– English Lyrics

Lyrics & Translation

[English]

This is Arowan, the most expensive

grocery store in the world. But it is so

much more than that. It's a status

symbol, a cultural phenomenon, and a

place where celebrities go and spend

more on a smoothie than most people

spend on dinner. While other luxury

grocerers like Whole Foods might charge

you a premium, Arowan somehow convinced

an enclave of Los Angeles that purchases

like a single $20 Japanese strawberry or

$40 seamos shell, whatever the that

is, are reasonable purchases. And people

aren't just willing to pay. they are

lining up to pay. The question is why?

What's the business strategy that turned

a tiny health store into LA's most

exclusive food spot? Because as fun as

it is to poke fun at some of this stuff,

I figure there's got to be more to it

than overpriced produce and celebrity

spotting. So, guess what? I dug into it.

And today, we're investigating how

Arowan created a business model that's

part grocery store, part venture capital

firm for wellness brands, and part

social club for the wellness elite.

Let's

discuss. It's actually really good. Now,

before we get into the business

strategy, which is super interesting and

a little surprising, I'm not here to

yank your chain. So, we're going to

start with the Arowan experience. You

walk in and are greeted off to the side

here with a smoothie bar. Lots of

prepared food and a delicious hot food

bar. The overall aesthetic feels very

open and airy. We have light wood

finishes, minimal but luxurious design

elements like the light fixtures,

premium food displays. Bottom line, it's

clean. It's extremely orderly. Nothing

is out of place, and it feels healthy. I

feel like I'm in a health food store.

Good job, Arowan. But if you think

you're going to fill up your entire

fridge at a reasonable price, you're

sorely mistaken. Let's look at some of

the most unique products. Cut up dragon

fruit for $25. Fancy balsamic saba

dressing for $50. Some plant protein

powder for

$60. That's not that crazy. Mine's like

60. Raw manuka honey for $70. $32 arowan

socks. And you already saw the $20 Haley

Bieber smoothie out in the parking lot

alongside the other celebrity design

smoothie options. All coming in at about

$20. And then of course the hot food

bar. Profit margins on these puppies are

nice and high, but more on that later.

Some of the most popular items include

the mac and cheese and the sushi

sandwich.

[Music]

First reaction, first sip, $20 smoothie,

which I would never buy except for a

video. Cheers to you guys.

Does she have a holy It's really

good. That's not even a fake reaction.

Try it. It's one of the best things I've

had. It's like coconuty and delicious.

This is my filmer for the day, by the

way. She also birthed me.

It's good, huh? Oh, wow. I know. It's

more coconuty than I expected.

As for the customer experience, well,

similar to Trader Joe's, these store

footprints are pretty small. It gets

pretty crowded in here. And remember,

we're in LA, so most people are driving

here. They're not pulling up on foot

like I do in New York, which also means

the parking lot gets pretty crowded with

luxury cars. And the staff is super

friendly and knowledgeable for product

recommendations. Now to wrap the section

up before diving into the interesting

business model, I should mention that

unlike the seaos shell and adaptogenic

mushrooms, there actually are a decent

amount of items here that are normal and

not exorbitantly expensive. You'll see

brands that you recognize at other

non-luxury grocery stores like Fia

Yogurt, Siggies Yogurt, Kerry Gold

Butter, I saw Driscolls Berries, and a

lot of well-known protein bars, plus

just some things that are kind of

reasonably priced, like a lot of fun

drinks, as long as they meet the Arowan

standard of ingredients, which we'll

talk more about in a bit. However, most

of the stuff here is more expensive when

you compare it to competing grocerers

like Whole Foods. So, what exactly are

you paying for at Arowan? and why are so

many people willing to spend $300 or

more on a single grocery run? Let's look

into the founding principles of Arowan

and the business model today. Beginning

with Arowan's origin, I knew that it had

Japanese roots before writing the

script, but I didn't know the specifics.

So, here's the rundown. It was founded

in 1966 by husband and wife Michio and

Aalene Cushi, who immigrated to the US

from Japan about 20 years earlier. The

name Arawan was derived from an 1872

satirical novel by Samuel Butler which

was about a utopia in which people were

responsible for their own health and

prosecuted for the crime of being ill.

Obviously, this place doesn't exist.

