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First Watch’s One Shift Provides Unique Advantage · Choppin’ It Up by Bloomberg Intelligence

0:18
Speaker 1: Welcome to Chopping it Up. I'm your host, Mike Hallen,
0:21
Speaker 1: the senior restaurant and food service analyst at Bloomberg Intelligence.
0:25
Speaker 1: I'm excited to announce today's guest, Matt eisen Eisenacher, Senior
0:29
Speaker 1: VP of Brand Strategy and Innovation at First Watch.
0:33
Speaker 2: Thanks for doing this, Matt.
0:34
Speaker 3: Always always nice to take a step away from the
0:37
Speaker 3: business and reflect to talk about It's happy.
0:39
Speaker 2: To be here, very cool.
0:41
Speaker 1: Before I start to grill you about the business, can
0:44
Speaker 1: you just talk a little bit about your role at
0:46
Speaker 1: First Watch, how long you've been there, and maybe any
0:49
Speaker 1: interesting career stops prior.
0:54
Speaker 3: Yeah. I've been at First Watch now for about four years.
0:57
Speaker 3: We're based in Brandenton, Florida, and as you said, I'm
1:01
Speaker 3: the senior vice president of Brand Strategy and Innovation, so
1:05
Speaker 3: essentially I'm responsible for brand marketing and customer technology. Previously,
1:12
Speaker 3: I was the chief concept officer at Pata Tenans street
1:15
Speaker 3: Food based in Columbus, Ohio, and started my career in
1:19
Speaker 3: finance and then you know, migrated over to the world
1:22
Speaker 3: of brand and marketing. So kind of have a good
1:24
Speaker 3: blend of both the art and the science of marketing.
1:28
Speaker 2: Very cool.
1:30
Speaker 1: So you know, there's been a lot of noise obviously
1:33
Speaker 1: since the start of the year in terms of consumer
1:35
Speaker 1: spending and traffic and all that good stuff. Can you
1:38
Speaker 1: share any interesting tidbits about what you and the team
1:42
Speaker 1: are seeing from the consumer right now?
1:46
Speaker 3: Yeah, I'd actually take that behavior back even a little further, because,
1:50
Speaker 3: you know, I think with the rate of change we've
1:54
Speaker 3: seen with the consumer over the past three years has
1:56
Speaker 3: been incredible. I mean, you think about you know, I've
1:59
Speaker 3: been in this industry for a while, and the rate
2:02
Speaker 3: of change and change in behavior we've seen over the
2:04
Speaker 3: past three years since twenty nineteen is unreal. And I think,
2:08
Speaker 3: you know, what we've seen is that people are being
2:11
Speaker 3: more discriminate about where they spend their money. They're not
2:14
Speaker 3: going to gamble with their dollars.
2:16
Speaker 4: So you in the.
2:17
Speaker 3: Industry, you're kind of seeing a bit of a polarization,
2:19
Speaker 3: you see, you know, like QSR brands that are moving
2:22
Speaker 3: towards one extreme and learning how to take another clickout
2:25
Speaker 3: or another second out of a transaction and are being
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Speaker 3: successful with that. But on the other side of the spectrum,
2:31
Speaker 3: you have consumers that are seeking an experience. I mean,
2:35
Speaker 3: you see all the stuff about travel and you know,
2:37
Speaker 3: travel hitting all time highs, and Sam goes through restaurants
2:40
Speaker 3: as well, that if you're going to go out to
2:42
Speaker 3: a full service occasion, that you're going to want something
2:46
Speaker 3: that's going to feel special, and you're going to want
2:48
Speaker 3: to go somewhere where it's going to be an experience
2:50
Speaker 3: and that you want to talk to someone about. And
2:52
Speaker 3: so you know, we kind of see people pushing across
2:56
Speaker 3: those two polar extremes, and you know, we still we
2:59
Speaker 3: feel right about where we've been because you know, we
3:02
Speaker 3: offer a very consistent experience and things like our seasonal
3:06
Speaker 3: menu are ways that we can continue to surprise and
3:09
Speaker 3: whole customers so that you know it's it's the experience
3:12
Speaker 3: worth their dollars.
3:15
Speaker 1: Very cool, and what are the demographics of the first
3:18
Speaker 1: watch customers?
