Sweetgreen is on pace to open roughly 35 locations this year, with 43 leases already signed for 2023. Yet as rapid as expansion has arrived for the 2007-founded fast casual, it remains, at 176 restaurants, “in the early stages of building a national brand,” CEO Jonathan Neman said.

Neman refers to it as the “Goldilocks size,” where sweetgreen is big enough to invest in transformative tech, but small enough where the majority of development resides ahead of the brand (sweetgreen has guided 1,000 locations as an eventual target). Simply, sweetgreen can focus on new builds with lighter luggage than some legacy quick-serves.

And that reality will be easy to spot in coming months. In October, sweetgreen opened its first digital-only pickup kitchen in the Washington, D.C., neighborhood of Mount Vernon, relocating a City Vista unit. The 2,190-square-foot space skips interior dining and a front-service makeline in favor of pickup shelving for diners who order ahead, either via sweetgreen’s app or online. There’s also an outdoor patio.

Neman said customers have been receptive thus far and the store jammed early with new guests who downloaded sweetgreen’s app to gain access. “Future pickup kitchens have the potential to unlock additional markets with smaller square footage needs, lower build-out cost, and improved return on invested capital,” he said.

But notably, it’s going to provide learnings for a bolder step—what sweetgreen is describing as “restaurants powered by the Infinite Kitchen”

Last summer, sweetgreen acquired Spyce, an automated kitchen startup founded by four MIT grads. It had scaled to two Boston units, collecting headlines for its “Infinite Kitchen” technology, which centered on a conveyor belt lined with dispensers that automatically released precise portions of ingredients. An integrated robotic system enabled Spyce to cook up to 350 personalized salads and grain bowls per hour and to fulfill orders in three minutes or less. Leading up to sweetgreen’s takeover, Spyce had raised nearly $25 million, including an investment from chef-luminary Daniel Boulud.

Daniel Boulud giving Spyce a whirl back in the day.

Neman said sweetgreen was drawn to Spyce for a “shared purpose” of creating healthy fast food at scale “for the next generation.” How sweetgreen would deploy the automation, though, wasn’t as clear.

Sweetgreen execs travelled to Boston a few weeks ago to visit Spyce. “I cannot be more excited with the progress they’ve made,” Neman said.

Sometime in 2023, the first iteration of sweetgreen’s foray into the “Infinite Kitchen” will come to life. Neman said the brand will open two restaurants next year with automated production lines. They’ll serve sweetgreen’s food with “even better quality, perfect portioning, fast speed, and will create a more consistent customer experience, all while elevating the role of our team members,” he said.

Sweetgreen is confident, Neman added, automation will play a vital role in improving its business externally, but also in making it more profitable and scalable.

“We’ve had a belief that automation would be, can be, transformative for the restaurant business and specifically our model,” he said.

For guests, sweetgreen called the potential throughput gains “significant,” or “many times the throughput of our current line.”

Additionally, Neman is eager to measure the accuracy portioning and employee experience benefits. Neman said sweetgreen spent a good deal of R&D designing in-store technology so it could deploy labor toward more guest-facing tasks; a side-by-side model that makes sweetgreen a more engaging workplace.

Financially, about half of sweetgreen’s variable labor in restaurants owes to production or assembly. Infinite Kitchen takes the majority of that. Unlike the Mount Vernon unit, next year’s automated stores won’t have employees preparing orders. “We’ve got to not only test the technology but also the customer and team member experience and perfect it,” Neman said. “But we’re feeling pretty confident about it and think it will be transformational for the brand and really for the industry.”

If all goes accordingly, he added, you’ll see sweetgreen accelerate rollout of these come 2024.

The brand didn’t delve much deeper, only to say the automated model will ensure customers can order in multiple ways. The human experience won’t be absent, either. So imagine a concierge-like system of ordering plus digital and kiosks.

Sweetgreen is also on the verge of debuting another redesign. Its inaugural “pull-through,” as the company is phrasing it, opened Tuesday in Schaumburg, Illinois. The store boasts the company’s first “sweetlane” advanced order vehicle pickup window.

Guests place their order digitally and choose “sweetlane” as their retrieval method under “Select a Pickup Location.” When the order is ready, customers roll through the “sweetlane” to pick up. One unique feature: as they idle, they observe employees preparing orders through a round window intended to extend the in-store experience to every touchpoint. Consumers can pick up inside as well as grab a seat for dine-in as well.

The “sweetlane” will help the brand scale up further in suburban markets.

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.

Emerging Concepts, Fast Casual, Story, Technology, Sweetgreen