Over the last several years, American consumers have become increasingly aware of the ingredients in their food and have begun to demand healthier options.
As a result, the “fresh” fast food industry has formed to provide these healthier food options without sacrificing convenience and affordability.
Founded in 2007, Sweetgreen is a pioneer in this new industry.
However, it is important to note that Sweetgreen is not a franchise. As of November 2021, each Sweetgreen location is company-owned, and Sweetgreen does not plan on franchising in the near future. As opposed to other franchises marketing healthy food like Freshii, Tropical Smoothie Cafe, and Playa Bowls, Sweetgreen is able to maintain much tighter control of its supply chains and operations.
This article analyzes Sweetgreen’s November 2021 IPO Investment Prospectus filed with the SEC to weigh the strengths and weaknesses of their business.
Sweetgreen began out of three Georgetown students’ dissatisfaction with their food options, which were either slow, expensive, and fresh or fast, cheap, and unhealthy. So, they decided to offer a third option where they could serve fresh food without sacrificing quality or convenience and opened the first Sweetgreen restaurant.
The following table breaks down the restaurant operating costs section of Sweetgreen’s income statement on a per-restaurant basis. In 2020, restaurant operating costs totaled about $229,317,000. In that year, there were 119 Sweetgreen restaurants, so on average, it cost $1,927,033.61 to operate a Sweetgreen location.
|Food, beverage, and packaging||$555,915.97|
|Labor and related expenses||$703,285.71|
|Occupancy and related expenses||$367,857.14|
|Other restaurant operating costs||$299,974.79|
Sweetgreen’s November 2021 IPO Investment Prospectus provides the following definitions for each type of expense:
“Direct costs associated with food, beverage, and packaging of our menu items. We anticipate food, beverage and packaging costs on an absolute dollar basis will increase for the foreseeable future to the extent we experience additional in-store orders as restrictions related to the COVID-19 pandemic ease, as we open additional restaurants, and as a result our revenue grows.”
“Salaries, benefits, payroll taxes, workers compensation expenses, and other expenses related to our restaurant employees. As with other variable expense items, we expect labor costs to grow as our revenue grows.”
“Restaurant-level occupancy expenses (including rent, common area expenses and certain local taxes), maintenance and utilities, and exclude occupancy expenses associated with unopened restaurants, which are recorded separately in pre-opening costs. We anticipate occupancy and related expenses on an absolute dollar basis will increase for the foreseeable future to the extent we continue to open new restaurants and revenue grows.”
“Other operating expenses incidental to operating our restaurants, such as third-party delivery fees, non-perishable supplies, repairs and maintenance, restaurant-level marketing, credit card fees and property insurance. We expect that other restaurant operating costs will increase on an absolute dollar basis for the foreseeable future to the extent we continue to open new restaurants and our revenue grows. Other restaurant operating costs as a percentage of revenue are expected to increase in line with growth in our Native Delivery, Outpost, and Marketplace Channels, as these channels are impacted by third-party delivery fees. However, as revenue increases, we expect that other restaurant operating costs, such as repairs and maintenance and property insurance, as a percentage of revenue will decline.”
A significant share of Sweetgreen’s 140 restaurants are located in urban areas like New York, Los Angeles, Boston, and Washington, D.C. They are especially concentrated in New York, which has represented about a third of Sweetgreen’s total revenue in each of the last two years.
