CAVA shows no signs of slowing momentum

by Junna Base November 13, 2024

CAVA again bucked industry trends in the third quarter, posting an 18.1% increase in same-store sales, largely driven by a 12.9% increase in traffic.

Additionally, average unit volume increased to $2.8 million from $2.6 million in the third quarter of 2023, while restaurant-level profit margins increased to 25.6% from 25.1% in the same period last year.

During the company’s earnings call Tuesday after the market closed, Chief Executive Brett Schulman said that “a confluence of factors are coming together to drive growth,” including CAVA’s position as a “category-defining brand,” a compelling value proposition and a focus on execution.

He added that Mediterranean cuisine will be America’s next big culinary category and “meets the moment.” In fact, Technomic reported that Mediterranean cuisine is one of the fastest-growing segments, with a growth rate of 9.5% from 2017 to 2022.

Schulman added that CAVA’s focus on hospitality also helped insulate the brand in a challenging environment, citing consumers’ desire for such hospitality.

“As the world interacts more with screens than with people over the last two decades, we have lost 24 hours a month of face-to-face contact. As technology and automation infiltrate everyday life and the front lines of more concepts, consumer touchpoints are becoming more transactional, taking the joy of humanity out of the experience,” he said, adding that CAVA uses technology to provide “warm, personal moments and support to accomplish”. Team members engaging with guests.”

“Our business is built on the idea of welcoming everyone to the table, and we are focused on creating the authentic human connections consumers crave. This is the core of our brand essence,” he said.

CAVA is using its redesigned loyalty rewards program to deliver this hospitality digitally. The program includes a points earning and earning model with multiple redemption options. According to executives, the loyalty share of sales has increased by more than 200 basis points since its launch.

“This first phase of a multi-tiered approach will expand our first-party data and share our hospitality across platforms in a way that resonates with guests on a personal level,” Schulman said.

In addition to pursuing greater human connection, CAVA also benefited from new menu launches during the quarter, including the first-ever variation of its signature Garlic Ranch-flavored Pia chips, as well as continued tailwinds from the introduction of steaks last quarter . Schulman said these new menu updates have helped increase brand awareness by 8% since going public last year.

Additionally, CAVA added 11 new restaurants during the quarter, bringing the system’s total to 352, and is targeting 17% unit growth in 2025, including entry into South Florida and “at least two additional new markets.” Executives said the 2024 restaurant class was the company’s strongest to date and exceeded expectations.

“Our new restaurants are opening very well, resulting in higher cash-on-cash returns, even sooner than expected,” said Chief Financial Officer Tricia Tolivar. “We’re seeing really strong results in both sales and overall margin at the restaurant level in these new locations, and that’s been consistent. It gives us real momentum as we push forward into the vast white space that lies before us.”

Aside from this gap, CAVA executives are also optimistic about the short term for other reasons. Last week, for example, the chain prematurely introduced a new work scheduling and deployment model. The system, Schulman said, puts the right people in the right places during peak times.

“The new model reallocates ideal forecast hours more effectively and efficiently, better aligning with team member tasks, channel mix and revenue curves,” he said. “Early results are promising and we have identified opportunities to strategically invest in lower volume restaurants to generate higher revenue over time.”

Tolivar added that during the pilot, the company put “a little more work” into lower-volume restaurants and saw a “modest increase in sales” and an improvement in guest reviews.

“We see an opportunity here,” she said. “We are very pleased with the improvement in speed and service.”

CAVA also continues to advance its multi-year Connected Kitchen initiative, a generative artificial intelligence solution that monitors ingredient consumption on the line to alert employees in real-time to the size of prep and cooking batches. The pilot is complete and the technology is now in use in four restaurants. Additionally, new kitchen display systems are currently being tested at 25 locations and are expected to improve productivity and accuracy.

Schulman added that continued development of the CAVA loyalty program is expected to be a competitive factor next year, as are additional menu innovations. He said the culinary team is building a multi-year pipeline in various categories, from “the bases, the grains, the beans, the toppings to the side dishes.” Drinks and desserts are also in focus, as are flavor extensions for pita chips.

Perhaps the biggest reason for executives’ near-term optimism, however, is CAVA’s broad appeal. As the chain continues to grow, Schulman says visitors come from all ages and income groups — although they tend to focus on younger cohorts due to their strong social media presence. Tolivar added that the chain also delivers consistent performance across regions and dayparts.

“We really find strengths everywhere,” she said.

CAVA Q3 in numbers

Revenue rose 39% to $241.5 million

Same-store sales increased 18.1%, driven by a 12.9% increase in foot traffic and a 5.2% increase in price and product mix

Restaurant profit margin improved 50 basis points to 25.6% of sales. The increase was due to the leverage of higher sales, partially offset by additional labor investments and input costs related to the introduction of grilled steaks