3:20
Speaker 3: Well, the cool thing about breakfast is breakfast is incredibly
3:24
Speaker 3: broadly appealing. I mean, when you look at our who's
3:27
Speaker 3: in our restaurants, all backgrounds, all ethnicities, income levels. I mean,
3:32
Speaker 3: that's again the beauty of breakfast. You know, I think
3:35
Speaker 3: I like to say that you know, we've been around
3:37
Speaker 3: for forty years and if you look to say the
3:40
Speaker 3: first thirty to thirty five years, you know, we were
3:44
Speaker 3: we were a very traditional type of breakfast, you know,
3:46
Speaker 3: a little bit maybe closer to a diner type offering,
3:49
Speaker 3: and you might have heard people say, oh, that that's
3:51
Speaker 3: the place that I go to with my grandma. You know,
3:53
Speaker 3: that was you know, years ago. And as we've kind
3:56
Speaker 3: of evolved the brand over the past five to ten years,
3:59
Speaker 3: you know, we've also started to attract a different kind
4:02
Speaker 3: of customer. So we kind of think of it in
4:04
Speaker 3: two different segments. We have what we call the traditionalist.
4:07
Speaker 3: That's the person we just talked about. That's like, you know,
4:10
Speaker 3: coming on a Wednesday, you get a traditional breakfast, you know,
4:13
Speaker 3: some hot coffee, and it's kind of a ritual for
4:15
Speaker 3: you and you kind of stay in your in your
4:17
Speaker 3: crove and that's your thing. Most recently, we started to attract,
4:21
Speaker 3: you know, i'd say someone that's a little bit more
4:23
Speaker 3: of a foodie and is looking for higher quality. They
4:26
Speaker 3: like to try new things, they like to try new restaurants.
4:29
Speaker 3: We call them the trendy aspirational and the cool thing
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Speaker 3: of a first watch is we we attract both of those,
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Speaker 3: So you know, it's for us. It's a little bit
4:36
Speaker 3: less about demographics, and it is psychographics and and we
4:40
Speaker 3: think that we have the ability to continue to attract
4:43
Speaker 3: both of those types of customers.
4:46
Speaker 1: Okay, cool, Yeah, it's the it's it's a great it's
4:50
Speaker 1: a great concept, it's a great brand.
4:52
Speaker 2: My son and I both love it. Yeah, he's a
4:54
Speaker 2: big fan.
4:55
Speaker 1: You get when you go so oh man, I uh, well,
4:58
Speaker 1: you got to get the million dollar bacon, right, and
5:02
Speaker 1: you know I've changed it up.
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Speaker 2: Man.
5:03
Speaker 1: Sometimes I'll get the chia pudding. Sometimes I'll get an omelet.
5:07
Speaker 1: But uh, you know, to be honest.
5:10
Speaker 3: You're you're you're a trendy aspirational then it sounds like
5:13
Speaker 3: you wanna you want to dabble in a little bit.
5:14
Speaker 4: Of everything to try new things.
5:16
Speaker 2: Yeah, for sure.
5:17
Speaker 1: And you know, a full disclosure here, I intermitte fast.
5:20
Speaker 1: So I don't get there as much as I probably
5:23
Speaker 1: would like. But my son is is a big fan
5:26
Speaker 1: and he gets there every chance, uh that he can.
5:29
Speaker 3: You know.
5:31
Speaker 1: So you know, one thing I've seen over the last year,
5:35
Speaker 1: especially chains that are have been able to attract high
5:38
Speaker 1: income consumers are kind of gaining some share here, and
5:42
Speaker 1: I think it might be because of the K shaped recovery. Right,
5:46
Speaker 1: higher income consumers obviously have done really well, saved a
5:49
Speaker 1: lot of money over the last few years, where lower
5:51
Speaker 1: income consumers or maybe are struggling a little bit since
5:56
Speaker 1: the end of stimulus. So are you doing anything the
5:59
Speaker 1: specific target higher income consumers and if so, how are
6:03
Speaker 1: you doing it?
6:06
Speaker 4: No, we don't specifically target them.
6:08
Speaker 3: Now. I think our offering just by the nature of
6:11
Speaker 3: our menu, we do tend to be very relevant for
6:15
Speaker 3: hire incomes as well. But frankly, we have trade areas
6:19
Speaker 3: that we've opened up that we're in, you know, moderate
6:21
Speaker 3: income areas, and we do fantastic, So we don't target them.
6:24
Speaker 3: But when you look at that customer I was talking
6:26
Speaker 3: about that newer again trendy aspirational customer, they tend to
6:30
Speaker 3: skew a little bit closer to places like Whole Foods,
6:34
Speaker 3: Trader Joe's, you know shop, you know, places like Nordstrom.
6:37
Speaker 3: So so by that nature, you know, those types of
6:40
Speaker 3: individuals do make their way into a first Watch, but
6:43
Speaker 3: it's not something we intentionally try to try to attract.
