In a journey that dates back five years, CAVA completed its last Zoës Kitchen conversion, meaning the now-public company operates under a single banner. And with that, CEO Brett Schulman said, it’s time to define “the next major cultural cuisine category.”
CAVA got off to a fast start in its life on Wall Street and that continued into Q3, with the fast casual posting same-store sales growth of 14.1 percent on year-over-year traffic gains of 7.6 percent (menu price and product mix was 6.5 percent; CAVA plans to return to its historical price cadence of 2.5–3 percent in January). Average-unit volumes climbed to $2.6 million versus $2.4 million last year and revenue, boosted by a 35.5 percent increase in total restaurant count, soared 49.5 percent to $173.8 million. Notably as well, CAVA’s restaurant-level profit in Q3 was $43.6 million, or growth of 72.8 percent, with store-level profit margin of 25.1 percent, a 340-basis point lift. Net income was $6.8 million compared to net loss of $11.9 million and adjusted EBITDA of $19.8 million measured against $4.8 million from the year-ago quarter.
At the end of Q3, CAVA had zero debt outstanding, $340.4 million in cash on hand, and access to a $75 million undrawn revolver with an option to increase its liquidity if needed. The company delivered cash flow from operations of $73.1 million for the year-to-date period versus $5.2 million in 2022’s comparable stretch.
But as flashy as these figures were, Schulman, who joined founders Ike Grigoropoulos, Chef Dimitri Moshovitis, and Ted Xenohristos in 2010 to morph the full-service concept into a fast casual, assembly-line model, continues to frame CAVA’s future through a long-term lens.
The reality is CAVA, at 290 stores across 24 states, has fairly low brand awareness compared to larger peers. When CAVA acquired Zoës in 2018 for $300 million—a deal funded by Panera Bread founder Ron Shaich’s ACT III Holdings—the brand ran about 70 units across 10 states, as well as a line of dips and spreads in 250-plus Whole Foods Markets and other specialty grocers. Zoës, founded in 2009 by Kevin Miles, had 268 restaurants at the time.
Just 12 years prior, CAVA, then Cava Mezze, operated as a 1,700-square foot, full-service Mediterranean restaurant in Rockville, Maryland.
CAVA would follow the sale with a $40 million funding round in December 2019 and a $190 million investment in April 2021, which rocketed the company’s value to nearly $1.3 billion. That would reach as high as $2.45 billion in June when CAVA went public and sold 14.4 million shares.
So really, CAVA’s tenure as a brand with this level of scale is a fresh concept. And thanks to the conversion path, it unfurled far quicker than it would have otherwise.
And still, Schulman said, even with rockiness in the overall marketplace added in, “we’re putting up great results.”
“We’re seeing great resiliency from our consumer,” he said. “We’re seeing people gravitate to the brand.”
That’s where the larger potential is taking shape. Not only is CAVA not a true national brand yet, Schulman said, but you could say the same about Mediterranean presented in an accessible, counter-service format. While some pundits have labeled CAVA “the next Chipotle” in stock recaps, it’s not so much about the reimagining of a category (say Chipotle and Taco Bell) as it’s the invention of something that hasn’t been executed at mass appeal.
In markets CAVA opened a year or two ago, Schulman said, brand awareness has jumped from 20 to 40 percent. “When you think about the tools we have, our social team does a phenomenal job,” he said. “It’s amazing the virality and the awareness you can get on a channel like TikTok these days and get millions of views and really have our brand awareness have a network effect around markets, as well as opening new restaurants with our community days.”
Again, though, CAVA is in the early stages. Schulman believes it’s only going to balloon as customers discover the differentiated nature of Mediterranean cuisine. In some respects, CAVA’s strategy as a brand is to become the engine of a larger movement. “When it comes to the value perception, which is why I think our traffic has been resilient in the face of some of these macroeconomic headwinds, is the differentiated nature of our cuisine, the uniqueness of our cuisine, and the fit of our cuisine to a modern consumer where taste and health [matters], right?” he said. “You think about trying to recreate a CAVA meal at home or at the grocery store for a similar price or going to appear in getting a similar type of meal that is satisfying flavorful and helpful for you at a similar price.”
Just look to the traffic as proof, CFO Tricia Tolivar added. “We saw that across all vintages, across all geographies in suburban and urban. And really it just demonstrates how our food and culinary and hospitality is resonating across the country as we create the next big cultural cuisine category,” she said.
CAVA opened 11 net new restaurants in Q3 as it marched across Alabama, Arizona, California, Florida, Georgia, the Carolinas, and Texas. In Q4 thus far, it’s debuted 12 more, putting the chain on track for 70–73 net CAVA stores this year.
Going forward as solely CAVA, Schulman said the plan will be to chart annual unit growth of at least 15 percent (that would mean 47–50 openings net openings in 2024). Chicago is on deck for a new-market entry next year, with at least three openings expected.
