A few months ago I volunteered at Karma Kitchen, a gift-economy restaurant in Berkeley operated by CharityFocus. Led by founder Nipun Mehta, volunteers turn the space owned by a for-profit Nepalese restaurant (Taste of the Himalayas) into Karma Kitchen for four hours on a Sunday with the hope that all patrons can enjoy a meal and the sense of community. Each Karma Kitchen has a theme (“Kindness”, “Generosity”, etc.) and guests are encouraged to participate in any way they wish: actively (writing notes) or passively (self-reflection).
It operates on a pay-it-forward model where one’s meal has been theoretically paid for by the person who ate before him, so he has the opportunity to pay for the next person’s meal. The menu itself does not have any prices and the bill guests receive shows “$0.00.”
While there is no explicit requirement to pay anything, patrons implicitly agree to the unspoken social contract that those with the means should not only pay a fair price for their meals but also help subsidize meals for those who genuinely cannot afford it. Roughly a quarter to one-third of guests fall into this “Needy” category, meaning people who are likely food insecure and struggling to make ends meet, or worse.
All labor is volunteered. Roles include Maître d’, Server, Cook, Plater (puts food on the plate once it’s ready), Busser, Dishwasher and Interface (acts as Command Center to make sure everything is running smoothly). I was one of two Dishwashers, and in total there were 15 volunteers of which 10 were young professionals like myself.
Overall, I had a positive experience. I didn’t get to interact with many guests because of my role in the back. In the couple of instances when I came to the front, I got glimpses of the “magic” (i.e. how guests respond and react to the concept). Of all the roles, Dishwasher has the least direct exposure to this magic, but I think we got a lot of folks to buy in to the concept, which is rewarding.
For example, one guest who arrived faced a long line and was in a rush, so he decided to pay a meal forward even though he didn’t get to eat a meal himself. Also, I was told one of PayPal’s co-founders dined with us (I didn’t see him firsthand).
Dollars and Sense
Before I continue I want to emphasize that I know my views do not align with those of Karma Kitchen’s proprietors. In this post I am analyzing it with a pragmatic, business-style perspective where the objective is delivering returns to stakeholders. You should be aware that Karma Kitchen does not operate with this mindset. Instead, they prefer to focus on a longer-term, utopian view of society in which people do not merely transact: they interact. I am not claiming the moral or intellectual validity of one approach over the other, rather I am offering a different perspective.
It costs $750 per session to run Karma Kitchen. This consists of a $650 fee paid to the restaurant owner (Taste of the Himalayas) to use his space for effectively 7 hours on Sunday (9am to 4pm), and $100 spent at the grocery store for dessert making supplies. These are the only costs and they are fixed (remember labor is free), so absolute dollar profit is directly tied to traffic and average ticket.
By way of casual observation, it appeared that patrons generally fall into four segments (see thumbnail below):
Based on this breakdown, the estimated weighted average check would be $7.25 per person. Nipun told us that Karma Kitchen needed 100-110 people per day to break even. At $7.25 per person, Karma Kitchen would break even with 104 people, so $7.25 per person should be about right. On the day I volunteered, there were nearly 150 people served and this was acknowledged as a high traffic day.
Return on Investment
I think Karma Kitchen’s purpose is to deliver social impact. I interpret its mission to be encouraging people to think about human interconnectedness and what we can each do to make a positive impact in another’s life. While I believe this probably does happen at some level, it’s also nearly impossible to measure/quantify. What can be more easily quantified is the number of Needy people were able to eat a meal which they may not have been able to obtain otherwise.
Let’s say the market value of a hot, healthy meal served under a roof is $10 (just using round numbers). On a breakeven day where approximately 25% of people are “Needy,” 31 (104 x 30%) Needy meals are served, generating social value of $310 (31 x $10). Divide this by the cost required to host Karma Kitchen that day ($310 / $750) and Social ROI is 41% despite posting almost zero profit (see illustrative single day financials in thumbnail below).
For Karma Kitchen, financial and social ROI can be added together to equal total return on investment. This is because the same cost base (denominator) generates both financial return and the social return described above. In the scenario with no profit similar to the one above, 1% financial return + 41% social return = 42% total return.
But there is a problem. Karma Kitchen doesn’t have an unconditionally benevolent investor to offer subsidies if it operates below a breakeven financial return. It was also said that if the financial return is below zero for more than a couple of consecutive sessions, Karma Kitchen would likely have to shut down. Again, assuming customers continue to spend an average of $7.25, Karma Kitchen needs no fewer than 104 people per day.
Every business needs to earn a financial return to survive. For Karma Kitchen, survival is necessary to ensure that a social ROI will exist. We’ve established that society wants Karma Kitchen to survive in order to spread good “karma” and also to feed the Needy. To perform that function for society, Karma Kitchen should try to ensure it can consistently operate with a positive financial return. Keep in mind that labor (usually one of the largest costs for most restaurants) is free for Karma Kitchen, so there’s no excuse for operating without steady profit.
Given Karma Kitchen has only fixed costs, the two ways to drive profit are to increase either unit volume (traffic) or unit price (average contribution). Volume is probably out of the question given the fixed space (unless something can be done about table throughput), so the only viable option is to increase the average check.
It’s unacceptable that the vast majority of guests pay far less than a typical menu price.
For simplicity, let’s assume Yelp scores are a fair way to gauge public interest and affinity toward businesses. Comparing Yelp reviews for Taste of the Himalayas and Karma Kitchen reveals that although both have 4 stars (as of this writing), it seems KK has a slightly higher score (look at the Distribution and Trend graphs) as a result of having a greater number of 5/5 stars. This means, after adjusting for any inequalities in food quality, service, or any other aspect of the experience, Karma Kitchen still comes out slightly ahead. Higher score means greater value derived, which, to me, means it’s worth more. Therefore willingness to pay should be higher, right?
Yet the $7.25 per person contribution is not even close to what one would have paid at the for-profit restaurant: $12-13 vegetarian entree + $2-4 of sides + 9% tax + 20% tip (comes out to ~$20). Perhaps Karma Kitchen’s food quality and service are not quite as high, but the Yelp score comparison reveals that the intangibles associated with the gift economy concept should overcome any such shortcomings.
I think Karma Kitchen could find a way to increase its average check, either due to a shift in customer mix (see table at left for a couple of hypothetical customer segmentation alternatives) or by getting existing customers to “buy in” even more.
The more money that non-Needy people spend, the greater potential social ROI, because it means that a greater number of free meals can be supported.
I hope this place survives for a long time because I think the concept is very interesting. And I hope they really are improving the quality of human interaction as they claim. It would be a shame if an establishment like this had to close because it spent too much time focused on having guests write uplifting messages to each other, and not enough time ensuring its financial success.