can use to make meals.

Kenny: In the case you go into great detail about the issues affecting people in low-income areas and their access to food. Particularly good quality food. I learned some new terms: food deserts and food swamps. Can you talk a little bit about that?

Alvarez: The idea of the food desert is that you have many populations in the United States that don't have a convenient grocery store nearby. This problem’s gotten a little bit better over the last few years because there's been a lot of emphasis placed on this issue by the large supermarket chains, and Walmart in particular, to try and build stores near customers in low-income communities. For a long, long time we've had many communities that did not have a supermarket in the United States. That happens mostly in poor urban and poor rural areas. The other thing that we talked about in the case is the idea of the food swamp. In many of these communities where you don't have a supermarket, you have a lot of the quick service restaurants like KFC, Taco Bell, Pizza Hut, etc., which sell low-cost meals. But those meals usually are not of the highest nutrition quality and are likely part of what's exacerbating the obesity problem in these communities. The working poor in this country often have multiple jobs, working a lot of hours, have kids that they need to feed when they get off the bus and get home. These food swamps can be a really significant issue as well because they do become the default option for large parts of the population.

Kenny: Deserts lead to swamps in that equation. You also talk about the fact that we have created policies which frankly support the whole swamp structure too.

Alvarez: Right. The agricultural policy in the United States, which is incredibly complicated, and which is one of the things that Doug wanted to attack early on in his work with the Advanced Leadership Initiative— this is a very complex set of problems. Eventually Doug realizes that he's not a policy maker, he's actually a retailer. He decides to dive into this idea of a healthy food store. Food policy in the United States is driven by cheap food, not necessarily nutritious food. The policy makes it easier for people to be able to buy food from some of these not-so-nutritious, quick service restaurants and also things like sugar-sweetened beverages, which have a lot of calories but really not much in the way of nutrition.

Kenny: This is driven by government subsidies where they are giving farmers money to grow crops that are used in making those kind of low value products.

Alvarez: Right. Mostly corn.

Kenny: As Doug goes down this path, he's looking at the revenue model. He's kind of working through some of the issues. What are some of the issues that he's grappling with?

Alvarez: The first issue is trying to make sure that he creates a store that allows people to have dignity and that gives people choice, right? One of the key things, as retailers, that Doug and I talk about is the fact that as a customer you give a score card every day to the retailer. You can either give the retailer your business or not, depending on how well they're serving you. A big part of what Doug wanted to do is make sure that this wasn't a hand-out. It wasn't a food pantry or food kitchen type of situation but it was something where people could have a choice and could give feedback to Doug and his team based on their dollars. There was a lot of work that Doug did in meeting with the community and understanding the needs of the community over a few years here as he was fleshing this out, that really helped him understand how important it was going to be that this was a community store. That the people who worked in the store were part of the community and that it was not seen as the dented can store but really as a place that was every bit as high quality and every bit as personable and service-oriented as the Trader Joe's environment that he had helped create.

Kenny: You talk about the fact that if he's going to be taking this surplus food from area grocery stores, it's hard to predict what he's going to have available on a given day.

Alvarez: That actually leads to one of the important things that he winds up doing. There are two things that happen. One is he's got this variability, because he's never sure what's going to come in the back door on any given day. The other thing is that, as I talked about before, these are really time-compressed consumers, as I think all consumers are. It's not like this community is any less or any more time constrained it's just they're also income constrained at the same time. The idea winds up being that not only is the store going to provide a place for people to buy ingredients to eat but it's also going to have a commissary kitchen that makes ready-to-go meals and salads and sandwiches and smoothies and so on that customers can buy at a highly reduced rate so that it can be completely competitive with a Taco Bell or a Pizza Hut or whatever. You can get a meal that's going to be highly nutritious and very tasty and interesting at a price that would be competitive with one of those options that you have.

Kenny: Has Doug thought about the whole notion that there's kind of an ingrained behavior now in these low-income communities where they're sort of trained to eat unhealthy foods? Is he concerned about them making the switch?

Alvarez: I think that's not just true in low-income communities. I think generally the diet in the United States is not of the highest quality. Again, this goes back to a dignity issue. I think that one of the things that Doug is very clear about is that the customers that he's serving in the store are people. They are dignified people who are working hard to try and make a living and feed their kids and so on. Yes, behavior change needs to happen and it will not be easy but he's got a lot of partners in this. Part of the partnership that he develops is with something called the Codman Square Health Center, which is a local community health organization that serves tens of thousands of patients in the local community. They are helpful to him in reaching out to local community members. Especially those who are diabetic or pre-diabetic or hypertensive. They understand that the store can be helpful to them. Now, one of the things that's interesting here is Doug did not want this to be a sort of a prescription store or a place where you went because you were unhealthy. It was just meant to be a store that had really good food at great prices. It sort of masqueraded as a health initiative at the same time. The idea here was that you would have a store that was interesting, had really fun, tasty food that was really highly nutritious. Part of what Doug did, which I think was fantastic, was not only get the Codman Square Health Center involved but he also got the T.H Chan Center at Harvard and Boston Medical Center, Boston Children's Hospital, and the Boston Public Health Commission to set up the standards for what was healthy in the store. Which, obviously makes it a lot harder to get a full set of products in the store because you're changing what the mix can be. There's a much thinner needle that you have to thread but he's been able to do it.

