Hot Lips Pizza, Portland, Oregon, USA
A Natural Step Network Case Study
Overview
Hot Lips Pizza is a small, three-store operation with 50 employees and $2 million in sales located in Portland, Oregon. To emerge from the struggle of the company’s first 12 years of existence, owner David Yudkin sought to establish a distinctive market position. He used the Natural
Step principles to develop an approach to his business that saves him money while attracting higher caliber employees and loyal customers.
Background
Hot Lips Pizza was founded in 1984 with one store in Portland, Oregon. For the first three years the operation quickly expanded, growing to ten locations in four cities. Rapid growth created operational difficulties and substantial debt. David Yudkin, who became a partner in 1986, took over as head of operations in 1988 and found himself in a survival mode, constantly reacting to situations just to keep the business afloat.
By 1996, Yudkin owned 50 percent of the company and was able to pay off the majority of debt and scale operations back to two stores. At this point, he felt that Hot Lips made good pizza, but there was little else that distinguished it from the growing competition. With the survival of the company behind him, he was now in a position to create proactively a distinguishing market position. However he did not want to pursue the typical approach that involved demonizing his competition. Building on the company's value of community involvement and accountability, Yudkin sought an approach that would instead inspire his employees and create a loyal customer base.
Introduction to The Natural Step
Yudkin first became interested in environmental issues in 1970 when one of his junior high school teachers first explained global warming and its repercussions on society. The teenager was stunned. For years afterwards, he could not understand why there was not more discussion
about this issue.
In the fall of 1998, Yudkin heard a presentation about The Natural Step at a marketing forum at the Benson Hotel and immediately felt the impact. The Natural Step approach objectively laid out the facts and made a clear and compelling case for sustainability. It also integrated the systems nature of the biosphere with a social equity perspective.
Aligning the Company with The Natural Step Framework
Two other events caused Yudkin to select The Natural Step sustainability framework as the way to distinguish his company. The first was a store manager’s announcement that he had been diagnosed with cancer. The manager was only 26 years old. Yudkin was distressed that someone so young could contract cancer. It seemed likely that the cancer was caused by environmental factors. The second turning point was a fund-raiser for Growing Gardens. This non-profit organization helps elderly, low income people in northeast Portland grow their own food. As a supporter of the program, Yudkin placed beautiful pictures of these gardens on the walls of Hot Lips restaurants where people could see the connection between the earth and food. He felt these pictures had a compelling impact on those who saw them.
He saw the opportunity to use the environment to differentiate Hot Lips from other pizza companies. Its product was very personal – something you put in your body – and directly connected to a healthy environment.
Once Yudkin decided to pursue sustainability and The Natural Step for competitive advantage, he immersed himself in Natural Step activities. He joined the Oregon Natural Step Network and attended breakfasts and other Network events, including the 1999 one-day workshop offered by TNS US in Portland. He also observed Nike’s Natural Step employee trainings and read The Natural Step for Business by Brian Nattrass and Mary Altomare.
Following the lead of other organizations, Yudkin first wrote an environmental policy and then gathered data to determine the greatest areas of environmental impact. With help from Carbon Cookbook, an article written by Gary Hirshberg, founder of Stonybrook Farms, Yudkin began focusing on the carbon dioxide emissions (CO2) his business was creating. By analyzing electricity usage and delivery vehicle fuel, he calculated that Hot Lips Pizza contributed 200 metric tons of CO2 annually. Yudkin was stunned. He had no idea his contribution was so substantial and even questioned his findings.
Hearing that an environmental class at Portland State University was looking for a research project, he asked for corroboration of his data. The students agreed to undertake their own environmental analysis of Hot Lips and began by analyzing all of the company's invoices – utilities, suppliers, etc. – to get a better understanding of the energy and materials that the pizza business was consuming. Another class participant and Network member, Darcy Hitchcock of Axis Performance Advisors, helped identify the environmental impacts of his business and categorize them by the four system conditions of The Natural Step. Concurrently, Margaret Nover, one of the instructors affiliated with the class and an employee of the City of Portland’s Bureau of Environmental Services, offered to conduct a waste flow analysis for Hot Lips.
Application of TNS Principles
By the Spring of 2000, the student report was completed, and Yudkin confirmed that the greatest environmental impact of his business was due to CO2 from the generation of the electricity used.
