Profitability, price, and loyalty
Sweetgreen’s evolution has backdropped against a breakneck couple of years. The chain posted Q3 revenue of $124 million versus $95.8 million in the year-ago period, an increase of 29 percent. Same-store sales climbed 6 percent against Q3 2021’s 43 percent.
Average-unit volumes of $2.9 million were $400,000 higher, year-over-year, as well. The company swung a net loss of $47.4 million versus a loss of $30.1 million. Adjusted EBITDA was negative $6.8 million compared to negative $14.1 million.
Sweetgreen expects to turn profitable in the first half of 2024. “I think that it's a very, very important topic and it's one that we spend a tremendous amount of time on at sweetgreen,” CFO Mitch Reback said. “I would say in the current environment, our path to profitability is actually more important, not less important than it was. And it's one that we're more focused on than ever. The path to profitability for us is a relatively simple model. It's opening new stores that are successful, driving our restaurant-level margins through good control at the store level, and leveraging our G&A expense.”
The pandemic rattled a good deal of sweetgreen’s historic approach. Total digital sales in Q3 mixed 60 percent of total revenue, with about two-thirds coming via its own digital channels. Traditionally, Neman said, sweetgreen’s biggest acquisition lever was in its frontline. That disappeared during COVID. “We got very good at digital acquisition,” Neman said.
However, doing so forced sweetgreen to skip a classic page. As Neman words it, “the vitality of our front lines and people working together and walking by, driving by, coming and trying sweetgreen for the first time; a lot through community efforts and the mobility that we saw.”
In other terms, the pandemic shut the valve on sweetgreen’s ability to inspire loyalty through community engagement. “To be honest,” Neman adds, “we probably reacted a little but slowly in bringing some of that back. But as we brought it back recently, we’ve seen acquisition tick up.”
The other part of this is dine-in recovery has stressed in-store labor. Sweetgreen’s internal data shows employees who are scheduled to work 30 hours or more call out less and have higher tenure than those who are scheduled to work fewer hours. So the brand keeps working to shift staffing models. It’s currently about 95 percent staffed to pre-COVID marks and recently launched an applicant tracking system that’s reduced time to hire by nearly half, the company said.
And to also consider, the majority of employees today joined during the pandemic, when sweetgreen had to switch to digital-only operations. This group of workers never experienced the brand from a 2019 view, with lines out the door and frantic lines inside. “We were, in a lot of ways, maybe say, caught off guard by that,” Neman said. “And our throughput and customer service was really not where we expected it to be.”
The brand has had to refocus training on customer hospitality. “That’s been the huge focus over the past couple of months and I can say that we’ve already seen some green shoots as we focused on that customer and that throughput,” he added. “We’re starting to see some really nice gains there.”
To put it differently, as the world opens back up, sweetgreen is going back to basics and relaunching the “Intimacy at Scale” ethos that brought it to market. “We add the Sweet touch. It's one of our core values, and it's how we delight our customers with every interaction we have with them,” Neman said.
Automation is factoring in here, too. Sweetgreen introduced a proprietary cold prep tool that uses machine learning to generate a list of what to prepare and how much by incorporating multiple data points and a real-time algorithm to predict future consumption of ingredients.
Another topic sweetgreen is operating against the grain on is price. The brand took about 6 percent in January but hasn’t broadly done so since. Neman feels, as competitors continue to charge more, the relative value at sweetgreen will improve. “As more and more people take price, we do expect the environment for consumers to get more challenging, and we, in a lot of ways, just saw an opportunity,” he said. “I talked about customer acquisition being an opportunity for us to hold our price and continue to take share. … One of the things that we've begun to see and we think there is an opportunity in this environment is the trade down. Given the consumers that we have and what they value from the places that they go, we see an opportunity for many people actually in this recessionary environment to be trading down for something like sweetgreen.”
Elaborating, Neman highlighted casual and fine dining, where people can pay upward of $100 for dinner. Sweetgreen offers a bowl under $10 in every market and recently ran a one-week offer at that figure for its popular Harvest Bowl, which Neman said reengaged users and drove in new ones. “The one reason we chose the Harvest Bowl, it's not only our best seller—we find that when people try the harvest bowl, they're most likely to come back. We call it our stickiest, it's the stickiest bowl we have,” he said.
Sweetgreen will continue to dig into relationships with its first loyalty program, which is slated for next year. Neman said it “will lead to customer incrementality and engagement and is especially important to have in this recessionary environment.”
Sweetgreen ran a subscription trial in Q1 that saw “sweetpass” users place an additional five orders on average during their 30-day option, nearly tripling their frequency and more than doubling their spend compared to the average monthly frequency in Q4 2021. In July, sweetgreen unveiled a rewards and challenge feature opening to ignite frequency and sped through a cohort-ed gamified experience. Looking back on a 90-day period, customers who opted into at least one of the digital challenges doubled their frequency and spend versus those digital customers who did not. Both initiatives were piloted as potential components of the future loyalty platform.
Sweetgreen is also piloting catering in 20 stores. Average order values to date exceed $500, Neman said, and weekly sales tripled from start to exist of Q3. Additional markets will join in coming months, as will marketing efforts.