Issue #61: Erewhon In NYC?

Erewhon In NYC?

This week, news broke of the long-awaited Erewhon expansion to the East Coast. For its first NYC location, Erewhon has partnered up with Ronnie Fieg, the founder of Kith, a clothing brand, who is opening a members-only padel (the sport), steam bath, spa, and restaurant in NYC. It is very exciting to see the expansion to the East Coast after tremendous success in California and receiving investment from Stripes. I have a lot of thoughts on this move, but in preparing for this piece, despite my prediction that grocery would get a revamp where I highlighted Erewhon, I realized I have never done a deep dive into the company. Hopefully, it is not too late to do it, so here we go!

Erewhon today is a grocery store in California with 11 locations known for its prepared foods, unique CPG (consumer packaged goods) assortment, viral celebrity smoothies, and cafe. All for a premium price and with very natural ingredients/products. However, its history is a lesson for any emerging retail startup. Let’s break it down:

• 1966 - Michio and Aveline Kushi founded Erewhon in Boston, Massachusetts, as a health foods store

• 1969 - Micho and Aveline move to Los Angeles, bringing Erewhon with them, and open the location in the Fairfax District area of Los Angeles that is still operating today

• 1979 - Employee Tom DeSilva purchases the store from bankruptcy

• 2011 - Tony and Josephine Antoci purchased the store from the widow of Tom DeSilva, after selling their food distribution business, Superior Anhausner Foods, to Sysco in 2009

• 2014 - Second Erewhon store opens under the Antocis

• 2019 - The fifth Erewhon store opens, and it raises outside capital for the first time from Stripes Group (who has gone on to back Levain Bakery, Popup Bagels, Just Salad, and more!)

• July 2025 - Erewhon opens its 11th location, with two more slated to open in 2025, plus one more in 2026

• September 2025 - Erewhon announces its first East Coast location inside Kith Ivy in NYC

From humble beginnings as a single store in Boston, to a chain dominating California while doing ~$170M in annual profit, Erewhon certainly has a fascinating history. That brings us to today, where Erewhon has been rumored for expansion beyond Southern California. New York, Vegas, and Phoenix have all been rumored as potential destinations where Erewhon could expand to, but the issue has always been a logistical one. One of the secret sauces of Erewhon, and a big reason for its success, is the 65,000 sq. ft. off-site prep facility in LA. This square footage growth is a major unlock, as about 40% of Erewhon’s revenue comes from prepared food and private-label products. Since it couldn’t service NYC as well, that was always positioned as a potential roadblock to East Coast expansion.

Now with the news of Erewhon opening in Kith Ivy, you may wonder how that is happening ops wise. The product mix is much simpler, only serving juices and smoothies for nine hours per day via retail to the club members and via delivery apps to the surrounding community. I am very conflicted about this move, but I lean towards this was not the best way to launch the East Coast. On the one hand, I understand the benefits of launching with a limited menu to save on operating costs. Also, as a brand, Erewhon is all about exclusivity and building community, which feels in line with a $36,000 per year membership club. However, I think the part of the power of Erewhon is their full assortment, as well as the opportunity to be seen/associated with the brand IN their very public locations. For a brand doing $170M in annual profit, they can figure out how to produce their products on the East Coast without needing to build out a 65k sq ft facility, using a shared kitchen or a smaller facility. My recommendation would be to avoid NYC for the first location and instead start in the NYC suburbs, as their current model relies on people having cars for success. Then, with the ops in a solid space, they could build out a smaller format model in NYC. After that, figure out how to acquire or partner with Citeralla. Although they have different models, it is hard to see both succeeding, as they are going after very similar customers. The two stores do have very complementary skill sets, with Citarella’s focus being on fresh fish/meat. Regardless, it will be very exciting to follow what Erewhon does as they plot their East Coast dominance.

