All right. Good afternoon. I'm Danilo Gargiulo, the restaurant analyst here at Bernstein, and thank you, everybody, for being here. We are very excited to have CAVA for the first time here at Bernstein Strategic Decisions Conference. CAVA is a Mediterranean fast-casual concept, operating 300 restaurants across 24 states, generating over $700 million in revenue and almost 60% more versus 2022. And with me today is Brett Schulman, co-founder and CEO of CAVA, as well as Tricia Tolivar, CFO. Before we start with, you know, my questions, I would like to remind everybody that you can submit questions through Pigeonhole by either scanning the QR code that you can see in your agenda, or by visiting pigeonhole.at with passcode SDC 2024. And with that, let me start.
Brett, this is the first time you're here at the SDC, and it's quite rare to have founders on stage. So, for those that maybe have not heard about your story or listened to the podcast, How I Built This, can you share what drove you to build CAVA and the learning so far in the different roles that you have assumed over time?
Yeah. Well, first of all, thank you for having me. We're excited to be here. You know, I actually worked in this world. I worked in finance about 10 years out of college, and then left to embark on a more entrepreneurial career, which manifested itself in helping my wife grow a natural snack food company. And then, you know, as fate would have it, a friend of mine from college called me one day and said, "Will you talk to my cousin, Ted? He's got this restaurant called CAVA Mezze. Have you heard of it?" I said, "Well, I don't think so." He said, "Well, they partnered with a customer to sell their dips and spreads they served in the restaurant in a couple of local Whole Foods." I said, "Oh, yeah, we bought the hummus. We like it.
It's great." He said, "Well, they're having a lot of trouble with that business. Will you talk to them because you're dealing with a CPG business right now?" So I connected with Ted Xenohristos, one of my co-founders, and Ted, along with two childhood friends, all sons of Greek immigrants, founded that original restaurant in 2006, as their modern American perspective on their family's heritage in culinary. So think, you know, small plates, mezze-style wine bar, and they had subsequently started to sell the dips and spreads, partnering with that customer in some local Whole Foods. That business had challenges. They asked me to consult, come on board and consult. We were able to get that business profitable quickly.
Me and the guys hit it off, and they said, "Brett, why don't you be our fourth partner at CAVA?" I said, "Well, let me, let me talk to my wife. That's kind of a different career change." And we went down there to open the second full-service restaurant. How happy the team was, how diverse the dining room was, how broad this food appealed, and how good I felt after eating it. Satisfied, but not stuffed. And I went back the next day, and I said, "I'm in.
Have you thought about taking this great cuisine, this unique Mediterranean cuisine, where taste and health unite, and put it in a fast, health-based format, bring it to the world?" And Chef Dimitri, one of our partners, said at the time, "I've actually got this grill menu, but it's much more like the street food we get when we visit our family in Greece. I love leveraging the healthy aspects of the Mediterranean pantry." So we spent about a year figuring out how that food would translate, ultimately settled on the walk the line format, and raised some friends and family money to open two or three locations to prove out our thesis. Fast-forward 13 years later, and here we are.
And so what are the different— You, you took many different roles in this journey. So what are the different learnings that you got from the moment you were, you know, co-founder of a small startup, two, three restaurants, as you mentioned before, all the way to now, you know, a public CEO running more than 300 stores?
Yeah, I've said I've had to reinvent myself four times as a leader. First, first as a startup CEO, growth CEO, private company enterprise, and now public company enterprise level, and really required me to be different in different areas of the business, different roles in the business in every one of those stages. Because when you're small, you're a group of five or 10 people making all the decisions together in a room. When you are enterprise, you have to learn how to affect your vision and your strategy through many layers of people and degrees of separation. And, you know, we lead 9,300 people today. And how do you get all those people going in the same direction, toward the same common goal and the same purpose, and our same mission to deliver heart, health, and humanity to food?
So, it's really been an unbelievable journey and, you know, again, a continuous learning process. One of our values is called constant curiosity, so we want lifelong learners and constantly learn how we become better leaders, and, you know, fortunately, I've been able to evolve with the business.
One of the things that you told me in the past, in terms of your learnings, was also understanding how to move the organization along with you, and so making some decisions, sometimes tough decisions on-
Yeah
... departures, in a way that was actually helping the business grow. So can you tell us a little bit more about that and how you're thinking about evolving your organization as you're scaling from here on?
Yeah. I think that the two biggest learnings along the way was, one, and I think we always tried to stay in front of it, was how you operate or what your success is at five or 15 or 20 restaurants doesn't necessarily translate to 100 or 500 restaurants. How do you scale it? You know, and so we look at it and say, "Okay, this is working at 300 restaurants. Does it work at 1,000 restaurants?" And then organizationally, you kind of take a similar perspective and say, you know, somebody. And there's. You know, it's not that somebody isn't a good professional. It's that they may be better oriented or better equipped to work in a smaller, more growth company, and they may not be happy in an enterprise company, right?