6:46
Speaker 3: But you know, again, by focusing on things like our
6:50
Speaker 3: revolving seasonal menus that changes five times a year, we're
6:53
Speaker 3: able to kind of be out in more progressive trends
6:56
Speaker 3: within the culinary universe. And so you know, those types
6:59
Speaker 3: of individual that are seeking that type of experience, you know,
7:02
Speaker 3: are really attracted to a place.
7:04
Speaker 1: Like first Watch Great and so you know, everything that
7:08
Speaker 1: that we hear is that is how much employees love
7:11
Speaker 1: that one shift, one menu model that you have. And
7:15
Speaker 1: I was very impressed with the turnover metrics in the
7:18
Speaker 1: S one when when the company went public a couple
7:21
Speaker 1: of years back. Are there any updated turnover metrics that
7:24
Speaker 1: that you'd like to share.
7:26
Speaker 4: We we've been consistent.
7:27
Speaker 3: I mean we we always you know, enjoy a benefit
7:31
Speaker 3: of being below industry turnover rates. And again, like you said,
7:35
Speaker 3: just those individuals that are willing to wake up at
7:38
Speaker 3: five thirty am and are motivated to come in when
7:41
Speaker 3: the sun sun rises. Just by by that nature, you know,
7:44
Speaker 3: you attract some really great individuals. And you know that
7:47
Speaker 3: along with you know, our our you first culture and
7:50
Speaker 3: our focus our employees. We we really feel like that's
7:54
Speaker 3: been an advantage for us through the last few years
7:56
Speaker 3: where obviously you've read all the articles, you've seen it yourself.
7:59
Speaker 4: It's been know, it's been a really wacky employment environment.
8:02
Speaker 3: But we've all we've always felt like we have a
8:05
Speaker 3: unique advantage within that within the employment.
8:08
Speaker 2: World for sure.
8:11
Speaker 1: I think a big thing is just it's easier to to,
8:14
Speaker 1: you know, have a family when you have a relationship
8:16
Speaker 1: and a family when you have normal work hours, right, yeah.
8:20
Speaker 4: I mean think about it.
8:21
Speaker 3: We have a focus there where, you know, if we
8:24
Speaker 3: find out the teams are getting out beyond four thirty
8:27
Speaker 3: and evening, like we want to know what is going wrong?
8:30
Speaker 4: What can we do to help? I mean, it's the
8:32
Speaker 4: consistency of knowing.
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Speaker 3: That you can leave and you know, be home for
8:36
Speaker 3: dinner consistently and you can get your kids off a
8:39
Speaker 3: school bus or have a hobby at night is really
8:42
Speaker 3: really important. And and so I don't know if you're
8:45
Speaker 3: going to ask me this. Everyone always asks a you're
8:46
Speaker 3: going to open for dinner and it's a resounding no.
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Speaker 4: I mean because like, yeah, so we always get the question.
8:54
Speaker 3: But you know, difficult things can happen in restaurants at night,
8:59
Speaker 3: and you know that that second shift really becomes difficult.
9:03
Speaker 3: And so now our managers get to meet and see
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Speaker 3: every customer and they get to be in the restaurant with.
9:08
Speaker 4: Every one of their employees. So that's it's really unmatched.
9:10
Speaker 2: Yeah, it's fantastic. So what's what's driving the chain strong
9:14
Speaker 2: traffic growth right now?
9:17
Speaker 4: It's nothing sexy.
9:19
Speaker 3: You know, we say this a lot that sometimes you know,
9:21
Speaker 3: we might sound a little boring because you know, frankly,
9:24
Speaker 3: especially over the last few years, you know, I was
9:26
Speaker 3: talking about how discriminate the consumer is hot food, hot
9:31
Speaker 3: cold food, cold smiles, little things like opening the door, right,
9:35
Speaker 3: I mean, these are like we have very particular steps
9:39
Speaker 3: of service that are very ingrained in our culture. And
9:42
Speaker 3: you know, while the customer over the last few years
9:45
Speaker 3: has had a lot of question marks of where they
9:47
Speaker 3: might trust, you know, what restaurant brands they can trust,
9:50
Speaker 3: we have been very consistent. I mean, if you look
9:52
Speaker 3: at if you look at Technomic for instance, we're always
9:56
Speaker 3: in the top five of in the restaurant industry for
9:59
Speaker 3: brands that can trust. And so I guess the first
10:01
Speaker 3: first thing I would say is it's a really strong
10:05
Speaker 3: focus on our teams and operations. And you know, I'll
10:09
Speaker 3: give Chris our CEO a lot of credit. You know,
10:12
Speaker 3: when we were going through say twenty twenty and twenty
10:15
Speaker 3: twenty one, a lot of brands were doing things like
10:19
Speaker 3: you know, they slim down their menu or you know,
10:21
Speaker 3: they're blocking off tables and and and you know, we
10:25
Speaker 3: we went the other way, and we wanted to if
10:27
Speaker 3: you wanted to get out during those times. We wanted
10:30
Speaker 3: to be a place that you just you could trust
10:31
Speaker 3: and you knew what you were going to get. So
10:32
Speaker 3: we didn't change our menu one bit. We leaned into
10:35
Speaker 3: our seasonal menu. Actually we held off on pricing. So
10:39
Speaker 3: those types of things don't seem that sexy, but really
10:43
Speaker 3: allowed us to bring more people into First Watch that
10:46
Speaker 3: maybe had not come into First Watch before.
