Why is Locol Struggling?

Chefs Daniel Patterson (left) and Roy Choi were all smiles on Locol’s opening day in January 2016. But the brand has had many bumps along the way.
Chefs Daniel Patterson (left) and Roy Choi were all smiles on Locol’s opening day in January 2016. But the brand has had many bumps along the way.
Locol / Audrey Ma

A few years ago, chefs Roy Choi and Daniel Patterson set out with a simple (if not grandiose) plan: to change the face of fast food by providing affordable, better-quality meals to those in the poorest neighborhoods around the country. From the start, the pair received enthusiastic support from food personalities and celebrities alike, as well as a mountain of media attention. But Locol was also greeted with wariness from those in the industry who knew what a tall order changing long-held fast-food systems and habits could be.

As Locol approaches its second anniversary, the utopian vision has not disappeared, but it has been badly battered by low profits, lackluster reviews, and a closure of one of the two Locol locations. The concept still has one store (the original in Los Angeles’ Watts neighborhood), an abridged-format bakery in Oakland, and a roaming food truck.

Nevertheless, Locol’s problems have left many wondering what went wrong—and wondering how similar mission-driven concepts can achieve their altruistic goals.

When purpose overshadows profits

The first Locol opened in the Watts neighborhood of Los Angeles in January 2016 with a line around the block; Mayor Eric Garcetti and former NFL star Jim Brown were on hand for the ribbon cutting. Although many warmly welcomed Locol, rumblings had already begun that the brand would no longer open a store in the Tenderloin district of San Francisco, but rather in a more affluent area in Oakland.

The speculation prompted Choi to take to Instagram in his signature direct style, writing, “I’m sure it’ll be great fodder if the headline read ‘Daniel Patterson and Roy Choi jump ship to take care of hipsters and techies in Uptown Oakland. The fall before the rise. It’s what we crave as humans. Build em up and tear em down.”

Locol’s commitment to change wasn’t the only part of the business to catch heat. A year after the concept made its debut, New York Times food critic Pete Wells delivered a stinging, zero-star review that compared the fare to “hospital food.” This time the cofounders didn’t have to defend Locol on their own; Twitter erupted with fans and friends—including chefs like David Chang—advocating for the restaurant. Shortly after, the Los Angeles Times named Locol the restaurant of the year.

But this outpouring of encouragement didn’t change the dollars and cents. Choi and Patterson acknowledged that sales were slower than they’d expected, and in June, the pair announced that the Oakland location would be closing just a year after it opened.

As part of their plan to disrupt fast food, Patterson and Choi were determined to put customers—specifically people in lower-income areas—ahead of profits, albeit in a for-profit business.

But while the two chefs’ star power had attracted an estimated $5.25 million from investors and close to $130,000 through crowdfunding by May 2016, per investment research firm PitchBook, there might have been underlying business-model issues that no amount of investment could overcome.

Phillip Haid is the cofounder and CEO of Public Inc., a Toronto-based agency that helps companies be both profitable and socially impactful. By his assessment, Locol’s biggest problem may be the fact that it elevated the purpose component too much.

“We talk about profit with purpose. What’s interesting with Locol is it ended up very high on the purpose part, but they didn’t get the profit side right. … They didn’t think about [it as a] sustainable enterprise,” Haid says. “It’s not just purpose, and it can’t just be profit. It has to be both.”

He adds that the nuances between a traditional for-profit business and a nonprofit are often over-simplified. Those on the former side think a nonprofit need only sharpen its business acumen to succeed, he says. But when Locol decided to go the traditional for-profit route, it lost out on the benefits that make nonprofits work—particularly subsidies that can balance the disparity between operating costs and net gains.

It’s a realization the cofounders may have reached earlier this year. In late May, Choi attended the tech-centric Code Conference in Los Angeles, where he said the brand may incorporate a nonprofit element in the future since sales were not as strong as they had hoped. Two weeks later, the company announced the Oakland closure.

“It’s a tough nut to crack if you’re trying to approach it as a for-profit enterprise, because you don’t have disposable income in those neighborhoods,” Haid says.

Further compounding this disparity were external market forces beyond any brand’s control. For example, deflation in grocery-store goods made at-home meals a more affordable option than dining out. According to a survey by global advisory firm AlixPartners, 56 percent of respondents reported the No. 1 reason they would choose ready-to-eat meals from grocery or convenience stores over restaurants was the price.

And while the overall U.S. economy has been growing, consumer spending has not followed in kind—largely because wages haven’t kept pace with market gains.