They may not be happy trying to influence and affect and collaborate through others or cross-functionally. They might like and enjoy being with 10 or 15 people, making all the decisions together in a room, and sometimes folks don't realize that on their own, and it's very hard, and you can start to see it and feel it when certain people hit a wall or they're not able to keep up with the pace of the business. Those are the toughest decisions, I think, for any leader, any manager, is being able to give that direct feedback to folks who are struggling in their role and try and coach them up, and if they can't elevate to the expectations, you know, go in a different direction.
and make that recognition sooner rather than later, because if you don't make those decisions, ultimately, the business is gonna be held back, others on the team are gonna be frustrated, and the performance won't translate.
Right. So hopefully, we're gonna be talking about a few topics, including levers of growth for CAVA. But before we go there, what are the top three takeaways that you would like investors to remember by the end of this conference?
Yeah, that we believe Mediterranean is the next large-scale cultural cuisine category. When you look at the secular trends in this country, whether it's the growing diversity of our population, and that's leading to people seeking more bolder, adventurous flavors, right? Gen Alpha will be the first generation across the 50% paradigm of folks that identify with an ethnic minority group. And if you think about modern health and wellness trends, and you put those two together, we kind of sit at the nexus of that. And that's why we think Mediterranean is the next large-scale cultural cuisine category as folks look beyond the mature categories of Mexican, Asian, and Italian that, you know, I grew up with. I think secondarily, we've got this massive white space opportunity because of that, and because Mediterranean has such a broad appeal.
When you look at our demographics, our guest base, whether it's gender balance, whether it's generational balance, whether it's the ability to appeal down the income strata, that allows us this proven portability that we now operate in 25 states in the District of Columbia. We operate in the city and the suburbs, in exurban markets, here in Bryant Park or in Back Bay in Boston, but also in Fayetteville, North Carolina, and Fayetteville, Arkansas. So it's been really amazing to see the receptivity in all these different geographies and types of trade areas. And then a third and final, I'd say, the robust infrastructure we've invested in and built in the business over the years that's translating to this powerful unit economic model. So we just opened our second manufacturing facility, our production facility, fresh production facility in Verona, Virginia, five thousand-
Verona, Virginia, not Italy.
Not, not Italy yet.
Okay, fine.
Maybe later. Yeah.
Someday. Yeah, yeah, yeah. Someday. And that complements our Laurel facility. And this new state-of-the-art facility, it has, high-pressure cold processing capability, so that's a kill step that allows us 60-day shelf life. So we're making our chef-crafted dips and spreads. Think that tzatziki, fresh dill, fresh cucumber, and garlic, or a Crazy Feta with jalapeños and onions. Similarly, how we made back in our 1,500 sq ft humble commercial kitchen when we started. And so to be able to do that, deliver it at scale consistently and cost-effectively, and deliver that value to our guests across the country and take that complexity out of the four walls of our restaurants, we think is a huge piece of infrastructure and competitive advantage, especially at scale in Mediterranean. And then you think about our digital investments and our technology investments.
And so all this has come together, our direct source supply chain. It's now kind of flowed through as we ramp up our unit growth and our top-line growth to create those powerful returns.
Excellent. Well, Tricia, let's talk about maybe your long-term algorithm. So how should investors think about your long-term algorithm? And specifically as well, what kind of markers of are you looking at for you to be potentially expanding the upper limit of units from 1,000 stores by 2032 to more than that?
Sure. So our intention, as you mentioned, is to be at least 1,000 restaurants by 2032, and that would imply a 15% compounded annual growth rate. And in fact, in our history, in the past few years, we've grown much faster than that. So we leveraged the Zoës acquisition to convert their locations, and we're growing at 40%-50% per year. So it is a bit of a step down, gives us some breathing room, but also gives us a higher degree of confidence and execution in our ability to move forward. That 15% restaurant growth, we believe that, combined with same-restaurant sales growth, will drive 20% revenue growth over the long term, at least, and then, even more from an adjusted EBITDA perspective and a growth perspective.
All of those investments in infrastructure that Brett talked about have positioned us to be able to leverage that G&A, also experience as AUVs grow, expansion in restaurant-level margins, that will allow the bottom line to grow at a faster pace than the top line. Now, when you talk about what is it gonna take, or what are we gonna need to see to, determine if there's an opportunity to grow even faster, certainly our new restaurant openings have been performing very well. The sales of those locations have exceeded our expectations, as well as the restaurant-level margins.
We're evaluating that very closely to understand, is that more of a normalized rate, more permanent, or is that a benefit of the recent exposure that we've had, whether it's related to the IPO buzz or the expansion as we continue to grow and have more restaurants that increase in brand awareness? We'll monitor that over time and make assessments, but the most important part for us to determine whether we're ready for growth is making sure we have the right people. Our team members and great GMs are what make us successful. They're the lifeblood of our business, and so making sure we've got that proper pipeline in place, if there's an opportunity to lean into a faster pace of growth, and that's something we'll evaluate as well.
In the context of the restaurant market having some challenges in terms of traffic, you continue to compound. You had, you know, 2.3% same-store sales last quarter. I'm wondering, number one, what is driving this incremental traffic continuously coming into CAVA? And secondly, what gave you the confidence to increase the outlook for the year in the context of a slowing economy? So are you seeing no pressures in your business, and what's the evolution of the market going to be?