It's a nowhere place. And fun fact,

Arowan is an anagram of the word

nowhere. And this is interesting. The

original Arowan health food market was

based on a Japanese macrobiotic diet.

And this is all about balancing the

supposed yin and yang elements of food

and cookware, which in practice all

comes down to reducing animal products,

eating locally grown food that's in

season, and consuming meals in

moderation. Arowan then expanded to Los

Angeles in the 70s, filed for bankruptcy

in ' 81, and the chain was then

purchased by entrepreneur Tony and Tochi

in 2011. Big

Tony, no nothing. Since Tony took over,

Arowan has expanded to one location to

now 10 locations across LA. And Arowan

is looking to expand to different

cities. More on that later. So, that's

the interesting origin and ownership

change. But now, let's take a look at

the store's product strategy and the

store economics. Fun fact, the product

strategy was actually my favorite part

to learn about when doing my research

for this video. It's actually really

cool. So, let's discuss. You've probably

deduced by now that Arowan has a very

strict standard for the items that it

decides to sell. But you probably didn't

guess that it was this

strict. No refined sugars, no high

fructose corn syrup, no artificial

colors, flavors, or preservatives. All

produce is organic. All dairy is

grass-fed. All meat is grass-fed and

freerange. Zero GMOs. You get the idea.

And this has been dubbed the Arowan

standard. And they do not make

compromises. I checked. But here's what

I find the most fascinating. Arowan has

effectively become an incubator for

upandcoming health and wellness brands.

When a brand approaches Arowan, they

face a vetting process that includes

more than 100 different criteria and

every single ingredient is scrutinized.

Products routinely get rejected for

containing certain ingredients that most

people would think twice about. Even

certain natural flavors don't make the

cut. Another really cool part, Arowan

often works directly with the brands to

reformulate products specifically for

their stores. So imagine being a small

health food startup and hearing from

Arowan, "We love your concept, but these

specific three ingredients got to go."

Some brands even spend 6 to 12 months

reformulating their products just to fit

the Arowan standard. And even after

being accepted, the products remain on

probation. If they don't sell well

enough, they're out. But for these

brands, it seems like it's all worth it

because once you get that Arowan stamp

of approval, other retailers start

calling. Industry insiders actually call

this the Arowan effect, which is why so

many emerging health brands try to

launch exclusively at Arowan first. From

a business perspective, what Arowan has

created is brilliant. It's a two-sided

marketplace where they curate brands for

their consumers who trust their judgment

while offering those brands access to

their tastemaker audience. This isn't

just a grocery store. It's basically a

startup accelerator for kombucha and

adaptogenic mushroom powders. Jokes

aside, this is a big reason why a lot of

people are down to dish out at Arowan

instead of going to Whole Foods. Arowan,

silly as it might sound, is on the

cutting edge of these trends. They're

first movers and they're not just

selling you food, they're selling you

first access to the next big thing in

health. So, if you're part of that

target demographic that's wealthy,

healthconscious, trend aare, you could

see how Arowan is kind of the place to

go. Now, let's talk numbers. You know,

I'm not going to analyze this bad boy

without going over some store economics.

So, as I mentioned, Arowan's footprints

are pretty small at about 10 to 15,000

ft² compared to traditional grocerers at

about 45,000 ft². The amount of SKs that

it carries is not publicly available,

but you can tell that it's a lot fewer

than traditional grocerers at 30,000 or

more, and it's very tightly curated. So,

it's a lot like our friends at Trader

Joe's with very picky product selection

in smaller storefronts. Here's where

it's different. The average transaction

size at Arowan is between $85 and $100

compared to $40 at Whole Foods. Not only

that, the profit margins are pretty nice

and juicy compared to other grocerers.

For prepared food and beverages

specifically, which account for almost

half, 40 to 50% of Arowan sales. Profit

margins are about 35% compared to

industry average of about 12%. So Arowan

is basically half restaurant, half ger.

