This article is based on the video featured above, originally recorded for Vetted Biz Youtube Channel.
Introduction: The Rise of the “Fresh” Fast Food Industry
In recent years, American consumers have become more conscious of the ingredients in their food and are actively seeking healthier options. This demand has given rise to the “fresh” fast food industry, which offers convenient and affordable meals without compromising on nutrition. One of the pioneers in this industry is Sweetgreen, founded in 2007.
Sweetgreen’s Not a Franchise
It’s important to clarify that Sweetgreen is not a franchise. All Sweetgreen locations are currently company-owned, and there are no plans for franchising in the near future. Unlike other franchises that market healthy food, such as Freshii, Tropical Smoothie Cafe, and Playa Bowls, Sweetgreen maintains tight control over its supply chains and operations.
Sweetgreen was born out of the dissatisfaction of three Georgetown students with their existing food options. They wanted something that was both fresh and convenient. In response, they opened the first Sweetgreen restaurant, offering food that was fast, affordable, and healthy.
Sweetgreen Restaurant Costs
Operating a Sweetgreen restaurant involves certain costs. In 2020, the average restaurant operating cost per Sweetgreen location was approximately $1,927,033.61. This figure includes expenses related to food, beverage, and packaging; labor and related expenses; occupancy and related expenses; and other restaurant operating costs.
Definitions for Each Type of Expense
Sweetgreen’s November 2021 IPO Investment Prospectus provides definitions for different expense categories:
Food, Beverage, and Packaging
Direct costs associated with the ingredients and packaging of Sweetgreen’s menu items. As the business expands and revenue grows, these costs are expected to increase.
Labor and Related Expenses
Expenses associated with salaries, benefits, payroll taxes, and workers’ compensation for restaurant employees. Similar to other variable expenses, labor costs are expected to rise as revenue increases.
Occupancy and Related Expenses
Expenses related to the occupancy and maintenance of Sweetgreen’s restaurants. These costs are anticipated to increase as the company opens new locations and revenue grows.
Other Restaurant Operating Costs
Other incidental expenses related to operating Sweetgreen’s restaurants, such as third-party delivery fees, supplies, repairs, marketing, and credit card fees. While some costs may increase with revenue, others are expected to decline as a percentage of revenue.
Sweetgreen has a significant presence in urban areas like New York, Los Angeles, Boston, and Washington, D.C. In particular, New York has accounted for approximately one-third of Sweetgreen’s total revenue in recent years.
As with any business, there are several risk factors that could impact Sweetgreen’s success. These include competition in the fast casual and fast food industry, pandemics or disease outbreaks like COVID-19, changes in economic conditions and consumer behavior, the ability to open new restaurants, challenges associated with expanding into new markets, increases in labor costs, fluctuations in food and supply costs, and changes in regulations and customer preferences related to diet and health.
Sweetgreen Financial Statements
Sweetgreen has not yet achieved profitability as of November 2021. While the company has experienced significant revenue growth, both restaurant operating costs and corporate operating expenses have also increased.
The balance sheet shows a decrease in cash and cash equivalents, an increase in stockholder deficit, and a decline in key performance metrics between 2019 and 2020.
Cash flows from operating activities have been negative, indicating that Sweetgreen has been using more cash than it generates from its core operations. Investing activities have also resulted in cash outflows, while financing activities have provided some additional cash inflows.
Key Performance Metrics
Several key performance metrics, such as average unit volume, same-store sales change, restaurant-level profit, and adjusted EBITDA, have fluctuated over the years. Sweetgreen has been increasing its digital revenue, both overall and through owned channels.
Quarterly Earnings Statement
The quarterly earnings statement reveals fluctuations in revenue, net loss, and key performance metrics across different quarters from 2019 to Q3 2021. While revenue and same-store sales have recovered from the low point of 2020, average unit volume has not grown since 2019, and Sweetgreen has yet to achieve profitability.
Net Stores Opened and Closed
Sweetgreen has been actively opening new restaurants, with an average of 15 new locations per year between 2014 and Q3 2021. The company remains focused on expansion.
Sweetgreen, although still a growing company, has not yet reached profitability. To achieve profitability, they need to continue scaling up and opening new locations while reducing restaurant operating costs. The return to pre-pandemic levels of labor and other costs will also play a significant role. Sweetgreen’s unique position in the “fresh” fast food industry and its commitment to providing healthier options remain key strengths as they navigate the challenges ahead.