|Fiscal Year Ended (in thousands)|
|Dec 27, 2020||Dec 29, 2019|
|Consolidated Statements of Operations Data|
|Restaurant operating costs (exclusive of depreciation and amortization presented separately below):|
|Food, beverage and packing||66,154||83,966|
|Labor and related expenses||83,691||86,547|
|Occupancy and related expenses||43,775||37,050|
|Other restaurant operating costs||35,697||22,613|
|Total restaurant operating costs||229,317||230,176|
|General and administrative||99,142||88,818|
|Depreciation and amortization||26,851||19,416|
|Impairment of long-lived assets||1,456||–|
|Loss on disposal of property and equipment||891||409|
|Total operating expenses||132,891||114,048|
|Loss from operations||(141,593)||(70,073)|
|Net loss before income taxes||(141,224)||(67,917)|
|Income tax provision||–||–|
|Dec 27, 2020||Dec 29, 2019||Sept 26, 2021|
|Consolidated Balance Sheet Data|
|Cash and cash equivalents||$102,640||$249,257||$137,031|
|Working capital (1)||79,541||228,664||113,581|
|Total stockholders (deficit)||(307,362)||(173,195)||(327,217)|
(1) Working capital is defined as current assets less current liabilities. See our consolidated financial statements and the related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities
|Fiscal Year Ended||Thirty-Nince Weeks Ended|
|December 27, 2020||December 29, 2019||September 26, 2021||September 27, 2020|
|Net cash used in||operating activities||$(90,352)||$(37,198)||$(36,215)||$(66,702)|
|Net cash provided by financing activities||2,145||149,796||140,555||16,685|
|(decrease) Net increase in cash and cash equivalents and restricted cash||$(146,612)||$62,130||$34,594||$(93,029)|
|Fiscal Year Ended||Thirteen Weeks Ended||Thirty-Nince Weeks Ended|
|December 27, 2020||December 29, 2019||September 26, 2021||September 27, 2020||September 26, 2021||September 27, 2020|
|(dollar amounts in thousands)|
|Net New Restraurant Openings||15||15||11||7||21||11|
|Average Unit Volume (as adjusted)||$2,194||$2,967||$2,459||$2,313||$2,459||2,313|
|Same-Store Sales Change (as adjusted) (%)||(26%)||15%||43%||(34%)||21%||(26%)|
|Restaurant-Level Profit Margin (%)||(4%)||16%||14%||(8%)||12%||(4%)|
|Adjusted EBITDA Margin (%)||(49%)||(17%)||(15%)||(51%)||(20%)||(49%)|
|Total Digital Revenue Percentage||75%||50%||63%||79%||68%||74%|
|Owned Digital Revenue Percentage||56%||43%||43%||58%||47%||57%|
|Thirteen Weeks Ended|
|Sept 26, 2021||June 27, 2021||Mar 28, 2021||Dec 27, 2020||Sept 27, 2020||June 28, 2020||Mar 29, 2020||Dec 29, 2019||Sept 29, 2019||June 30, 2019||Mar 31, 2019|
|(dollar amounts in thousands)|
|Consolidated Statements of Operations Data:|
|Other Financial and Operating Data:|
|Net New Restaurant Openings||11||9||1||4||7||3||1||7||4||2||2|
|Average Unit Volume||$2,459||$2,447||$2,075||$2,194||$2,313||$2,518||$2,981||$2,967||$2,863||$2,748||$2,662|
|Same-Store Sales Change||43%||86%||(26%)||(28%)||(34%)||(46%)||2%||15%||16%||12%||17%|
|Total Digital Revenue %||63%||68%||77%||78%||79%||97%||59%||54%||51%||47%||48%|
|Owned Digital Revenue %||43%||48%||53%||54%||58%||76%||48%||43%||43%||43%||44%|
As of November 2021, Sweetgreen has yet to make a profit. While the growth of new restaurants from 29 locations in 2014 to 140 locations in 2021 has led to a 523% increase in revenue, restaurant operating costs and corporate operating expenses have also skyrocketed.
The balance sheet, statement of cash flows, and table of key performance metrics only provide data on 2019 and 2020. Relative to 2019, Sweetgreen experienced an increase in stockholder deficit, a decrease in cash and cash equivalents, and a decrease in many of its key performance metrics like same-store sales and restaurant-level profit in 2020.
The quarterly earnings statement breaks down Sweetgreen’s revenue, profit, and other financial and operating data from 2019 through Q3 of 2021. By the most recent quarter, revenue and same-store sales have recovered from its 2020 Q2 low, but average unit volume has not grown since 2019, and Sweetgreen has not been able to reduce its earnings deficit.
Sweetgreen has opened 118 new restaurants between 2014 and Q3 2021, averaging about 15 new restaurants a year. As of 2021, Sweetgreen is still squarely in its growth phase.
While Sweetgreen has in many ways recovered from the impacts of COVID-19, they are still a growing company that has yet to make a profit. Their path to profitability will require them to continue scaling up and opening new locations, and they will also need to reduce the restaurant operating costs. Also, their ability to do so will depend in part on the extent to which labor and other costs return to pre-pandemic levels.
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