One of the things that's really interesting in the food industry today is that most retailers, because they've cut back on labor so much, really do not have the ability to deal with excess product in the store. In the old days, back when I first started in this business, we had more processing that happened at the store level. Today, that doesn't really happen. When I was a young grocery executive, if you had a watermelon that had a bad spot in it, you cut the bad spot out and made the rest of the watermelon into watermelon slices or into watermelon chunks that you could sell. In most retail establishments these days that's not the case. You bring in watermelon chunks or watermelon slices from a third party that's done that work off site in an efficient way and if you have a watermelon in the store, or whatever the product may be, you really don't have the labor or usually don't have the facility to allow you to repurpose that food in the store. Doug purposefully had this commissary kitchen put in place so that he could, one, make the meals, but then also create a lot of flexibility about what he could do with what was left over on any given day.

Kenny: We'll go back to the beginning of the case. He's got some partners that are interested in what he's doing. They both come with their own sets of pros and cons. Can you walk us through that?

Alvarez: Doug has Whole Foods as one option. John Mackey of Whole Foods and the Whole Foods Organization is really interested in what Doug is doing and thinks the idea is fantastic. At the end of the day it doesn't really work out because of a couple things: one, Whole Foods actually does have a fair amount of labor in their stores and does a fair amount of processing so the level of waste that they have compared to other retailers is much lower. That hot lunch that you get at Whole Foods is actually something that would have gone to waste from yesterday's meat counter or the produce counter and so on. Initially, Whole Foods in very excited and says, "Gosh Doug, this is a wonderful idea. We really want to partner with you and set up a foundation, etc." Then as they study a little bit more they find, "Hm, this actually would be a bit of a problem for us to get enough food and, by the way, we don't want to have food coming in from other retailers," so that's a bit of a problem. The other thing is that Doug would also have been constrained by the footprint that Whole Foods has, which isn't necessarily a footprint that goes to all of the cities and all of the neighborhoods that Doug would want to penetrate. The other option is to go out on his own and try and forge partnerships with a lot of different people, which is what he winds up doing, to get the food that is going to be required to supply his store. Also to get the capital to build the first store and then hopefully prove out the model and build additional stores. He winds up finding funders, non-profit funders who pay for the first store and also help him with supply chain and logistics issues so that he can get enough food into the shop. The shop then winds up opening a year ago, in 2015, in Dorchester, Massachusetts.

Kenny: You've discussed this case in the MBA program?

Alvarez: In Executive Education as well, actually.

Kenny: I'm curious in particular how students from outside the U.S. respond to this, given their own food situations.

Alvarez: It's interesting because I think everybody can relate to the problem because I think everyone has had a grandmother, a mother, who has scolded them for wasting food, right?

Kenny: Right.

Alvarez: It's interesting because one of the things that's happening in the United States today is there's actually legislation that's going through Congress to try and change the code dating standards so that we have a consistent standard across the United States. It's one of the areas where you have bipartisan consensus around legislation is this idea of how do we standardize code dating of food so that we waste less food? The MBA classroom is probably about 40 percent students from outside the United States and that's pretty much true as well in the Agribusiness program where this was taught for executives. Although the context may be a little bit different in every country, the issue still rings pretty true with everybody regardless of where they're from and pretty much everybody who sees this model says, "Hey, wait a minute, there's something going on here. Maybe in country X where I come from this actually could work." Doug's gotten enormous amounts of interest throughout the United States and now outside the United States as well to, "Hey, help us build a store or come to our town." He's moving slowly to make sure that he's got a model that works and it is sustainable and that he makes sure that what he's doing allows for him to at least break even in every store so that there isn't reliance on third party philanthropic funds.

Kenny: Is this a model that could be used for other applications? I think about Netflix and how that's been riffed on by the retail industry in other ways. Could you imagine that this is a model that could work for clothing or electronics or other things that are scarce to come by in low-income communities but are plentiful in other places and go to waste?

Alvarez: Oh yeah, absolutely. But in the case of other categories it wouldn't necessarily be about lower income communities actually. I think everybody likes a deal and one of the things that you find when you go to Doug's store, which is called The Daily Table and it's at 450 Washington St. in Dorchester, Boston, is that most of the people who shop in that store are from the community but there are some people from outside the community who shop in the store and it's because everybody likes a deal. In my mind, it's not just about low-income communities, especially in other categories, but it's about how do you make sure that people are getting a great deal in whatever category it is that you're buying in?

Kenny: Eliminate waste at the same time.

Alvarez: Eliminate waste at the same time, absolutely. There's waste in, or at least mismatching of inventory to demand, in every category that's out there. We don't have perfect information as buyers and category managers. Whether it's shoes or belts or cars. That's one of the craziest markets that is operating in the world I think. Especially in the U.S. The way that the auto sale process works. There's a lot of mismatching of inventory to demand and finding ways of repurposing or selling in different ways that mismatched inventory I think is very effective. There are a lot of chains that have sprung up that do those sorts of things.

Kenny: Let's hope that there's some young executive out there in a different industry who's listening and maybe comes up with a great model.

Alvarez: Sure, that'd be great.

Kenny: Jose, thank you so much for joining us.

Alvarez: Thank you.

Kenny: You can find the case on “Solving the American Food Paradox,” along with thousands of others in the HBS case collection at HBR.org. I'm your host Brian Kenny and you've been listening to Cold Call, the official podcast of Harvard Business School.

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