Energy. Yudkin began to tackle energy consumption by replacing 72 incandescent bulbs with compact fluorescent bulbs at $16 each for a total expenditure of $1152. He next replaced a broken water heater with a more efficient one for around $300. Then he obtained a larger but more efficient walk-in refrigerator at an auction for $1500. Beyond these efforts, Yudkin implemented “rolling starts,” only turning on lights as they became necessary and turning off computer monitors at night. Additionally, Hot Lips purchased a multimeter, an instrument that is used to directly monitor electricity consumption. From this data, he could identify which components used the most electricity, whether they were operating as efficiently as possible, and if they would becandidates for replacement. With all of these efforts and a total investment of around $3000, Yudkin cut his electric bill from $900 per month to $450 for a payback of just under seven months. This was the low hanging fruit.
Next Yudkin started converting his 18-mpg delivery trucks to 30-mpg cars such as the Toyota Echo. Now he has his first hybrid car that runs on gasoline and electricity and gets 40 mpg. He was able to downsize the gas water heater. He studied how Hot Lips used its ovens and reduced the hours that they were kept on. Understanding the link between equipment maintenance and CO2 emissions, Yudkin now makes sure that all vehicles, refrigeration, HVAC and exhaust systems are maintained to give optimum performance.
To partially offset remaining CO2 emissions, Hot Lips purchases blocks of renewable energy from Portland General Electric. At the newest restaurant in the Natural Capitol Center, 15 percent of the electricity is from wind power, and 35% of CO2 emissions are offset by payments to Climate Trust
When the new restaurant was planned, it was easy to design in energy-saving features. Instead of buying four pizza ovens Yudkin bought one bread-baking oven, which will hold more pizzas and use less than one-half the energy. Its heavy insulation also reduced air conditioning needs. All hot water is heated by a heat exchanger on top of the oven. Instead of three refrigeration units, one in each work area, the new restaurant has only one, which can be accessed by three doors. This design saves energy, material, and maintenance.
Locally grown organic food. The next area of concern was the ingredients used in making Hot Lips’ pizzas. As a member of Chefs Collaborative, a local group that focuses on sustainable food practices, Yudkin was aware of the environmental impact of current agricultural practices. He took his employees out to visit an organic farm and decided to shift toward organically grown produce from local farmers. He saw this, in part, as addressing the social equity aspects of The Natural Step’s fourth system condition.
The decision to favor local farms has caused Yudkin to begin integrating seasonality into his menu. Typical toppings of the summer are tomatoes, corn and summer squash. During the winter, they are greens, potatoes and sun-dried tomatoes. Yudkin says, “This insures flavor, freshness and nutrition. It also helps keep money within our community and maintains local agriculture and regional food security. And it reduces the amount of fossil fuel used to grow and transport our food.”
Hot Lips currently uses organic flour for cookies, uses some organic produce in soups, and offers local organic fruit, salads, beer, juices and milk. It purchases cheese made from bovine-growthhormone-free milk produced in Oregon and Washington by small family farms. Shortly it will be using organic tomatoes for pizza sauce. In order to reduce reliance on factory-farmed meats, Hot Lips has begun making pepperoni in house using local, organic pork. It has also increased vegetarian offerings and selects meats from responsible sources (hormone-free, free-range, and small family farms).
Packaging. The third area of focus has been packaging. Margaret Nover’s report caused Yudkin to question why so much packaging was required. As Yudkin now explains it, “We have reduced our use of disposables by using straw plate liners with a sheet of paper instead of paper plates. We offer customers reusable plastic cups and flatware. In many cases, we allow portioning by our cooks as they make the pizzas, eliminating a lot of plastic portion cups and bags. We save waxed boxes and return them to farmers to be used again. We have also been careful in our selection of packaging and paper supplies, using unbleached boxes and bags as well as napkins and paper with high post-consumer content.”
Other Activities
Food waste. Yudkin currently composts approximately 100 pounds of pre-consumer waste weekly in his own backyard. He had tried vermiculture, which was working until the worms froze in the winter 1999. Hot Lips participated in a City of Portland organics pilot program in 2001 and will do so again as soon as the city contracts with a processor. If all food and soiled paper can be separated for composting, very little waste will remain in the trash. However, in case the city’s program doesn’t start soon, he is seeking a local farmer to compost the food.