10:49
Speaker 4: So so, you know, we really.
10:51
Speaker 3: Believed that our focus there has really allowed us to
10:54
Speaker 3: produce some of the best performance in the restaurant industry
10:57
Speaker 3: over the last few years.
10:59
Speaker 1: Yeah, I've run a great restaurants. You know, may not
11:01
Speaker 1: sound sexy, but it works, that's for sure. What's your
11:07
Speaker 1: biggest growth opportunity in the current store base. Is it
11:10
Speaker 1: improved through put on the weekends or boosting weekday breakfast
11:14
Speaker 1: in lunch sales.
11:17
Speaker 4: Yes, it's both.
11:18
Speaker 3: But the way we think about it is we talk
11:21
Speaker 3: about serving more demand and creating more demand. And you know,
11:25
Speaker 3: I think if you if you follow us, I'm sure
11:27
Speaker 3: you do. You know, at the end of twenty twenty two,
11:30
Speaker 3: we had said there are Number one focus wasn't serving
11:33
Speaker 3: more demand. I mean we have we have restaurants that
11:36
Speaker 3: you know, can have waits up to ninety minutes two
11:38
Speaker 3: hours on the weekend. We have like demand that is
11:41
Speaker 3: sitting there at our front door, people that want to
11:43
Speaker 3: come in, and you know, we don't have to go
11:45
Speaker 3: find and so we started to realize that if we
11:48
Speaker 3: can really put a focus against, you know, be more efficient.
11:52
Speaker 3: I mean, in the last fifteen years, Mike a first
11:56
Speaker 3: Watch kitchen, it really hadn't changed. If you looked in
11:59
Speaker 3: twenty nineteen, came into a First Watch, a server would
12:02
Speaker 3: write down your order, would hand it across to the kitchen,
12:07
Speaker 3: who would then verbally call it out. And if you
12:09
Speaker 3: think of a cook who's on the egg grill and
12:12
Speaker 3: you've got a full egg grow on a Sunday, like
12:14
Speaker 3: the amount of modifications and things you have to remember
12:16
Speaker 3: and just think about the efficiency there. So, you know,
12:19
Speaker 3: we started to realize that when our business started to
12:22
Speaker 3: transform into the last few years, that we really looked
12:26
Speaker 3: from end to end everything that was going on in
12:28
Speaker 3: our kitchens and we've we've really been focusing on all
12:32
Speaker 3: process and procedures roles, things like double dishwashers. Again you
12:36
Speaker 3: talk about things that aren't sexy, but allows you to
12:39
Speaker 3: get through some of these bottlenecks, you know, bigger egg grills,
12:42
Speaker 3: bigger griddles, and so a lot of those things, as
12:45
Speaker 3: well as technology like kitchen display screens, have allowed us
12:49
Speaker 3: to actually you know, really start to increase peak hours
12:52
Speaker 3: on the weekend. So to answer question that is that
12:55
Speaker 3: is the first priority. But you know, my team also
12:58
Speaker 3: we've been into testing a lot of different ways of
13:03
Speaker 3: using digital marketing and social media to get really targeted
13:06
Speaker 3: and and creating more demand as well. And so you
13:10
Speaker 3: know that's that's the type of thing that once we
13:11
Speaker 3: start serving higher peak hours on the weekends, which we're
13:14
Speaker 3: doing now, you will also focus on increasing during the
13:19
Speaker 3: week as well.
13:21
Speaker 1: O great, great, Uh can you give us an update
13:23
Speaker 1: on where the alcohol program stands stands right now?
13:26
Speaker 2: What percentage and what percentage of sales are you targeting?
13:30
Speaker 4: Yeah, when when you go in with your son, do
13:32
Speaker 4: you did you get a cocktail?