So a couple things drive traffic, and certainly it's the combination of our amazing cuisine and great guest hospitality at our restaurants. We do have new restaurants in the base that contribute to same-restaurant growth, but increasing awareness and excitement around the brand. So there's a lot of activity around there. People love CAVA, and, we're finding success in that, and that drives traffic. And, they tell their friends, and they come in, and it just, it sort of snowballs, so that's, super wonderful as well. When we looked at guidance, you know, we delivered 2.3% in same, same-restaurant sales in the quarter, and we feel very confident in our ability to deliver 4.5%-6.5%, and that's a combination of factors.
It's the same-restaurant sales growth strength that we're seeing in our results through today, as well as the introduction of steak as we launch in June. So June 3rd, you need to go out and try in any of our restaurants, our new grilled steak. It's absolutely incredible. And we believe that what we built into that same-restaurant sales is the mix impact related to that. But so it's the momentum, the new culinary offerings, but, as well as just making sure, that we're also being thoughtful about anniversarying the strong traffic trends we had in the summer of last year around the IPO.
There was a lot of excitement and momentum around the very end, a lot of impressions that were generated and a lot of press, and so we wanted to say, you know, as we get past June fifteenth, we'll make sure that we can hurdle that, too.
Awesome. It sounds like not only consumers are appreciating CAVA, but also investors. The stock has doubled, more than doubled, since last year. Can you help us understand what's your view on what's still not fully appreciated by investors today?
Yeah, you know, we try not to get distracted by the stock price. We've talked about the IPO as being not the destination, it's the next chapter in our evolution, our journey. And we talk to our team members all the time about how to stay focused on the business, on our strategy, and executing and delivering on that Mediterranean hospitality and our concept essence. So, I think that what tends to be underappreciated is really the proven portability that we have, the white space opportunity that lies ahead of us, and our ability to continue to execute and deliver on all of those opportunities.
Maybe building on what Tricia was mentioning, what do you think are the top three opportunities for CAVA today?
I think it's continuing to drive awareness. I mean, when you look even in our most mature market, we're at 67% awareness that we've been in for over 14 years. A lot of newer markets that we entered, we only had 20% awareness when we entered, we're up to 40% now. When you look at more mature chains with thousands of restaurants, some of our peers, they're more in the mid-90s in awareness. So I think driving awareness, driving awareness around what we're doing in Mediterranean is a huge opportunity.
I think, obviously, new unit growth, as Tricia talked about, we think we have a massive white space opportunity in front of us, and, it's just incumbent upon us to do it at the right pace and understand the right pace of growth because our industry is littered in history with brands that grew too fast, and it compromised operational and food integrity and food quality, and that's the quickest way to really undermine that growth. I think, third is, continuing to innovate like we've innovated over the years. You know, I think we've just kind of exited a decade of digital transformation. We were, I think, on the, on the leading edge of that in our industry when we came ... You know, when we founded the business.
We started in 2011, and we had a humble online ordering website that I think 2% of our revenue was coming through. And then in 2013, we were one of the first. We had a white label mobile payment loyalty app. And then in 2015, we put second dedicated digital make lines for digital production in every restaurant. In 2017, we brought the app in-house and built our own digital order ecosystem. In 2018, we started building digital drive-through pickup lanes, which we have 38 today. In 2021, we started rolling out digital menu boards in new restaurants. And in 2022, we re-platformed our digital ecosystem to a highly scalable microservices architecture.
So fast forward to today, and 37% of our revenue comes through those channels, and we'll do roughly somewhere around $300 million in business this year through those channels. I think we're on the precipice of another decade of transformation, this time with data transformation. And so we talked a little bit about our Connected Kitchen initiative that we're gonna pilot in four restaurants later this year. And I think when you think about both operational efficiency, guest interaction, and personalizing the communication and relationship with our guests, even as we scale, and then business insights and intelligence in real time to take, to create actionable items to really be effective in us leading the business, can unlock another kind of powerful step function change, much as digital did in the last decade.
Can you also talk about how your go-to-market strategy is evolving over time? Because, you know, the awareness that you're seeing in Chicago, if I remember correctly, is north of, like, 40% before, maybe like 36%-
37%, yeah.
37% before you even open the store. And so what has changed about how you're communicating to your consumer, not only from a kind of media outlet standpoint, as well as from a marketing, communication, and community engagement?
Yeah, it's a great question because we, we've seen unbelievable response in Chicago, and the team did an amazing job. But first, I'll step back and say, look, there, you know, when we were talking about going public, and we, we thought about this for a couple of years, and we didn't necessarily have to go public, and people said: Well, do you want to go public? Here are the downsides of the public markets, but-
Just like being on stage with me.
Yeah. You know, I got to spend time with Danilo. You know, one of the things that we believed that I think is totally played out, is that we thought this was a great story for the public sphere, that as a consumer-facing brand, trying to define and create a new category and elevate to a national level, that being in those public markets would really help amplify that message and elevate our brand. And that has absolutely played out. So that's been a nice tailwind. As it relates to Chicago specifically, we worked on a new market- a new restaurant opening marketing plan rollout, where our PR team has done an amazing job this year.