“Last year we saw … under-the-radar trends that I think probably impacted [Locol’s] community and its target market the most,” says Andrew Duguay, senior economist at Prevedere, a predictive analytics company based in Boston. “We saw deceleration in real disposable personal income and inflation-adjusted income. Wages have been stagnant; employment is full, but that hasn’t necessarily translated into a lot of wage growth. The low-income [workers] are certainly the most sensitive to this type of price movement—or rather, lack of price movement.”

According to the Los Angeles Times, the median household income for residents in Watts is $25,161 (in 2008 dollars). Even adjusting for inflation, it’s about half the national median. Even though Locol’s prices are far from exorbitant (no item is more than $8, including meal combos), it’s still a few bucks above legacy chains like McDonald’s and Taco Bell.

In contrast, the Oakland location was in a more prosperous area; it was still a neighborhood in transition, but Locol planted its flag less than half a mile from Whole Foods and catty-corner from an Umami Burger and a Starbucks. The Northern California location, by all accounts, should have been the more profitable of the two with the “hipsters and techies,” as Choi said, hoisting its sales.

Consumer behavior was another obstacle standing in the way of foot traffic. In last year’s conversation with QSR, Patterson stressed the importance of exposing children to healthier foods and fresh ingredients to create a taste memory. The logic is sound, and it works at The Cooking Project, a nonprofit Patterson cofounded that offers free cooking classes. But the open market is a different playing field.

Locol’s whole appeal—that it serves healthier and more responsibly sourced food—might have fallen on deaf ears. With higher price points than other nearby fast-food businesses, those attributes (positive as they may be) are some that many consumers cannot afford.

“There’s this whole larger trend of healthier options … that’s all great and good for the middle class, and even the moderate-income level where people think about those choices and the lifestyle and maybe they feel good about their beef being sourced organically or locally,” Duguay says. “[But] when you get to the lowest of the lowest income levels, I think it’s more black and white. The psychology is very much, ‘If I can consume more calories for a dollar, then who cares where it’s sourced?’”

From the outside looking in

A week after the Oakland Locol closed, the San Francisco Chronicle published an op-ed by Nigerian chef and writer Tunde Wey. In the story, he argued that Locol’s objective could not be achieved because the problem it sought to solve went far beyond fast food and into the realm of racial tensions and social inequity. Indeed, the conditions that have created and then mired disadvantaged communities—especially those of color—are extraordinarily complex. And in all likelihood, Choi and Patterson underestimated how much they would factor into Locol’s performance.

From the start, the brand has championed underserved communities, shrugging off the stigma that’s often associated with such areas. It’s followed through with a commitment to hire from inside the neighborhoods and then professionally nurture those employees. Even Wells applauded the engaged staff members who, he said, seemed glad to be there.

Nevertheless, Wey’s criticism called into question Locol’s attempt at a grassroots movement and whether the cofounders’ good intentions were burdened by a degree of naiveté.

Unlike Wey, Haid thinks there are cases in which an outside actor can effect real change. But, as he’s seen with corporate clients, it helps to have collaborators in those communities. “When you’re tackling challenging issues, usually the company doesn’t have the level of expertise or knowledge of the community,” Haid says. “Sometimes, even if you do have a good read on that, you’re still seen as an outsider, and then people put up resistance, even if what you’re doing seems right.”

He says it’s key to know who the other players are working on the same issue. Oftentimes, that work is coming from nonprofits.

This nonprofit approach has worked for other brands. Just look at Even Stevens. Each month the budding Salt Lake City–based chain counts the number of sandwiches sold and deposits the cost of making them into a Sysco food account, which its nonprofit partners can then access. To date, the three-year-old brand has donated the equivalent of 1.6 million sandwiches.

“Any time you’re trying to truly tackle a social opportunity and drive true and sustained social change … it’s going to take time,” says brand president Michael McHenry.

Like Locol, Even Stevens set out with a lofty mission: to end the war on hunger with its “Eat to Give” business approach. The company is making strong strides in that direction, but as McHenry says, progress doesn’t happen without a deeper dive into underlying issues. “We can have that altruistic vision and that social impact passion, but without really … educating yourself as a business and your consumer and those around you, it’s very difficult to drive that change.”

A good portion of that educational process involves courting various nonprofits that are already pillars in the community. And because Even Stevens has 16 locations across Utah, Idaho, and Arizona, it has partnered with multiple nonprofits to ensure the brand has a direct and impactful connection.