13:33
Speaker 2: I'm in New Jersey, man, so that that was not
13:35
Speaker 2: an option.
13:36
Speaker 1: You know, these alcohol the the alcohol licenses are extremely expensive,
13:42
Speaker 1: so I'm sure it's prohibitive for you here, but so
13:45
Speaker 1: the answers, there.
13:46
Speaker 3: Are some yeah, there are some pockets in the country,
13:50
Speaker 3: but really we're everywhere where we can have the program now.
13:53
Speaker 3: And it was incredible. We rolled almost our whole system
13:57
Speaker 3: in about a year and a half, and it was
13:59
Speaker 3: an incredible initiative because you know, we really felt again
14:04
Speaker 3: if you think about that occasion of first Watch being
14:06
Speaker 3: about a place where people can come connect with others.
14:09
Speaker 3: You know, we knew alcohol was a part of that,
14:11
Speaker 3: and so you know, it's mixing it at about six percent,
14:15
Speaker 3: and you know, we're we're a little different. So I
14:17
Speaker 3: think as you look at other maybe breakfast or brunch
14:20
Speaker 3: places that really lean into you know, a full bar
14:23
Speaker 3: and they're free pouring. You know, for us, we don't
14:26
Speaker 3: want to be defined by alcohol as the occasion because
14:29
Speaker 3: First Watch is a place you can come Monday through
14:32
Speaker 3: Sunday every day, and we always want to make sure
14:35
Speaker 3: that that's it's not only about Sunday brunch, right, and
14:38
Speaker 3: so you know, for us, it's it was about or
14:41
Speaker 3: is about taking away the VITA vote that if if
14:44
Speaker 3: you have a group of friends or you know, family
14:46
Speaker 3: and someone wants a bloody Mary. You know, we didn't
14:48
Speaker 3: want to exclude people from that. So you know, that's
14:50
Speaker 3: that's the role that serves for us is it's it's
14:52
Speaker 3: another option for customers to enjoy relaxing and connecting with others.
14:57
Speaker 3: And so, you know, we've continued to innovate with new offerings.
15:02
Speaker 3: One of our best selling juices is purple Haze. I
15:05
Speaker 3: don't know if you've had purple Haze, but you know
15:08
Speaker 3: we've turned that into a spiked lavender lemonade as well,
15:11
Speaker 3: and we've rolled a samegree option as well. We have
15:14
Speaker 3: a couple other innovations that will be coming to our
15:17
Speaker 3: alcohol platform. But for us, it's about balancing that with
15:20
Speaker 3: all the other parts of our menu and our.
15:22
Speaker 2: Seasonal menu awesome.
15:26
Speaker 1: You know. When the company iPod I was also impressed
15:29
Speaker 1: by the unit economics very strong, especially being a single
15:34
Speaker 1: shift restaurant. Can you give an update to those numbers.
15:39
Speaker 3: Yeah, we're pretty proud of them because people forget, you know,
15:42
Speaker 3: when you look at our AEVs, they're done in seven
15:44
Speaker 3: and a half hours, and you look at it compared
15:47
Speaker 3: to you know, other places that are open for twelve hours,
15:49
Speaker 3: like Pound for pound hour for hour, we serve a
15:52
Speaker 3: lot of customers. And to your point, if you think
15:55
Speaker 3: back to twenty nineteen, our AEVs were around one point
15:59
Speaker 3: four in and now you look at the end of
16:02
Speaker 3: twenty twenty two, we're around two million for the entire
16:05
Speaker 3: entire com group, but our new restaurants are averaging closer
16:09
Speaker 3: to two point two and you take that to the
16:12
Speaker 3: bottom line and we're producing, you know, eighteen to twenty
16:14
Speaker 3: percent margins. In Q one, we even eclipsed Eclipse that So,
16:18
Speaker 3: you know, the thing that we're really proud of is
16:21
Speaker 3: that we generate through those solid unit economics, really strong
16:26
Speaker 3: cash on cash returns, and we have evolved the First
16:30
Speaker 3: Watch box significantly over the past few years. We're adding
16:34
Speaker 3: square footage, we're adding indoor outdoor bars, large expansive patios,
16:39
Speaker 3: we're adding more space in the back of house, dedicated
16:42
Speaker 3: make lines, extended make lines in the back. And so
16:45
Speaker 3: even with all that innovation, and we've increased some of
16:50
Speaker 3: our buildout costs, but our cash on cash returns have
16:52
Speaker 3: remained really steady, over thirty five percent. So I think
16:56
Speaker 3: it just goes to show the amount of demand that
16:59
Speaker 3: we have for First Watch in daytime eateery.