We started to put more resources against not just more national press, but having local on-the-ground community press, to engage those constituents in the neighborhoods, as well as some influencer marketing, always do targeted digital marketing. But something we've done since our very earliest days is what we call our Community Days. So when we go and open a new restaurant, we invite our new neighbors to our table, for a free lunch or dinner service. We recommend donations. We don't require it, but if you make a donation, we'll match it, and it goes to a local philanthropic partner that we partner with that's addressing food insecurity in that market. So that also creates great conversation, great word-of-mouth. And one of the other things we did in Chicago was we added additional training resources for a bit longer period of time.
I think that allowed us to put our best foot forward, handle the volumes that we saw, and had more of those community day programming than we typically do at a restaurant. So we're taking all these different learnings. We did do some out-of-home. We did a couple billboards. We also had some other out-of-home activities, like a train station takeover, that we've pulled back from because we just don't need to drive more people in the restaurant right now. So it's a good problem to have, but we're taking these different learnings and say: How do we apply it as an ABC model to different size markets as we open those new markets? But the press we received was amazing.
I mean, to go into a market like Chicago and open a restaurant like that, and be able to kind of own the cultural conversation around the opening in a market as big as Chicago was really a credit to the team's work.
Can you also maybe talk about the media itself, you know, how you're shifting away maybe from traditional media-
Yeah
-and paving the way for, maybe partnership with influencers-
Yeah
and how you are developing your social media presence?
It's something we've leaned into over the years. I think that's been our strength. Our social media team's incredible. TikTok is a very powerful platform. I mean, it is. It's fascinating. It's scary at the same time. But the amount of virality and awareness and impressions and consideration that you can drive on that platform at no or minimal or no cost is crazy. I talked about on our earnings call this week our team member, Grayson, in our Sherman Oaks, California, location. A creator, Cody Premer, came in. Grayson did not know who he was. We have something what we call the Love Button. This is something we've had since our very first restaurant, where we empower our team members four times a shift to comp a guest's meal.
It could be a guest that looks like they're having a really bad day. It could be a guest that, maybe it's their first time, and they're confused, and they're not certain that they're gonna like what they ordered. It could be a guest that, their phone died, and they're trying to mobile pay, or they forgot their wallet. And we've seen this be powerful. We've seen some viral videos about this, but, Cody Premer walked in, and he said, "Grayson, make me your favorite bowl." And he's talking, and they're going down the line, and Grayson, at the end, said, "Hey, it's on us. We got it today." And Cody loved the bowl. He gave it a 10 out of 10, food and experience, and TikTok responded unbelievably. It went viral just because...
Look, we think we have amazing, unique cuisine where taste and healthy unite, but part of our core concept essence is our Mediterranean hospitality. That hospitality my partners delivered in that original full-service restaurant, and Grayson was able to deliver that, and it really connected with people from a humanity standpoint, and that video has 37 million views now. So you think about that, one free meal, 37 million impressions, 37 million views.
It was interesting because there were a lot of posts on TikTok that said: "Oh, please don't fire Grayson." You know? We're like: "Well, no, that's what we want our team members to do." So it was-
Yeah
... it was interesting.
And then we had my partner, Ted, we did a video on our TikTok feed thanking Grayson, congratulating him, and sending him a gift. So making sure people didn't think we were gonna fire him. So we've really leaned into. We just did with 100 different NIL college athletes across the country, certainly ones around our college campus locations, where not necessarily the high-profile expected athletes, but a real great mix, whether it was, you know, a women's softball player in Louisiana, or a basketball player, or a gymnast, or, you know, a football player, or baseball. Like, we covered all sports to show the broad appeal of our brand.
Some of these more micro influencers with, say, 15,000-25,000-person followings can be really effective because their audiences are super engaged, and I think for us, it shows up in a much more authentic way. We want people who are true fans of the brand. We did this two years ago with Emma Chamberlain. Emma was a very high-profile influencer. She does a lot of high-fashion brands now, but back then, when she was doing her YouTube videos, our team spotted our dips and spreads in her refrigerator. They DM'd her. She responded right away. We wound up collaborating on Emma's Fire Bowl and brought in our spicy hummus from our grocery channel into our restaurants.
It's just a really interesting way because I think the funnel is changing, and consideration is a huge aspect now of the marketing funnel, and you can drive incredible consideration across these social platforms. And look, that's where our Gen Z audience is spending a lot of time with their eyeballs, so we wanna be in front of them there.
Mm-hmm. And this conversation started from Chicago, which you mentioned. It's probably one of the biggest openings that you've had, especially in a larger market. And can you... Maybe, Tricia, can you talk about your development goals? So how many of your new units are opening and generating 35% cash-on-cash returns and more? And secondly, you know, where are you seeing greater returns for your incremental units?