And finally, given all that we know

about Arowan, it's no surprise that all

10 locations are in ultra premium

neighborhoods of Los Angeles. Beverly

Hills, Studio City, Silver Lake, Pacific

Palisad, Santa Monica, Venice,

Calabasas, West Hollywood, Culver City,

and Pasadena. And these ultra premium

locations, of course, are aiming for a

very specific target audience. Let's

discuss the core A1 customer. Imagine

that friend who casually brings up their

wellness journey in every single convo,

has eight pack abs, drinks from coconuts

in Bali, has at least three different

non-dairy milks in their fridge, 25 to

45 years old, household income well over

$150,000, very health consscious and

trend aare, they're active on social

media, maybe an entertainment industry

professional or a celebrity influencer,

that's your guy. The way that Trader

Joe's gets social media coverage for its

kind of weird and quirky products, Aaron

Juan gets it for its extremely high

prices and very, very niche health

focused products. Plus, Arowan has the

added element of being only in LA, the

entertainment capital of the world. So,

regular celebrity sightings include the

Kardashians, Miley Cyrus, Andrew

Garfield, Jake Gyllenhaal. Last time I

was here, I was in line directly next to

David Dober. I don't see any in here

today though besides this up and

cominging YouTuber who likes to talk

about grocery stores that she finds

interesting. Anyway, to target these

customers, naturally, Arowan only finds

itself in these ultra premium locations.

But as always, there is more to it than

it just being expensive food for

celebrities. There is a value

proposition alignment going on where

Arowan leverages health as luxury

positioning, using wellness signaling

and clean eating as a status symbol,

which it kind of is. So, this is a whole

other rabbit hole that I went down in my

research. The economics of food access

in the US. According to the latest

numbers from the US Department of

Agriculture, there are about 40 million

Americans in the US that live in

designated food deserts, which are areas

where it's either difficult or

impossible to have access to affordable

healthy food. And different retailers

have approached this market reality

differently. Some like Arowan focus

exclusively in the premium segment while

others like Kroger's or Walmart have

developed models that serve a broader

demographic range. So there is a

distinct market segmentation and Arowan

certainly plays within the premium

segment exceptionally well. But in some

ways it does feel wrong that healthy

food is a status symbol when it is in

reality out of reach for so many people.

At the same time I don't think it's

Arowan's responsibility to fix that. I

think its very existence is perfectly

fine. But yeah, it's a tricky one. Let

me know your thoughts on this in the

comments below. So we know the prices

are high, but are they justified? Well,

it's subjective. On one hand, Arowan

sources from small batch producers with

local and beyond organic requirements

and it has limited distribution

channels. So naturally, that's going to

cost and a lot of that cost gets passed

down to the consumer. On the other hand,

at some point it kind of feels like

robbery like this was $20. But there's

clearly a market for it and there's

something to be said for the psychology

behind premium pricing. It adds a layer

of perceived value. So whether or not

this fresh pressed elderberry syrup from

Arowan is higher quality than an

elderberry syrup that you might find at

Whole Foods, you probably subconsciously

assume that it is because it's more

expensive. This health as a status

symbol and exclusivity is reinforced

through these higher prices. My personal

take is through a bit more of an

objective lens. So, even if I can't

justify myself to buy this $22 brown

butter something something because my

perceived value of this brown butter

something something is does not outweigh

how much I value $22. I do think the

prices are justified in the sense that

there's obviously a market equilibrium

happening here where supply is meeting

demand. So, I don't fault Arowan for

setting these prices. I'm a

businesswoman. At the same time, I do

care about there being healthy,

affordable food. So again, a little

tricky and hard to say a definitive yes

or no to the prices being justified.

Now, I find this section particularly

interesting for Arowan, the future of

the store. Beginning with growth plans,

Arowan is planning on expanding to other

markets, including New York City and

Miami. In doing so, yes, it could target

highinccome and healthconscious zip

codes, but it would also run some huge

risks. First of all, maintaining

exclusivity while scaling. If you open

up a whole bunch of new locations, it

just kind of becomes less cool and

exclusive. That's obvious psychology.

What I'm more curious about is how would

it fair in those cities? Sure, you have

the expensive zip codes and

healthconscious population, but what

would Arowan's distribution look like?