17:03
Speaker 2: Great. Yeah, three back, three year paid backs very attractive.
17:07
Speaker 1: Is this team still aiming for one hundred and thirty
17:09
Speaker 1: company stores between twenty twenty two and twenty twenty four.
17:14
Speaker 3: Yeah, so this this year will open forty five to
17:17
Speaker 3: fifty one and about ten of those will be franchised,
17:20
Speaker 3: all the rest will be corporate. And while we don't
17:23
Speaker 3: give the numbers explicitly for out years, you can look
17:25
Speaker 3: at our long term guidance and we will We'll still
17:29
Speaker 3: continue to grow at about ten percent per year. So
17:31
Speaker 3: you do that math, and the number of units, you know,
17:34
Speaker 3: consistently grows, And I'll tell you our real estate and
17:38
Speaker 3: development team is the best in the industry. I mean
17:40
Speaker 3: it is a well oiled machine. I mean you see
17:42
Speaker 3: how many think about that for you know, working right now,
17:46
Speaker 3: we're working even out until twenty twenty five finding site.
17:48
Speaker 3: So you think about how many units we have in
17:51
Speaker 3: our pipeline, and we've been doing it for so long
17:53
Speaker 3: that it's a well oiled machine. I mean, we don't
17:56
Speaker 3: even with that number of units, even in the full
17:59
Speaker 3: service world, you don't feel it. You don't feel it
18:02
Speaker 3: at first watch because you know, I think we've really
18:04
Speaker 3: understood how to staff and handle that growing number of units.
18:10
Speaker 3: I mean, you think back to some acquisitions we've had
18:12
Speaker 3: in the past, and we've converted those units. We've had
18:15
Speaker 3: some years of some pretty significant unit opening. So we're
18:18
Speaker 3: really proud of that.
18:20
Speaker 2: Great.
18:20
Speaker 1: And is the long term restaurant target still about twenty
18:23
Speaker 1: two hundred here in the United States?
18:25
Speaker 3: Yeah, twenty two hundred. We have several models that have
18:28
Speaker 3: shown us that twenty two one hundred units is feasible domestically,
18:32
Speaker 3: and so you know, people people look past that that's
18:36
Speaker 3: a lot, that's a lot of units, but if you
18:37
Speaker 3: look at it, you know, we have I don't remember
18:40
Speaker 3: the exact number, but somewhere around one hundred and ten
18:42
Speaker 3: in Florida, And you know a lot of times you
18:45
Speaker 3: look and we have some of those units a mile
18:47
Speaker 3: two miles away from one another. And and so you know,
18:50
Speaker 3: we're we feel really strongly that the demand for breakfast
18:54
Speaker 3: is going to continue to grow and it's a it's
18:57
Speaker 3: an underdeveloped day part that we see a whole lot
19:00
Speaker 3: of white space and opportunity.
19:02
Speaker 1: Great, And what's the split between new units that you're
19:06
Speaker 1: building in new markets, emerging markets, and mature markets.
19:13
Speaker 4: Yeah, we're we're pretty uh we're pretty strongly a third
19:16
Speaker 4: or third third.
19:17
Speaker 3: So we have a third in core markets, so those
19:19
Speaker 3: are more mature, established markets. We have a third in
19:22
Speaker 3: emerging markets where you know, they might have a few
19:25
Speaker 3: number of units, but we're adding quickly to it. So
19:27
Speaker 3: a great example of that is Chicago. We were just
19:31
Speaker 3: in a meeting the other day, you know, talking about
19:34
Speaker 3: unit growth and I looked up and saw how many
19:37
Speaker 3: we have coming in Chicago, and you know, it's just
19:39
Speaker 3: it's one of our more recent new markets. And then
19:42
Speaker 3: the third would be uh, you know, brand new, brand
19:45
Speaker 3: new markets that we're entering and really close on being
19:48
Speaker 3: able to announce some of those. So we usually try
19:50
Speaker 3: to get to one a year. Sometimes it works out,
19:53
Speaker 3: you know, a few months off of that, but that's
19:54
Speaker 3: usually our.
19:55
Speaker 1: Goal and nice and a good good excuse to visit
19:58
Speaker 1: Chicago in the summertime.
20:01
Speaker 3: Chicago is really cool in the summer. So yeah, we
20:04
Speaker 3: we we opened our first in oak Brook, second and
20:07
Speaker 3: killed here and uh, you know, we just look at
20:09
Speaker 3: the Chicago land area.
20:11
Speaker 4: The opportunity there is immense great.
20:15
Speaker 2: So do you expect any cannibalization in mature markets?
20:18
Speaker 4: We don't.