Both Even Stevens and Locol have an innate millennial appeal, the former being a fast casual and the latter presenting a trendier take on fast food. But whereas Even Stevens goes into established or up-and-coming markets where millennial consumers can readily spend $9–$12 on a meal, Locol doesn’t pursue those markets—somewhat to the detriment of its bottom line.

But even in more affluent areas, Even Stevens works to better the communities it serves by reinvesting those millennial dollars where they are most needed.

“We’re getting our customers to buy into that initiative and the eat-to-give philosophy. We’re marketing to that young professional, that college student, whomever it may be that wants to get directly involved in the well-being of their neighborhood,” McHenry says. Not only does this empower socially minded millennials, but it also helps nonprofit partners reallocate the funds that would have been used for meals into other services like healthcare, shelters, and professional skills development.

The missing foodie frenzy

Another somewhat unexpected hurdle for Choi and Patterson was the quality of the fare served at Locol. Taste may be subjective, but many food critics have been lukewarm in their reviews of the brand’s mix of burgers, burritos, and bowls.

Even when the Los Angeles Times named it the restaurant of the year, food critic Jonathan Gold’s compliments centered on the quality of the ingredients, not the taste. And the New York Times review charged that Locol was approaching its operation as a problem to be solved rather than customers to be pleased. “The most nutritious burger on earth won’t help you if you don’t want to eat it,” Wells wrote.

No one has questioned Choi’s and Patterson’s culinary prowess; rather, the critics have questioned whether that quality has been lost in translation. Public Inc.’s Haid even wonders if the menu needs a shakeup.

“I think the idea is fantastic, but maybe the offering needs to be tweaked a little bit,” he says, adding that he has not yet visited Locol. “It’s not a reason to give up. It’s a reason to double down, retool.”

At first glance, Locol’s selection looks like a slight upgrade on McDonald’s. Staples like “burgs” and chicken “nugs” are accompanied by chicken and waffles and shrimp and grits.

But better-for-you tweaks are sprinkled throughout the menu. For example, the beef burgers are cut with grains and tofu to reduce the amount of red meat. The menu also serves veggie versions of its burgers and chili, as well as collards (“Messy Greens”) and even a green juice.

Prevedere’s Duguay says perception of flavor and quality could play a strong role in the stagnant sales. If Locol succeeds in its mission to have thousands of locations across the country, some are bound to be in middle- to upper-income neighborhoods. Targeting underserved areas could inadvertently attach a certain stigma to the whole experience.

“It’s almost like seeing a Dollar General or something,” Duguay says, referring to how businesses that are only in low-income areas lack the aspirational appeal of businesses in wealthier areas. “So much of cost is perception.”

Leaving the limelight

Perception of a different scale has also beset Locol. Lesser-known chefs and restaurateurs might have benefited from some degree of obscurity, allowing them to refine the business model while staying largely under the radar.

Choi and Patterson put themselves in the spotlight when they shared their fast-food aspirations on the world stage at the 2014 MAD Symposium in Copenhagen. The announcement drummed up support—and venture capital—but also made them vulnerable to commentary and critique.

“Sometimes people fall in love with their idea. They’re trying to exceed the scale of the solution,” Haid says. He adds that before Locol can make good on its promise to open thousands of locations, it must first work out the kinks at a single location.

Last fall, Patterson acknowledged that the media scrutiny was affecting Locol’s trajectory. “There’s been a lot of attention on Locol, which is great, but also I think it distorts the natural process of discovery, which takes time,” he told QSR last September. (Locol declined to participate in this story.)

Some industry commentators, like Wells and Wey, might consider Locol an impossible or even misguided feat, one that was dead on arrival. But, despite Locol’s setbacks, plenty of people are still rooting for it to succeed.

Duguay thinks Choi and Patterson should stick it out; the market moves in cycles, he says, and more favorable economic conditions could be the wind Locol needs beneath its sails.

Haid recommends a practice in self-reflection: Has Locol taken on too much too soon? Did it choose the right starting point to achieve its ultimate goal? He’d suggest that the brand consider some sort of subsidy for its early years. As with Even Stevens, potential partners might already be ingrained in the communities and working on those same issues.

“When you’re talking about food deserts, you’re really talking about poverty at its core, and poverty has all kinds of issues that are connected to it,” Haid says. “I don’t think they should feel embarrassed or ashamed that they had to close that store. There are many great social entrepreneurs who have tried things and failed on the path to success.”