Arowan is known to source locally, and

California alone produces a third of the

vegetables and 2/3 of the fruits and

nuts in the US. Of course, you can ship

things across the country, but Air1's

supply chain starts looking a lot

different if it opens up on the East

Coast. And as someone born and raised in

Los Angeles and living in New York for

the last 4 years, I feel uniquely

equipped to weigh in on this. I don't

think Arowan would work as well in New

York. There, I said it. Yes, I could see

a location opening up in Williamsburg or

somewhere in Manhattan and it

technically being successful, but the

core audience for Arowan just feels so

distinctly LA. The healthy scene here is

different than the healthy scene in New

York. It's hard to explain, but in LA,

wellness here feels more like a

lifestyle statement. Looking good,

feeling good, living your best life. In

New York, it feels more about

optimization and efficiency. Biohacking

your way to surviving the city's

intensity. Huge generalization, but

that's how I feel. Now, would I still be

happy if one opened up in New York? Of

course. More broadly, a challenge that

Arowan and other luxury grocerers face

is vulnerability during an economic

downturn. So turning to microeconomics

for a second, food as a whole is

generally considered an inelastic good,

meaning that changes in price will not

drastically affect consumer demand,

which makes sense. We always need food.

We're always going to need to buy it.

This is not the case for luxury food.

When people need to save some cash

during an economic recession, even

Aerowan shoppers might turn to Whole

Foods or in LA specifically, Bristol

Farms or Gellson's, which also have that

healthy luxury positioning, but with

slightly lower prices. Then there are

other industry trends impacting arowan

like increasing scrutiny of health

claims. Is camos gel actually delivering

the health benefits that it promises?

Let's see the research. There's also

greater democratization of health

products going on where more affordable

retailers like Amazon and Target are

opening their own clean beauty and

health and wellness brands at a fraction

of the cost. So Arowan will really need

to stay ahead of the curve to maintain

their first mover image in the space.

However, as it stands, as far as I see

it, Arowan is seriously winning in a

couple key areas. A dual market dynamic

for up andcoming brands and customers

who know that any product in that store

is going to uphold the Arowan standard.

The strong celebrity association and

cultural cache and at the heart of it,

the impressively high bar of health

metrics that Arowan upholds when

deciding what products to stock on its

shelves. Now, whether or not the prices

that they charge in return feel

justified to you, I would still say that

the ger is doing a few things right.

Question for you. Do you think it's a

total ripoff and a huge gimmick or do

you think it's a cool business? Let me

know in the comments. Also, let me know

if you like these business cases because

I like researching them. I like writing

them. I have a fun time making them. So,

let me know if you want more. And until

next time, turtle out. I'm going to do

my, you know, I kind of like the dual

Porsches.

Hey, if you like this video, I can

assure you'll probably also like this

one. Take a gander.

Okay, bye.

Key Vocabulary

Vocabulary	Meanings
luxury /ˈlʌkʃəri/ B2	noun - a state of great comfort or elegance, especially when involving great expense adjective - relating to or characteristic of a luxurious condition
premium /ˈpriːmiəm/ B2	adjective - of superior quality or value; high‑end noun - an additional amount of money paid for special service or product
exclusive /ɪkˈskluːsɪv/ B2	adjective - restricted to a particular person, group, or area; not shared
health /hɛlθ/ A2	noun - the state of being free from illness or injury
wellness /ˈwɛlnəs/ B2	noun - the condition of being in good health, especially as an actively pursued goal
celebrity /sɪˈlɛbrəti/ B2	noun - a famous or well‑known person
brand /brænd/ B1	noun - a type of product made by a particular company, identified by a name or logo
product /ˈprɒdʌkt/ B1	noun - an item that is manufactured or refined for sale
organic /ɔːˈɡænɪk/ B2	adjective - produced without the use of synthetic chemicals; natural
ingredient /ɪnˈɡriːdiənt/ B2	noun - a component part or element of a mixture, especially food
price /praɪs/ B1	noun - the amount of money expected, required, or given for something verb - to set the amount of money required for something
profit /ˈprɒfɪt/ B2	noun - financial gain, especially the difference between the amount earned and the amount spent
margin /ˈmɑːdʒɪn/ C1	noun - the difference between the selling price of a product and its cost; profit margin
supply /səˈplaɪ/ B1	noun - the amount of a product or resource that is available for use verb - to provide something needed or desired
demand /dɪˈmɑːnd/ B2	noun - the desire of consumers to purchase goods or services; market need verb - to ask for something emphatically; to require
market /ˈmɑːkɪt/ B1	noun - a place or system where goods are bought and sold
consumer /kənˈsjuːmə/ B2	noun - a person who purchases goods and services for personal use
status /ˈsteɪtəs/ B2	noun - the social or professional position or rank of someone
symbol /ˈsɪmbəl/ B2	noun - a thing that represents or stands for something else, especially an idea