... Yeah, so our real estate strategy is designed to generate at least 35% cash-on-cash returns, and we're seeing we're exceeding those returns themselves. And our strategy looks more broadly at the country and puts all of our DMAs into one of four buckets: established, growth, emerging, or greenfield. And so greenfield are those markets where we have no CAVs at all. Established, conversely, would be those where we have more density. But we see opportunities to grow in all four of these buckets. But what we've done is established parameters about how many locations in our pipeline will fall into each category, so we don't over-index one way or the other.
And so greenfield is about 20% of our pipeline, and that is largely because new locations tend to have a little bit lower levels of restaurant-level margin, and so we wanna make sure we don't overindex on that and, and disrupt the brand overall. But what we're finding is those restaurants are performing better, like I mentioned earlier. So, considering revisions to that and, and just making sure we're addressing it appropriately. But when you look at cash-on-cash returns and differences, one of the other criteria we have are how many restaurants we're gonna open in suburban versus urban environments. Our suburban restaurants, where 90% of our portfolio is targeted, they tend to have higher cash-on-cash returns.
They have slightly lower costs of capital, actual capital costs to open those restaurants themselves, and their occupancy costs are lower, and so therefore, it generates a better restaurant-level margin and, and stronger returns. Ironically, the AUV difference or the AUVs of a suburban location aren't much different than an urban location, and then again, that drives a better return overall, hence, giving us the desire to have 90% of the portfolio in those markets.
What about the AUV between the different types of stores that you want to open? So you look at greenfield versus the others. Can you help us understand the difference in AUV that you're seeing?
Yeah. What we do from a strategy standpoint is we use tools and our team members' experience and the operators' influence on how we target the AUV for each restaurant. So we don't necessarily say AUVs are different, whether they're established, growth, emerging, or greenfield. It's more around the demographics, the psychographics, the environment where those restaurants are, and then we set targets for those. A greenfield market, in theory, would start out a little bit lighter because you don't have the brand awareness. And so those AUVs are just slightly lower. Historically, we've communicated our year one AUV is around $2.1 million, and then that would grow by 10% to $2.3 million in year two.
Then with that $1.3 million investment, that gives you, with those margins that I talked about, a 35% cash-on-cash return. As I talked about earlier, we're seeing performance better than that, so we're gonna continue to review and refine our models, and we'll make updates if it makes sense.
Great. But I know that you don't particularly love the idea of franchising here in the United States, in order not to give up the opportunities that Tricia was mentioning, discussion on cash returns. But on a longer-term perspective-
Mm-hmm.
Are you evaluating any franchising opportunities, maybe in international markets, you know, when you're ready to get into other countries as well? Or are you expecting to deploy more of a Chipotle approach, which is also owning the relationship and owning, sorry, the operations in, you know, Canada, France, Germany, U.K., and so on?
Yeah. I always say I reserve the right to evolve my opinion, but we're focused on corporate growth. We do have two licensed locations at airports. We're opening a third at LAX that's under construction right now. So those are our licensed deals. We think our cuisine is a global cuisine. We think it's got tremendous opportunity internationally. We've got such significant domestic growth that that's what we're focused on for the foreseeable future. I think if and when the time comes for international, we would look at all options, whether there's a great in-country partner that understands the market better than us, that we could leverage, that we trust with our brand, or it's something that we wanna go tackle on our own.
What are the key expectations for you in the new hires that you had in your organization?
Yeah.
Especially recently, you had a new Chief Development Officer.
Yes.
Can you help us understand what you're putting on their KPIs?
Mm.
So we can help understand the growth?
Yeah, look, you know, I said earlier, kind of my, my evolution as a leader and what I've learned, and I had an enlightening moment when we had bought Zoës, and it was three times our size, struggling public company at the time, and we went from, we were around 60-plus restaurants at the time, to running two brands and almost 300 restaurants overnight. And that was a very painful growth experience for me personally. I say 2019 was the hardest year of my career. And when I was able to recruit our Chief People Officer and subsequently recruit Tricia, I was like: Oh, wait, this is the kind of executive that exists and that I can have?
And, you know, they had this large enterprise company experience, and I saw how it elevated me, how it elevated the organization, and we've worked very hard as we've built the executive team over time to create what we call a high-performing team. So we work on this high-performance teamwork, where, you know, I challenge the executive team to be my office of the CEO and, you know, exhibit enterprise leadership and think like I have to think, so that people aren't thinking from a functional perspective, they're thinking from a cross-functional enterprise perspective. And we've worked very hard as a group and as a collective to do that and own the strategic plan together.
Now, certain executives are sponsors on certain initiatives, but we own it as a collective, and now we're at a point of pushing that high-performance work down the organization and getting the layer below us and the layer below them, operating as those kind of similar collectives in an enterprise leadership fashion. So that's what we hold our executives accountable to. You know, I think life's too short to work with people that you don't enjoy working with and to be in confrontation with folks. And so we want people who are waking up every day to accomplish something great, that believe in our mission to bring heart, health, and humanity to food, and enjoy doing it with the people that we're doing it with.
you know, given the new hires and also the evolving dynamics in the organization that you had, can you help us understand which parts of the organization you think have an underappreciated or on-top opportunity that from here on, you could be doubling down and potentially elevating CAVA even further?