There are a couple of infrastructure points at work behind the expansion curtain. From a talent perspective, CAVA continues to cultivate an internal pool of leaders it can train and deploy across new openings. The 2023 target was to place 75 percent of new restaurant GMs, which Schulman said should happen. CAVA’s “Academy GM” network serves as a farm system of sorts for future leaders. At the end of Q3, there were 45, including seven recently promoted to multi-unit leader positions. CAVA expects to have 50 by year’s end, enabling localized training in existing markets nationwide.
Essentially, Academy GMs are employees certified to develop and train new GMs and lead training restaurants. The goal being to have at least one of them in each of CAVA’s “gardens,” or groups of eight restaurants. In addition to stuffing the talent pool from the inside out, it minimizes pre-opening costs by creating training hubs in growth markets.
In September, the brand held a “CAVA Connect” conference to bring all its GMs together. Leadership touted the mission, recognized employees, and rooted all of it in education around guests, people, and standards initiatives CAVA refers to as “GPS.”
The initiative focused on seven foundational metrics and standards for ops execution. Over three days, Schulman said, GMs participated in training sessions on employee development, P&L management, food safety standards, and the guest experience.
CAVA also, at the start of Q4, made incremental wage investments intended to drive the quarter’s average wage 8 percent above Q4 2022.
Tolivar said CAVA expects this to have a 100–120 basis point impact on restaurant-level margins. But it’s a hit worth the gain. CAVA expanded healthcare benefits to all part-time hourly workers as well. “These types of investments are critical to support our future growth, and we expect further investments in 2024,” she said, adding of employees, “We view them as assets, not as expensive, and want to make sure that we’re always investing in them.”
Alongside the people element, CAVA invested in a vertically integrated production model long before it was primed to grow. By producing its own dips and spreads, it strips complexity out of restaurants and improves costs, Schulman said. The quality of recipes holds firm from unit to unit.
And to get a sense of where this story can go mid-term, CAVA recently cut the tape on a Verona, Virginia, facility that’s on pace to open in Q1 2024. The management team was hired and equipment is being delivered. When it turns the lights on, along with CAVA’s legacy 30,000 square-foot facility in Laurel, Maryland, the brand will be able to support at least 750 restaurants as well as its CPG arm.
Meanwhile, as CAVA takes aim at “substantial whitespace,” it’s going to keep fine-tuning its business. The chain is in the early stages of launching a new loyalty program designed to develop deeper connections by creating more frequent, relevant experiences, and further fuel traffic, mix, and check, Schulman said.
In the “next couple of weeks,” CAVA will transition all loyalty users to a bankable points model. Then, in December, it will pilot new rewards and engagement tactics in the Houston market. That will inform the rollout of a revamped approach nationwide, sometime in late 2024.
On the culinary side, CAVA plans to test steak as a new main item. It effectively replaces the beef meatballs that were removed nearly a year ago. That’s a crucial point to consider for a brand that talks about its “38 ingredients with over 17 billion combinations.” Schulman said CAVA, amid growth, doesn’t want to introduce “too much creep and complexity into the system.”
But steak simply takes a vacant “mains” spot. There’s also a rotational slot where spicy falafel currently resides and CAVA plans to bring back white sweet potato over the winter. Steak, however, if the stage-gate process progresses as hoped, would fill a permanent block that’s been “highly requested,” Schulman said.
CAVA’s Mediterranean take was inspired by flavors from the GMC, including sun-dried tomato, coriander, and Aleppo pepper, “showcasing what makes CAVA special and giving us an opportunity to delight existing guests, attract new ones, and reengage those who haven’t visited in the while,” Schulman added.
It’s performed well to date and heads to Dallas and Boston next month. A national launch could arrive later in 2024.
Another topic that surfaced was CAVA’s catering. This was one of the big unlocks Zoës could potentially uncover since it was a lever already in place. CAVA is testing through what it calls CAVA Hybrid Kitchens. These units are built with expanded back-of-house for centralized catering production. The company is also trying catering at some traditional venues. The format test is more so the opportunity, however, given the AUVs at current stores that don’t have the production capacity to add catering without pulling from other channels (digital mixed 35.5 percent of revenue in Q3).
“So, we’re looking at other formats or other locations around those locations to supplement production to be able to have catering offered across the country,” Schulman said. “We’re performing these different format tests over the next year or so to understand how we orient this production successfully to support what we think is a great opportunity to launch catering nationally across the board.”
As an example, CAVA catered “almost every single” Major League Baseball team this past summer, Schulman said. It did so for the Texas Rangers during their World Series run. It catered the Los Angeles Lakers on the NBA front when they were in the playoffs last spring. So not only offices and schools, but colleges and professionals, Schulman said.
“We see our cuisine being a great fit for our catering channel,” he said. “We just want to be thoughtful about how we build out the production capabilities to deliver a great guest experience when we’re ready to launch it nationally.