20:19
Speaker 3: We don't see a lot and and when you when
20:21
Speaker 3: you think about why, and you think about going back
20:24
Speaker 3: to that excess demand and those long waits, what we
20:27
Speaker 3: traditionally see is that while a unit in a mature
20:31
Speaker 3: market might be affected for a short period of time
20:33
Speaker 3: called it you know, six eight weeks, what it does
20:36
Speaker 3: is it brings brings down those weights, and the weights
20:39
Speaker 3: get shorter, and so then people that probably wouldn't have
20:42
Speaker 3: come in or joined our wait list now join that list,
20:45
Speaker 3: and so it just rises right back up. So it's
20:48
Speaker 3: it's really not a large factor for us, even you know,
20:52
Speaker 3: like I said, we have some units that are early
20:53
Speaker 3: a mile or two away from each other.
20:56
Speaker 4: Uh More. More, what we think about, Mike, is we.
21:00
Speaker 3: Will occasionally strategically plan for cannibalization. I'm thinking of one
21:04
Speaker 3: market in particular, where the demand was, I mean, our
21:07
Speaker 3: restaurants were busting at the seams. They just could not
21:09
Speaker 3: handle the amount of demand, and the weights were so long,
21:12
Speaker 3: and it was such a strain on our back of
21:14
Speaker 3: house and our kitchens that we went and we opened
21:17
Speaker 3: up three units right around that, you know, with the
21:20
Speaker 3: purpose of taking some of that demand and spreading it out.
21:22
Speaker 3: But at the end of the day, we ended up
21:24
Speaker 3: raising the amount of customers that we were serving in
21:27
Speaker 3: that surrounding area. So it really we see as new
21:31
Speaker 3: units that you know, rising tide lifts all boats.
21:34
Speaker 1: First Watch it's great, And this question may depend on
21:37
Speaker 1: the market, but your new stores typically open up with
21:40
Speaker 1: a big honeymoon period or they slowly build their sales volumes.
21:46
Speaker 3: You know, we've seen a big change there over the
21:48
Speaker 3: last few years to the positive. Where years ago, call
21:51
Speaker 3: it ten fifteen years ago, we really would try and
21:54
Speaker 3: quietly open restaurants. Chryst will tell this story. It's a
21:57
Speaker 3: hilarious story where he went to a restaurant early in
22:00
Speaker 3: his tenure here and they hadn't.
22:02
Speaker 4: Even received the sign on the outside of the building.
22:04
Speaker 3: He couldn't find the new units, the sign wasn't even
22:07
Speaker 3: in the building, but they had opened. And so what
22:09
Speaker 3: we would see is slowly, over time, organically people would
22:13
Speaker 3: learn about First Watch and kind of find it and
22:15
Speaker 3: it would just slowly build. You know, now, because of
22:18
Speaker 3: our success, we have been able to invest in better
22:21
Speaker 3: and better real estate. So say five years ago we
22:24
Speaker 3: were investing in see real estate. Now we're going and
22:27
Speaker 3: competing for a real estate, you know, right at Maine
22:29
Speaker 3: and Maine and the visibility and the access and all
22:33
Speaker 3: of that immediately gains that awareness and word of mouth.
22:37
Speaker 3: I mean we're in twenty nine states now, so a
22:39
Speaker 3: lot of you know, when we move into areas, people
22:41
Speaker 3: are really excited and tell there's like a buzz and
22:43
Speaker 3: word of mouth that we're opening strong right away.
22:46
Speaker 4: And we've been holding those volumes.
22:48
Speaker 3: Again, it comes back to you build that awareness and
22:50
Speaker 3: people start to understand who you are. You invest in
22:53
Speaker 3: great real estate, and then we have world class operations
22:56
Speaker 3: team that brings people back because it's just a fantastic experience.
23:02
Speaker 1: How is how is social media impacting you know, sales
23:07
Speaker 1: and new markets?
23:09
Speaker 2: You know, do you guys have.
23:10
Speaker 1: A big social media presence and is that helping? Because
23:13
Speaker 1: I've seen that with following Do you don't follow us?
23:16
Speaker 2: I do not. I try to limit my social media
23:19
Speaker 2: exposure to be honest.
23:21
Speaker 4: Yeah, you know you should give us a follower. Our teams.
23:24
Speaker 3: Our teams awesome and we've we've really grow We really
23:27
Speaker 3: focused on Instagram. It really fits our audience. You know,
23:31
Speaker 3: we have a presence on TikTok and Facebook, but less
23:34
Speaker 3: of a focus for us, and the cool thing if
23:37
Speaker 3: you looked in our IPO materials, we grow our social
23:41
Speaker 3: media following much like we do how we market across
23:44
Speaker 3: the country. That we do pay marketing for sure, but
23:47
Speaker 3: it's really about organic discovery and getting the right followers.