I think we've put a lot of effort in operations. We've always been operations-focused. I like to say you can't market your way out of a bad experience. So we've got a great team there. I think we're leaning into our, what we call our operations services team and ops innovation team, so that's helping us start to deploy, like, our labor deployment test. We talked about Connected Kitchen, and do more innovation to basically improve our operator experience and drive value for our guests and the guest experience. And then that's in partnership with technology, so Beth McCormick joined us as our CIO last year and really building out that data infrastructure.
I talked about the unlock of data transformation, and a lot of that relates to operations, but you have to have that partnership with operations and how that technology flows through the back of house effectively and through the systems. And I think that's a big unlock to continue to make it easier to run CAVAs and make us smarter and more insightful about the business, which ultimately has the second-order benefit of better guest experiences. Because, look, the financial results we just put up, they are a byproduct of the things we did two, three years ago, the decisions we were making. So what are we doing now to make sure those results continue on that trajectory two or three years from now? And again, the P&L, the results are a byproduct of our team and the work we're doing.
It doesn't work the other way around. So making focused on how we're setting our team up for success and what are the strategies and activities we're doing to affect that.
Yeah, and you're talking about operations being one potential key driver for you. You know, it's fair to say that, thankfully for you, the lines tend to be quite long at CAVA.
Yes.
You know, you have many people lining up. So my question is: how do you see the evolution of throughput?
Mm-hmm
... for CAVA from here on? And in the past, you've expressed some, you know, some moderate excitement for that in the near term, saying, "I don't wanna disrupt necessarily the operation in the store.
Yeah.
So can you help us understand from, you know, a certain point of view, why you wouldn't focus even more strongly on throughput now that you have the opportunity?
Yeah, it's a great question. I mean, there's a lot of our peers in our space focused on throughput right now, seeing that opportunity that are much larger than us. We're in a brand-building phase. We know we have speed of service opportunity. I like to say speed of service. We don't wanna jam our people through. And, you know, I think clearly, we saw it at Wall Street. We were having lunch at our Wall Street restaurant the other day, and I watched two people walk out. It kills me. I hate that. We don't wanna frustrate our guests and have them walk out with lines to the door, but we also don't want to push people through too fast, burn out our team members, and create negative guest experiences. So we...
Speed of service, we monitor guest satisfaction, and in the labor deployment test I spoke to, we're in 29 restaurants, expanding it to 59. We've seen much more efficient deployment of our labor hours, improved guest satisfaction, and some improved speed of service. That's what we wanna see. We wanna see those two metrics go together. So we're gonna do it very thoughtfully and carefully. One way to improve speed of service we've seen over time is when we get these big volume restaurants accelerating tells us we can open another restaurant 3-5 mi away, take some pressure off that restaurant, and capture the latent demand in the market. But as it relates to the restaurant itself, things like this labor deployment test, Connected Kitchen, a new KDS that we're testing in four restaurants, it's going to 29 restaurants.
We have backend throttling capabilities. We build our own digital order ecosystem, so restaurants can manage how many orders they accept every 15 minutes. They don't drink from a fire hose. We don't open it up on them. But the new KDS, kitchen display screens, allow them to produce more orders more accurately, allowing them to open up those second make-line throttles as well, which can improve speed of service. So, we are working on many different initiatives that, over time, we think continues to be an improvement to speed of service as we grow without coming at the detriment of our guest experience.
Roughly speaking, how many bowls can you serve in a kind of 15-minute period?
We've done north of 300 in an hour. We have restaurants doing that now. We don't do it consistently across the chain, but we can easily do north of 300 an hour. Our restaurants are built for speed and volume. It is the Henry Ford production line, right? It's the manufacturing line, incredibly efficient production model. It's getting that right deployment down, getting right people, right roles, and making sure that we have them equipped with the information and the technology so that they're staying front-facing and even the prep and callback to the grill. Like, Connected Kitchen, you know, what this does is it basically...
There are sensors over the line that can tell how much food's being depleted and ingesting historical sales data, real-time data, weather event data, and then you can imagine telling the grill cook: "Okay, here's how much chicken to drop the next 30 minutes." Versus right now, using pretty standard pars per $1,000 and having callbacks from the line, right? So again, when you start taking that off everyone's plate, and they're focused on building bowls and moving people down the line, you can start to see how that can flow speed of service.
Got it. What is the number one technological advancement that you think you're going to be deploying over the next five years, since you've been at the forefront of some of these investments over time?
5 years, well, we are relaunching our loyalty program this fall, which we're very excited about, or before the end of the year. You know, one of the toughest things about my job is, especially when one of our competencies is innovation and growth, and when you like to innovate, you gotta be careful not to chase too many shiny things, right? And so loyalty has been the same rudimentary, or it was, spend X, get Y program for over a decade. I wish we could have relaunched it a few years ago, but we had to get through our Zoës integration and some foundational technology investments. We finally relaunched a earn and bank points model last fall, November.
