Salad Chain Ramps Up Suburban Focus in Push Toward Profitability
Seismic shifts in Sweetgreen's consumer base are pushing the salad chain to open new locations and shift away from its previous focus on urban real estate.
After closing a handful of sites in Los Angeles, Boston and New York City, the Los Angeles-based restaurant operator is scrambling to adapt to the latest phase of the pandemic in which more employees are working remotely, customers are looking for drive-through or other convenient ordering options, and macroeconomic challenges have prioritized more prudent investments.
"It's really a focus on disciplined, capital-efficient growth and ensuring much greater consistency in our execution," Sweetgreen CEO Jonathan Neman told analysts on the company's latest earnings call. "We've taken a lot of time to incorporate a lot of the lessons learned from our openings and want to take a more careful approach, especially in this environment. There's been a lot of external factors that have changed, like changing traffic patterns that are in a constant state of flux, that we'd like to see settled."
Sweetgreen, which operates more than 185 restaurants across 16 states and Washington, D.C., is on track to open as many as 35 additional locations through the rest of this year.
However, rather than homing in on downtown sites reliant upon a population of workers that have yet to make their full-time return to the office, the salad chain is preparing to venture into new areas in a bid to diversify its real estate portfolio and target new customers.
More Conservative Approach
"Overall we're taking a bit more of a conservative approach," Neman said of opening new restaurants in cities such as San Antonio, Texas; Milwaukee, Wisconsin; and Seattle this year. "Oftentimes what's happened is we've accelerated our growth and densifying probably a little bit faster than we should have. And so the switch in strategy is to continue to build our brand, choose the best real estate and enter the market with a few stores before densifying."
Similar to other restaurant operators across the country, the salad chain has struggled against macroeconomic headwinds that have created massive labor shortages, rising expenses and a consumer base with habits that continue to evolve.
As a result, Sweetgreen executives said that in addition to adjusting the company's expansion strategy, it is implementing other cost-cutting changes including permanent cuts to its support staff and is trying to renegotiate lease terms for some of its locations in areas that have struggled to recover from the pandemic.
Sweetgreen is in discussions with "several of our deep urban landlords, and those discussions are ongoing," Mitch Reback, the company's chief financial officer, said. He declined to provide additional details.
The restaurant chain, which has yet to turn a profit, reported a nearly 25% increase in revenue to $118.6 million for the quarter that ended Dec. 31, 2023, compared to the same period in 2021 when it reported just shy of $96.5 million in revenue. Its losses flatlined at about $47.7 million, roughly matching the $47.8 million it lost for the same period in 2021, a figure the company is struggling to improve amid rising labor expenses, food prices and inflationary pressures.
"We've got the right number of new markets, the right real estate and the right leadership in place to run these stores," Neman said of the company's 2023 opening plans. "It will be less of a top-down approach and more of a bottom-up approach, but we do expect as we continue to have some momentum here and get profitable to continue to accelerate our store openings."