Latest / THE DAILY BRIEF / Why Americans Are Turning Away From Sweetgreen

Transcript

Why Americans Are Turning Away From Sweetgreen · THE DAILY BRIEF

• 0:02
  Speaker 1: Salad chain. Sweet Green revolutionized the fast food industry when
• 0:06
  Speaker 1: it launched in two thousand and seven, proving healthy food
• 0:08
  Speaker 1: could be convenient and accessible.
• 0:10
  Speaker 2: That's why it was so exciting the consumer. There was
• 0:13
  Speaker 2: actually a restaurant concept that offered these type of items
• 0:16
  Speaker 2: on their menu.
• 0:18
  Speaker 1: In twenty twenty five, it's still a lunch favorite among
• 0:20
  Speaker 1: office workers in big cities, but looks can be deceiving.
• 0:24
  Speaker 1: The company has been struggling ever since going public in
• 0:26
  Speaker 1: twenty twenty one. It has never been profitable, reporting a
• 0:29
  Speaker 1: ninety million dollars net loss in its full year twenty
• 0:31
  Speaker 1: twenty four earnings. Its stock trades around five dollars and
• 0:34
  Speaker 1: fifty five cents after falling more than eighty percent since
• 0:36
  Speaker 1: the beginning of twenty twenty five, and same store sales,
• 0:39
  Speaker 1: a critical metric for measuring store performance, declined for a
• 0:42
  Speaker 1: second quarter in a row in Q three twenty twenty
• 0:44
  Speaker 1: five results.
• 0:45
  Speaker 3: It's been a tough twenty twenty five and restaurant land
• 0:49
  Speaker 3: just broadly. Sweet Green hasn't put in you from that.
• 0:51
  Speaker 3: They've clearly underperformed. It's up to them to turn the
• 0:55
  Speaker 3: ship around and get those same store sales into a
• 0:58
  Speaker 3: place where investors start to pay attention again.
• 1:01
  Speaker 1: Inflation and now tariffs are further hurting the chain. Competition
• 1:06
  Speaker 1: has taken away some of its premium offering. As investors
• 1:09
  Speaker 1: turn away, growing impatient for a turnaround, can the chain
• 1:12
  Speaker 1: do anything to win them back. Sweet Green was founded
• 1:23
  Speaker 1: in Washington, D C. By three Georgetown University students. The
• 1:26
  Speaker 1: young entrepreneurs turned the brand into a national phenomenon. The
• 1:29
  Speaker 1: company's initial funding of three hundred thousand dollars came from friends, family,
• 1:33
  Speaker 1: and venture capital funds, helping the company expand beyond Washington,
• 1:37
  Speaker 1: D C. And Maryland. Sweet Green was an early innovator
• 1:40
  Speaker 1: in mobile ordering.
• 1:41
  Speaker 3: They really had to focus on fishing where the fish
• 1:44
  Speaker 3: were and getting as many people through those key launch
• 1:47
  Speaker 3: periods as possible. And it I think became very apparent
• 1:52
  Speaker 3: early on that if they could get consumers to order
• 1:54
  Speaker 3: ahead of time and do mobile pickup, then they could
• 1:58
  Speaker 3: end up, you know, servicing more during the lunch day part.
• 2:01
  Speaker 1: When the pandemic hit. Sweet Green was able to rely
• 2:04
  Speaker 1: on its pre existing strengths, giving it an edge over competitors.
• 2:07
  Speaker 1: Digital orders, which were already half of the business, increased
• 2:10
  Speaker 1: by seventeen percent. It also bet on automation, acquiring restaurant
• 2:14
  Speaker 1: company Spice and its technology for seventy million dollars. When
• 2:19
  Speaker 1: it couldn't depend on lunch sales and urban areas, the
• 2:21
  Speaker 1: company accelerated plans to expand in the suburbs. By the
• 2:24
  Speaker 1: time it filed in IPO in November twenty twenty one,
• 2:27
  Speaker 1: it had grown to one hundred and forty restaurants across
• 2:29
  Speaker 1: thirteen states and Washington.
• 2:31
  Speaker 3: D C.
• 2:32
  Speaker 1: It raised three hundred and sixty four million dollars.
• 2:34
  Speaker 3: We like to say we want to build the McDonald's
• 2:36
  Speaker 3: of our generation, so eventually we want it to be everywhere.
• 2:40
  Speaker 1: That first day, Sweet Green's share price jumped seventy six percent,
• 2:45
  Speaker 1: but the initial success was short lived. Sweet Green's performance
• 2:48
  Speaker 1: post IPO has been rocky. Its stock has consistently traded
• 2:52
  Speaker 1: below its initial offering price, and the chain has yet
• 2:54
  Speaker 1: to become profitable. Both the company and Wall Street misjudged
• 3:00
  Speaker 1: key risks, including post pandemic hyperinflation and the slow recovery
• 3:05
  Speaker 1: of office occupancy. Its expansion in some suburbs was challenged
• 3:10
  Speaker 1: as some stores were built ahead of brand awareness.
• 3:13
  Speaker 3: It did cause concern on Wall Street that perhaps they
• 3:17
  Speaker 3: were facing a geographic portability issue, which is when you
• 3:19
  Speaker 3: saw the stock really crashed them. Ironically, you know, eighteen
• 3:22
  Speaker 3: months later, those were some of their fastest growing locations,
• 3:25
  Speaker 3: so it ended up not being a geographic transferability issue.
• 3:28
  Speaker 1: Though it missed several quarters of earning's estimates, the company
• 3:32
  Speaker 1: kept opening new locations and trying to improve operations. It
• 3:36
  Speaker 1: introduced new protein options. Shares started to climb back in
• 3:39
  Speaker 1: twenty twenty four after adding more automation to stores. It
• 3:43