And in the Houston market in particular, we're running you earn and bank points, and then you can redeem for a variety of rewards at your choice. And the rewards like, you know, a free bag of our craveable pita chips, and it's a lower hurdle than it used to be. We're seeing more engagement in the program, driving improved frequency, more revenue through the channel. But that's a small piece of what we think is a larger puzzle of building personal relationships with our guests, even as we scale. One-to-one relationships, where as we get larger, you still feel like we opened up to communicate and make you lunch or dinner that day, and how we use data to empower our team members to communicate with you.
I think there's, you know, again, back to the data unlock, there's that piece, and then the operational piece with Connected Kitchen, that could be, I think, meaningful drivers to our business going forward.
And, look, for a company of your size who's trying to scale fast, I'm sure you have thousands and thousands of ideas hitting your desk, okay? So maybe can you give us the top three ideas that came to your desk, and you said no to-
Yeah.
and why?
Mm.
Yeah, it's a great question. I don't know if I'll name three, but, you know, one of the things that we're holding off a little bit on is, like, we've looked at a second automated make line.
Mm-hmm.
We think there's interest to do that, not on our main line. You know, our mission is to bring heart health and humanity to food. We have very strong restaurant-level margins with our team members interacting with our guests, delivering that food. We do think our digital occasion is looking for that accuracy, that convenience, that speed, where we could see some automation on our second make lines. But we think data is a more immediate opportunity for us to impact the business. So we look at automation in ways like we've automated the cutting of our pita chips or the slicing of our onions, or our big automation investment, we just opened that 55,000 sq ft manufacturing facility that's got tremendous automation in it. So, that's something that we said, "Hey, we'd love to do this year, but you know what?
That can wait a year from now," and we can look at that, but there's more pressing opportunities today that we'd like to really get after.
Yeah, and maybe Tricia, following up on this note on the supply chain, can you help us understand number 1, the rationale behind it, and secondly, you know, purely from a financial standpoint, how should investor look into the ROI of such an initiative, you know, vertically integrating your supply chain further?
Yeah, so as you know, we're super excited about the investment that we made in Verona, and not in Italy right now, but,
But everybody should visit Italy because it's a broke country, so we need dollars coming out.
I noticed you didn't mention Italy as one of the franchise opportunities internationally, but I don't know how to take that. But anyway, this is a great opportunity. Brett's talked about it, and we've shared it really allows us to have consistency, quality, and take out the complexity out of our restaurants and bring them in there. From our standpoint, it was a process where we worked with our board to create the ROI to understand how we could get those returns, and it was pretty evident. We're not required to go to a co-packer to be able to produce the product where they have to make a profit on it. But even more important, we couldn't find co-packers to make our product to the quality standards we wanted.
For example, in our tzatziki, we use fresh cucumber and fresh dill, and we weren't able to find those that wanted to do it. There was a significant ROI from a dollars perspective, but more importantly, we wanted to maintain the integrity and the authenticity around our product to be able to do that at scale, and this facility allows us to do that.
With the two facilities, you can now serve 750 restaurants, right?
Yep.
So in a way, should investors take away that for you to scale, let's say that you are reaching 1,000 stores plus, you're gonna be continuously opening new facilities like these as you're scaling?
It is a possibility. So the rest, the facility we have today will support at least 750 restaurants, as well as our CPG business, so it allows us to lean in, potentially to CPG a little bit more. We're in all Whole Foods across the country and other grocers as well. But yes, we're exploring when the opportunity might present itself to perhaps have another location to support the growth that we anticipate we're going to achieve.
Maybe talking a little bit more about the CPG business. What is the contribution today, and how should we think about the contribution going forward, given these investments you made today?
So CPG is a fairly small part of our business today. It's our... It is how we started. You heard Brett talk about it earlier. But we, now that we have the facility, it's something that we're going to evaluate to see if we wanna lean in further. But there's so much potential and opportunity in the restaurant business. I, we don't want our teams to get distracted by CPG, but we'll see if we can leverage and lean into that a little bit more.
And maybe, can you elaborate more on the margin opportunity expansion in your store? So where are the levers of opportunity from here on? Maybe talk about the labor dynamic-
Mm-hmm.
and the food dynamic that we were discussing earlier.
Yeah, so our food, we've been very fortunate. We directly source 80% of our items, with grower and rancher partners across the country. Many of those have been with us for many, many years and participated in the growth and development. But as well as, just making sure that we have the quality and integrity around the food that we have. So our food costs, we anticipate to be consistent to what they are as a percentage of revenue as we move forward. There could be some opportunity for leverage as we scale from an inbound logistics standpoint. We've seen that over time. So you imagine we used to have partial truckloads of product coming in, and now we've got half truckloads and full truckloads, so there's still some opportunity there.
As you go out of food and into labor, Brett talked about this. This is a Henry Ford production line model. So as AUVs grow, you get leverage on the labor line. So sometimes we take the opportunity and that leverage to reinvest in team member wages and other benefits that we wanna provide for our team members. We like to view them as assets and not expenses. But there is some opportunity as the business grows, there'll be leverage in that line. The other operating expenses in the restaurant, those tend to scale with revenue, so there's not a lot of leverage there, and there's also opportunity, perhaps in the future as we get bigger, for additional marketing investment, but more to come on that if that's gonna present itself. And the last line in the restaurant level margin is occupancy.