Walmart Announces Open AI Partnership

Like any big company, Walmart has various trainings available for its employees. This week, Walmart announced that it will be partnering with OpenAI to create an AI-specific training course for its retail store employees. To me, this move is super interesting, as Walmart is the first retailer I have seen try to get its customer-facing retail employees trained on AI and figure out ways to get AI in their hands. As I will touch on with Sequoia, I am very bullish about AI in a consultative purchasing approach, maybe less so on the full purchase side. I have a hard time seeing how people are going to trust an AI to have your credit card and purchase stuff on your behalf, given the “hallucinations” that happen right now. Still, I think using AI to help customers in store will be super helpful. Just like Walmart was at the forefront of the computer wave in retail supply chain, after missing the initial eCommerce wave to some extent, Walmart is not messing around when it comes to AI. In addition to getting it in the hands of as many employees as possible, it named Daniel Danker, who came from Instacart, to be executive vice president of AI acceleration, product, and design. Plus, it will be designing four agents for use in the Walmart ecosystem:

• Sparky - customer-facing agent that launched in June

• Marty - partner facing agent for suppliers, advertisers, and marketplace sellers

• Unnamed agent to assist employees in the stores

• Unnamed agent to assist the Walmart tech team/devs

It will be very exciting to follow along. You can’t say many other legacy retailers are leveraging AI to this extent, and certainly not with the impact this will have!

Stay True To Your Brand & Value Proposition

While nothing to do with retail specifically, albeit affecting some retail establishments, in early August the NFL gave ESPN NFL Network and the rights to red zone in exchange for an equity stake in ESPN. For those that don’t follow NFL too closely, Red Zone is (or was) eight hours of commercial-free football showing a whip-around of all the NFL games of the exciting plays. The big value prop was being able to see the key highlights of all games happening at once, but people loved the commercial-free football. People loved commercial-free so much that in the opening monologue every Sunday, the host Scott Hanson would mention specifically that it was commercial-free as one of the first things he said. This week, ESPN announced that they would be introducing a couple of commercials throughout its programming. Unsurprisingly, this decision was met with much chagrin, and already cast a shadow on ESPN running the show. I understand ESPN needed to pay for the acquisition, but it feels very short-sighted to cut a key value prop, before the season even started. While totally unrelated to retail, I feel like this is a great lesson for all retailers. Make sure to keep your value props, because the antithesis of your value props will cause very angry customers.

VC Funds Excited About Retail AI

Sequoia Capital is a very notable VC (venture capital firm), that has invested in the likes of Apple, ByteDance, and Cisco, among others. Still, like many other VC funds, it tends to be a very software-focused fund that has stayed away from retail. That may be changing, as this week they put out a very interesting piece on AI being the future of retail and there will be a new Amazon that is AI first. I highly encourage reading the whole piece. What stood out to me was the power of existing companies to leverage AI to predict what customers want and in supply chain. For new companies, it was very interesting to hear additional ideas around AI agents purchasing and consulting purchases. As someone who has spent a lot of time in the VC world and seen the overlooking of retail frequently first hand, I am very excited to see major VCs starting to get involved in retail startups. I have been seeing a ton of companies popping up in the space, and it has been super exciting to follow along. The early read is that the most successful retail AI companies will have a balance of retail experience and tech, not just tech. Will definitely be something I dive into further beyond Issue #35: Will AI Take Over Retail? and Issue #43: AI Search is Powering eComm Sales.

• Summary: Feast & Fettle is a meal delivery service that drops off ready-to-eat meals at your house each week, all you have to do is heat them up. After starting in Providence, Rhode Island in 2016 with just an individual chef doing this service, it has blossomed to dominate the northeast, including a recent launch in Manhattan after acquiring Ipsa Provisions and a successful launch in Brooklyn.

• My Take: I have been following for a while, and it has been a super interesting path. They are super disciplined with capital and opening new locations. They have even experimented with retail, albeit with more limited success compared to their other endeavors.

• Founder(s): Maggie Mulvena, Nikki Oliveira, and Carlos Ventura Jr.

• Funding: Unknown

• Number of Locations: 0

• Social Media Following: 21k on Insta, 35k on TikTok

Additional Links:

1. NYT profiles Andrea Hernandez, who writes a CPG newsletter, Snaxshot, and is a content producer on CPG (read more here)

2. What categories do consumers want to get private-label products? (read more here)

3. PopUp Bagels opens its first location in Florida in the Tampa area (read more here)

4. A deep dive into the AI-powered vending machine Anthropic launched in its office (read more here)

5. Ulta opens its first store outside the United States in Mexico (read more here)

6. Lululemon is overhauling its design and development process to become faster, less state (read more here)

7. Nike rebrands “Just Do it” as “Why Do It” to try to connect with a new generation of customers (read more here)

8. Gap is launching to include beauty and accessories (read more here)

9. American Dream Mall is using football events to try and boost foot traffic (read more here)

10. Sweetgreen hires a new CFO coming from Chipotle (read more here)

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