CAVA CEO Brett Schulman isn’t a fan of the term “value wars.”
The phrasing has come into focus over recent months as fast-food and sit-down chains grapple with lower-income consumers peeling back their restaurant visits. But Schulman believes the two-word description is a misnomer. The words imply that brands are fighting over who has the best discounted offers for customers. That doesn’t equate with reality, according to Schulman.
To him, value is the worthiness of the product. And that worthiness is driven by more than just price point. There’s quality, relevance, convenience, and experience to consider as well. Putting energy into each of these buckets has fueled CAVA’s industry outperformance. The brand’s same-store sales rose 14.4 percent in Q2, including traffic growth of 9.5 percent. Revenue increased 35.2 percent, which led to $2.7 million AUV. The bottom line is also healthy, with adjusted EBITDA at $34.3 million, an increase of $12.7 million year-over-year, and net income of $19.7 million. Restaurant-level profit margin was 26.5 percent versus 26.1 percent in Q2 2023.
The brand is feeling double-digit same-store sales across all income cohorts; the lowest one actually has the highest level of sales.
“Our value proposition lies in the quality of our food, the relevance of our differentiated Mediterranean cuisine where taste and health unite, the convenience with which our guests can access that cuisine in our multichannel format and the experience they have when they engage with our brand and our hospitality,” Schulman said during CAVA’s Q2 earnings call.
READ MORE:
How CAVA Redefined Itself, and an Entire Category Along the Way
CAVA Could Get More Aggressive in New Market Expansion
CAVA Didn’t Become the Next Big Thing Overnight
CAVA has thrived as a polished fast casual. Schulman said full-service chains have struggled to deliver a proposition customers are comfortable with, leading to trade down. Meanwhile, fast-food prices jumped 30 percent between 2019 and 2023, while CAVA’s price rose 12 percent during the same period.
“You can get a bowl of fresh Mediterranean food for the same price as a traditional fast-food freezer-to-fryer meal. And we see that trade up and that positions us at the nexus of this with our differentiated Mediterranean cuisine, which is really helping to fuel that traffic growth,” Schulman said.
Customers are choosing CAVA amid economic uncertainty, and there are several reasons for that.
One is menu innovation. In Q2, the chain launched Grilled Steak, which is surpassing expectations. Since the national launch, sales have been significantly higher than the seven-month test, and that’s because it fills a gap on the menu, complements existing offerings, and gives customers a reason to return. The social media campaign around Grilled Steak generated more than 8.6 million impressions and over 300 million PR impressions, proving that CAVA knows how to put itself into the cultural conversation.
Another success factor is the brand’s persistence in developing personal relationships with customers as it continues to scale. CAVA is working on a loyalty program that should grow first-party data and help the chain create targeted messaging that drives traffic, mix, and check. It features a new earn and bank points model and a menu of reward redemption options. A national rollout is expected in October, ahead of schedule.
However, digital isn’t the only focus. CAVA is also emphasizing Project Soul. This is CAVA’s mission to invest in dining rooms, which mix 64 percent. Schulman recently visited an upgraded location in Fort Worth, Texas, that incorporated softer seating, more greenery, and a warmer brand palette. Guests are responding well, and CAVA is using learning to finalize a standardized design for future stores.
Regardless of digital or in-store orders, CAVA wants restaurants to run well. So it’s also running a Connected Kitchen initiative—a multi-year journey to use data-driven and generative AI innovation to streamline operations. This in turn will allow workers to focus on food, service, and building connections with customers. The chain is testing AI video technology that monitors how quickly ingredients on the in-restaurant make line are being depleted and alerts employees in real time. The technology should go live in pilot restaurants in early fall.
Additionally, CAVA is working on a new labor model. The point is to reallocate hours to put workers in a better position to deliver food orders faster. The chain is looking to implement these changes in lower-volume restaurants to drive increased revenue. More than 75 units will be in the pilot stage by early fall. A company-wide launch is planned for the beginning of next year.
“It’s basically taking the same net hours, labor hours, and reallocating them in a much more effective, efficient way so that we put our team members in the right places at the right moments during their shift, so they’re prepping during downtimes, they’re customer-facing during peak times to help with speed of service, to help with quality of guest experience,” Schulman said. “And we’re seeing quantitative improvements in the pilot restaurants as well as qualitative improvements, especially for our general managers or our shift leaders saying now we can really coach our teams and be in a position to manage versus having to jump into a position on the line to fill a gap at peak hours.”
Creating a great workplace matters a great deal to CAVA. The chain hopes to strengthen its culture of accountability, enhance data capabilities, and invest in tools and programs to further engage, retain, and connect teams. As part of its restaurant health initiative, the brand is testing new technology that proactively gathers guest feedback at the restaurant level in near real time. This test is currently live in 50 restaurants, and the company is pleased with the results. CAVA expects to launch this technology across all locations by early 2025.
In addition, CAVA continues to reinvest in team members, which, by extension, benefits guests, Schulman said. Regular investments in wages and team member development are helping the company recruit and retain top talent to support growth. In the second quarter, turnover at the hourly level decreased by approximately 28 percent year-over-year. Development is crucial too. The chain has 62 leaders in its Academy GM network, including nine who have been promoted to higher levels. This helps CAVA build a future leadership pipeline to support new restaurant growth.
“From our relevant differentiated cuisine to the robust digital and physical experiences we provide and our unique brand of Mediterranean hospitality, we are meeting the moment for the modern consumer,” Schulman said. “As evidenced by our outstanding second quarter results, our value proposition is resonating with guests and, as we define the next large-scale cultural cuisine category, we are well-positioned to create long-term value for our guests, team members, and shareholders.”
Along with trade down from full service and trade up from fast food, Schulman says CAVA is feeling trade over from legacy fast casuals. That is likely due to increased awareness from going public in 2023 and also swift and consistent unit expansion.
CAVA opened 18 net new locations in Q2, bringing the system to 341 restaurants. The brand recently expanded into Chicago, which became CAVA’s strongest new market entry in company history. There are stores in the Wicker Park and Vernon Hills neighborhoods, and a third is coming to Oak Park in September.
“One of the things we talked about when going public was that this was an opportunity to put our brand and the category we’re creating in the public sphere,” Schulman said. “And that’s certainly amplified awareness around the country. And when we do our community days, we’ve been able to generate great earned media and organic viral word of mouth in these communities that’s driven very strong sales out of the gate. So, it’s been a bit of a kind of snowball rolling downhill as we open these restaurants and seeing the momentum of the openings.”
CAVA predicts comps growth of 8.5 percent to 9.5 percent for 2024. That implies low double-digit same-store sales for the rest of the year. The projection reflects the brand’s momentum but also accounts for headwinds like the presidential election.