Occupancy, we have seen occupancy leverage over the past few years. A lot of that is leveraging the Zoës leases that we acquired, but also the geographies that we've entered tend to have lower occupancy costs for the restaurants, and that, that creates some leverage. And then on top of that, going back to the expanding AUVs, those drive additional leverage on that occupancy line. So, you know, we delivered 25.2% in restaurant level margin in Q1, and, you know, certainly other investments that, one I did not mention was launch of steak, does have an impact on our, our, our COGS themselves. The steak was being priced to drive kind of profit neutrality, so the investment in steak, because it's a premium item with a higher cost, will have some headwind impact on COGS.
What's the flow-through of your marginal dollar?
So we haven't yet shared the flow-through on every dollar.
Let me ask this way, maybe, like, some peers are in the 40% range. Are you in the same range?
That is not an unreasonable expectation.
Okay. And one more on the outlook, if you don't mind. So we have a question here: So with increase to new store growth guide this year, should we expect a faster pace of new store growth over the coming years, or is this the right run rate? And what could cause you to run faster?
So, yes, we have increased our guidance to 50-54, so that's higher than the 15% growth that we have shared over the long term. Going to that is more around having the team members we talked about earlier, so the right GM to open those restaurants. We don't wanna go too fast and have... We've talked about it. Can't market yourself out of a bad guest experience. So, we'll continue to evaluate and adjust over time. We feel really good about the pipeline of real estate we have, and what we're doing to invest in our Academy GMs and how they train our future leaders of the business, but we don't wanna go too far, too fast.
So we'll look at the pace of our openings and make sure it's sort of just right, to make sure we balance that.
As you're growing, maybe this is for you, Brett. As you're growing, who are you taking share from? You, you're talking about the growth in the suburban market, so who's your main competitor? Who are you taking share from?
Yeah, it's a great question. I. We look at everything from casual dining, QSR, c- stores, grocery, food at home. I think we've got this really unique, differentiated cuisine that's tough to replicate at home, tough to find other places. A dynamic that I've been speaking about, I wrote in our shareholder letter, and I've been speaking about, recently on some media interviews. I think there's a tectonic shift going on in the industry that had started slowly before the pandemic, that when you think about the pandemic and the post-pandemic high inflationary period we've just exited, is exacerbating or amplifying those shifts. And when you think about the traditional casual full-service chain dining model, is really struggling to deliver a compelling value proposition to a modern consumer.
We think about value proposition, quality, relevance, convenience, and experience, and whether it's time commitment, paying for the, the full service, the cost of a meal with a tip for the quality or experience you get, isn't meeting the moment. We're seeing trade down into CAVA, especially in suburban markets. "Hey, why not have dinner at CAVA on a Wednesday night versus going to a legacy casual dining chain?" Then you've seen the significant price increases in traditional fast food. There was that LendingTree survey out the other day. 78% of respondents said, "Yes, fast food has gotten too expensive, and it's now considered a luxury." Right? That's improved our relative value proposition tremendously. I've seen the memes of, like, a $20 Big Mac meal.
It's like, well, why, why would I pay the same or the, why wouldn't I pay a $1 or 2 more to go to CAVA? And when you think about how their price increases have far outpaced CPI, if you look at our price increases from the end of 2019 to the end of 2023, it's roughly 12%, where CPI was 18% during that period. So that goes to our philosophy of, as we grow restaurant-level margins and become better operators, better at what we do, we share that wealth with our shareholders, with our guests, with our team members.
And that's, you know, whether it was the investment we made in wages coming out of Q3 into Q4 last year, or when AB 1228 went into effect, we did not pass along any expense to our guests in California, really understanding the inflationary fatigue they're feeling from all the pricing pressures around them. So I think, you know, we're at the nexus of all this, kind of gaining share from different directions, as well as bringing something new and differentiated to the market.
And, you know, as you're, as you were taking pride, as well as, kind of managing these evolving dynamics, said, you know, we, we invest in our teams. You invested in, you know, consumer satisfaction-
Mm-hmm.
the example of California. At some point, shareholders are gonna come as well.
Mm-hmm.
My question is, what's the upper limit of your margin as you're expanding your stores?
We haven't articulated an upper limit on margin, so, we'll evolve over time and really work hard to strike that right balance.
Okay. And then, one final question, still on margin, Tricia. So, if you were to, if the macro conditions were to worsen from here on, what would you rather protect? Would you rather protect the margin of the store, or would you rather protect the traffic incoming?
We'd wanna work to protect both. But we think that making sure traffic is intact and really is the lifeblood of the future of the business, that would be a priority for us.
Great. So maybe Brett, one final question: how do you think CAVA is going to be different from a year from now?
I think we will be in more parts of the country, in more communities across the country, and we will have a new loyalty program for you all to engage with and participate in.
Awesome. Brett, Tricia, thank you very much for being with us today.