  Speaker 1: called these its Infinite Kitchens, Yet the stock has since
• 3:47
  Speaker 1: snowballed after nearing a fifty dollars high than November. In
• 3:50
  Speaker 1: its Q three twenty twenty five, sweet Green missed earnings
• 3:53
  Speaker 1: and revenue expectations. Its same store sales slipped for the
• 3:57
  Speaker 1: second time, and traffic dropped eleven point seven percent. Its
• 4:01
  Speaker 1: profitability problem worsened, reporting another decline in net losses. The
• 4:05
  Speaker 1: company also announced it had sold Spice, which developed its
• 4:08
  Speaker 1: automated kitchen technology, in an effort to reinvest in key
• 4:12
  Speaker 1: priorities and sharpen its focus on growth and profitability. However,
• 4:16
  Speaker 1: the sale involved a supply and licensing agreement that will
• 4:19
  Speaker 1: allow sweet Green to deploy the technology across its restaurants,
• 4:23
  Speaker 1: its losses are mounting. In the prior quarter, sweet Green
• 4:26
  Speaker 1: laid off ten percent of its workforce.
• 4:28
  Speaker 2: First of all, your service is en up to park,
• 4:31
  Speaker 2: meaning your interaction with customers is following. Your food costs
• 4:35
  Speaker 2: are high compared to what your established metrics are. Labor
• 4:39
  Speaker 2: costs are probably through the roof, meaning really, at the
• 4:42
  Speaker 2: end of the day, you're not performing based on where
• 4:45
  Speaker 2: you want your average unit volumes to be.
• 4:48
  Speaker 1: Sweet Green is also facing industry wide challenges. Restaurant menu
• 4:52
  Speaker 1: prices have outpaced inflation, and even higher income consumers are
• 4:56
  Speaker 1: pulling back on spending. In a bid to bring customers,
• 5:00
  Speaker 1: sweeg Green said it increased its portion sizes on chicken
• 5:03
  Speaker 1: and tofu by twenty five percent in July. Yet its
• 5:05
  Speaker 1: salads remain pricey, ranging from fourteen dollars to upwards of
• 5:08
  Speaker 1: twenty five dollars in big cities. Its core customer based
• 5:12
  Speaker 1: skews younger. Many are facing high unemployment rates and a
• 5:15
  Speaker 1: tough job market.
• 5:17
  Speaker 3: You're living in mom and dad's basement. You're probably not
• 5:20
  Speaker 3: going to your fast casual concepts quite as much. I
• 5:23
  Speaker 3: think that also makes all of those consumers more value conscious.
• 5:27
  Speaker 3: They become much more focused on did they get enough
• 5:29
  Speaker 3: chicken and their bowl.
• 5:32
  Speaker 1: Sweet Green declined to CNBC's request for an interview or comment.
• 5:37
  Speaker 1: Investors haven't fully abandoned Sweegreen yet. The company has been
• 5:40
  Speaker 1: growing its revenue and narrowing its losses. Experts say its
• 5:43
  Speaker 1: profitability issue doesn't come from its stores, which are making money. Rather,
• 5:47
  Speaker 1: it's its corporate overhead. The chain is aiming to grow
• 5:50
  Speaker 1: from about two hundred and sixty locations to one thousand
• 5:53
  Speaker 1: by twenty thirty. In contrast, Cava has more than four
• 5:57
  Speaker 1: hundred stores and Chipotle has more than thirty seven one hundred.
• 6:01
  Speaker 3: The way that you ultimately become profitable on the bottom
• 6:04
  Speaker 3: line is growth mean you have to grow the unit
• 6:08
  Speaker 3: based so that you can leverage that sunk GNA cost
• 6:11
  Speaker 3: across a greater number of locations.
• 6:14
  Speaker 1: But while scaling is expensive, Sweecreen has no debt and
• 6:17
  Speaker 1: some cash. It received one hundred million dollars in cash
• 6:21
  Speaker 1: an eighty six point four million dollars in wonder Stock,
• 6:24
  Speaker 1: which is the food and restaurant company that bought Spikes.
• 6:27
  Speaker 3: Ultimately, if you're talking about the next five or ten years,
• 6:29
  Speaker 3: that's really a game changer in terms of operations. Consistency
• 6:34
  Speaker 3: and margins, and with better margins from the infinite kitchens,
• 6:38
  Speaker 3: there's always that question of do you harvest that margin
• 6:40
  Speaker 3: or do you weaponize that margin? And if you choose
• 6:43
  Speaker 3: to weaponize it, how does that change the competitive mode
• 6:47
  Speaker 3: around your business. That's really one of the big long
• 6:50
  Speaker 3: term dynamics with swee Green that investors just don't care
• 6:54
  Speaker 3: about right now because they want to see a line
• 6:56
  Speaker 3: of sight to a better same store sales number.
• 6:58
  Speaker 1: Whether investors can hold out that long is another story.
• 7:02
  Speaker 1: Sweet Green aim to be profitable by twenty twenty four.
• 7:04
  Speaker 1: It's now November twenty twenty five. Inflation remains high and
• 7:08
  Speaker 1: the company could be further impacted by tariffs. There is
• 7:10
  Speaker 1: more competition from other bowl or solid concepts. Some believe
• 7:14
  Speaker 1: the company should rethink its growth strategy.
• 7:16
  Speaker 2: They've got to turn around that overall corporate profitability number
• 7:20
  Speaker 2: to make investors look like this is a viable concept.
• 7:23
  Speaker 2: Perhaps there needs to be a little bit of a slowdown,
• 7:26
  Speaker 2: pull back on the expansion on units and let's look
• 7:30
  Speaker 2: at fixing what we currently have, and that's usually I
• 7:33
  Speaker 2: think the most prudent path