Building materials. When the deck at one restaurant needed to be replaced, Hot Lips chose certified wood. And at its new restaurant in the Natural Capital Center, it chose certified particleboard for the cabinets, low-VOC adhesives for the tile and Formica, and as much recycled paint as color needs allowed.
Paper. Instead of buying new paper, Hot Lips reuses paper from the neighborhood copy shop that has been printed on one side. This paper is satisfactory for all in-house documents like cash sheets, policy manuals, incoming faxes, payroll letters, signs, and customer information. For print jobs, it asks for paper with high post-consumer recycled content and soy-based inks.
Recycling. The company has expanded recycling to include plastic films and bags, which were formerly sent to the landfill. To prevent mercury from leaking into the environment, it saves thermostats, thermometers, and compact fluorescent bulbs for recycling.
Detergents. Although cleaners pose a relatively small problem, Hot Lips has switched to low- or no-phosphate products. It has also reduced its use of chlorine by switching to a quaternary sanitizer and avoiding chlorine-containing cleaning products.
Training of Employees
Yudkin started his training efforts by bringing some of his managers and key suppliers to Natural Step events. Later he expanded that effort to include all of his employees. He has supplemented this effort with ongoing written communications to keep all informed of current efforts.
Yudkin educates employees about sustainability via the statements of policy (including the environmental policy) and values in the company manual. Policies and values are reinforced in training programs and rewarded during regular performance reviews. Additional information about The Natural Step is disseminated in biweekly newsletters and informal discussions. Yudkin reports, “We have found that many of our new employees have come to us because of our commitment to the environment, and our employees are enthusiastic, looking for ways to help the effort.”
Costs and Benefits
Yudkin has not yet completed a thorough cost analysis of his Natural Step efforts. In the future he plans to focus his attention initially on expenditures from three areas:
• Utility bills
• Dollars spent on local and organic foods vs. conventional
• Dollars spent on packaging & consumables.
From an employee standpoint the results have been quite positive. When Yudkin started implementing the Natural Step principles, a change in the culture of Hot Lips initially resulted in higher than average employee turnover. Now, however, the company is attracting employees who are more motivated and dedicated to their jobs.
The results with customers have also been positive. Several have mentioned that they appreciate what he is doing and patronize his business to show their support. To capitalize on this benefit, Yudkin hired Brian Lanahan, a local marketing consultant familiar with The Natural Step, to expand promotional efforts. As a result, Yudkin has created signs explaining why he buys from local farmers and uses the menu to tell where the food comes from. It takes a lot of work to communicate these changes, but he feels it will ultimately give him a competitive advantage.
Future Focus
Yudkin has been working on an environmental report detailing his efforts and results, although it has been difficult to do while managing the day-to-day operations of the business. The report will establish a base line that can be used to measure future progress and also be a public declaration of what he is doing. It can serve as a motivator to keep him focused on these activities because his “public” will now expect updates on how Hot Lips is doing. After the report is done he would like to conduct a more thorough backcasting process and look at areas like the janitorial service and supplies that he has not yet spent much time examining.
Lessons Learned
• What worked. Initially, just becoming conscious of the environmental impact of what his business was doing had a big impact on Yudkin. He wouldn’t have gone through this repositioning if The Natural Step concepts had not brought the issues to light.
• What did not work. Yudkin had unrealistic expectations of how much and how quickly one person can do all of this. He is the primary driver of this effort and knows that he needs more leaders inside his company. He believes that leadership is emerging, but he had underestimated how big an effort moving toward sustainability can be.
Advice for Others
• Getting help from the university students, Margaret Nover, and Darcy Hitchcock were all
good moves. It gave him an outside perspective on the impact of his business on the environment.
• Developing his suppliers as allies helped. Yudkin accomplished this by bringing them to Natural Step events and lending them tapes and other Natural Step educational materials.
• Getting advice from others who have gone through it was also very helpful. This came in part by being very active in the local Natural Step Network.
This case study was prepared and updated by Duke Castle, The Castle Group, in December 2000 for The Natural Step Network and updated in October 2002 by the Network.