In February, we looked at a potential return of initial public offering (IPO) for restaurant companies in 2023, examining CAVA’s visitation trends and why the time was right for this Mediterranean concept to tap public equity markets to accelerate its growth ambitions. As noted in our previous work, 2022 saw IPOs for the restaurant category slow to halt amid market volatility after several restaurant chains went public in 2H 2021, including Dutch Bros, First Watch, Portillo’s, sweetgreen, and Krispy Kreme. However, over the past week, CAVA took another step toward by filing IPO registration statements.
CAVA’s filing confirmed many tenets of our previous analysis, namely that the chain is poised to become the first Mediterranean concept to succeed at a national level because of (1) its emphasis on suburban locations (helped by early adoption of digital drive-thru lanes similar to Chipotle’s Chipotlane locations); (2) throughput, staffing, and inventory management technologies; and (3) employee retention rates (which has helped to keep CAVA’s speed of service ahead of category averages). CAVA’s registration statement confirmed that 80% of its locations opened for at least 13 months as of April 2023 were located in the suburbs, which aligns with consumer work-from-home and migration trends that we’ve highlighted in past editions of the Anchor.
In addition, average unit volumes (AUVs) have been relatively healthy as the company has expanded beyond its home markets in the Mid-Atlantic (something we recently examined with Portillo’s success moving into the Texas market). Below, we’ve plotted trailing-twelve month (TTM) average unit volumes for CAVA’s five operating regions (Mid-Atlantic, West/California, Northeast, Southeast, and Southwest) and compared it to visit per location trends for each region. With the exception of the Northeast (where our data excludes some of CAVA’s locations in the densely populated New York City market), CAVA’s TTM AUVs are consistent with our visit per location data. For context, average visits per location for our consolidated fast casual restaurant index were 99.6K over the past twelve months, adding further evidence of CAVA’s strong performance relative to category averages.
In our past analysis, we had also noted that CAVA was narrowing the gap with the rest of the fast casual category with respect to visits per location. This trend has continued over the past several months, with CAVA exceeding the category visit per location average by almost 9% during the quarter (below). According to its registration statements, the company posted comparable-store sales growth of 28.4% in Q1 2023. While some of this growth was driven by high-single-digit menu price increases, the underlying transaction growth during the first quarter was impressive given the slowdown we saw across the broader restaurant industry the past several months.
Longer-term, management believes there is potential for more than 1,000 CAVA restaurants in the United States by 2032, up from 263 at the end of Q1 2023. The company is planning for another 34-44 net new openings for the rest of 2023 (including the final conversion of the final 8 Zoes Kitchen locations by the fall of 2023) and has signed letters of intent for 100 new sites as of April. The company expects its new openings to be in both existing and new markets, with management calling out several Midwest geographies as attractive for expansion.
Where might we see new CAVA locations open in the Midwest? We used Placer’s new site selection tool – which finds the best locations for a chain to grow based on a variety of strategic parameters including cannibalization level, demographic fit, population size, competition density, co-tenancy, and more – to identify some potential Midwest markets for expansion (below). Larger markets like Chicago and Minneapolis ranked high–primarily in suburban areas within those markets–as did markets like Madison, Omaha, and Grand Rapids. For additional information about Placer’s site selection tool, please reach out to us or your Placer Customer Success representative.