23:50
Speaker 3: So when you look at our engagement rates, they're off
23:52
Speaker 3: the charts. Like if you actually look at how many
23:55
Speaker 3: people like or comment or engage with a post and
23:58
Speaker 3: you look at that as compared to a followers, our
24:00
Speaker 3: engagement is some of the best.
24:01
Speaker 4: In the industry.
24:02
Speaker 3: So our team does a does a great job and
24:05
Speaker 3: you know, we're really proud of what we're doing there.
24:08
Speaker 1: What's the motivation behind acquiring franchise units and why are
24:13
Speaker 1: franchisees so willing to sell their interest in such a
24:16
Speaker 1: hot emerging brand.
24:18
Speaker 3: Yeah, we've talked about that. We've talked about that. That
24:21
Speaker 3: is a big portion of value creation for us. And
24:26
Speaker 3: you know, let me just say first, we have amazing
24:28
Speaker 3: group of franchisees. We don't have a lot of them,
24:31
Speaker 3: but the franchises we have are here because they're huge
24:35
Speaker 3: fans at First Watch and there it's a passion for
24:38
Speaker 3: them and they just love the brand. So great group
24:42
Speaker 3: of franchisees. But for us, when you look at our
24:45
Speaker 3: you asked about the unit economics, and you look at
24:47
Speaker 3: the you know what we're generating both from growing top
24:50
Speaker 3: line all the way to a really healthy bottom line.
24:52
Speaker 3: And so if you look for us at the opportunity
24:55
Speaker 3: of either getting you know, a royalty or operating and
24:58
Speaker 3: getting that full margin, you know, you can you can
25:01
Speaker 3: see why that's so attractive for us. And when you
25:05
Speaker 3: when you ask about why they would want to do that,
25:07
Speaker 3: you know, we've stated publicly that you know, about half
25:10
Speaker 3: of our franchise agreements have pre negotiated multiples in the agreement,
25:14
Speaker 3: so it's it's something.
25:15
Speaker 4: That is just part of the agreement that they had signed.
25:19
Speaker 3: And so for us, you know, we really believe that
25:22
Speaker 3: we operate great, great restaurants, and to the extent we
25:25
Speaker 3: can operate more corporate restaurants, we will always look.
25:28
Speaker 4: To do that.
25:29
Speaker 2: Yeah, they generate strong cash on cash returns, so that
25:31
Speaker 2: makes sense. You know.
25:33
Speaker 1: I think you'd mentioned that there was about ten franchise
25:36
Speaker 1: units opening this year. Are they all being opened by
25:39
Speaker 1: current franchisees or are you still out there looking to
25:43
Speaker 1: bring new franchisees into the system.
25:45
Speaker 3: No, it's been several years since we've brought any new franchisee.
25:48
Speaker 3: I mean it's been for a while now. It's been
25:51
Speaker 3: a company company focus model, corporate focus model. Now, you know,
25:57
Speaker 3: when they signed agreements, they obviously do have a certain
26:00
Speaker 3: number of units that they can open, and so you
26:03
Speaker 3: know there are still units that will open on the
26:05
Speaker 3: existing agreements. But for us, it's it's continuing and has
26:09
Speaker 3: been all about opening corporate units.
26:11
Speaker 2: Cool.
26:12
Speaker 1: So, I mean I was going to ask you what
26:13
Speaker 1: the optimal company owned versus franchise mix is for First Watch.
26:19
Speaker 1: You know, I'm guessing it's pretty high.
26:22
Speaker 3: Yeah, I mean it's we don't think about it as
26:25
Speaker 3: a percent I mean, don't get me wrong. We you know,
26:27
Speaker 3: we work with our franchisees to open new units through
26:31
Speaker 3: their agreements, and we're happy to do that. I mean,
26:33
Speaker 3: we see it as an opportunity to continue to grow
26:36
Speaker 3: awareness throughout the US.
26:39
Speaker 4: The more units we.
26:40
Speaker 3: Open, the more people are aware of us, and so
26:43
Speaker 3: that's important. But yeah, for us, we would really want
26:46
Speaker 3: to see that percent get as high as possible.
26:47
Speaker 2: On the corporate side, got it.
26:50
Speaker 1: G and A as a percentage of sales has been
26:52
Speaker 1: pretty flat excluding the early days of the pandemic. When
26:56
Speaker 1: do you expect to make meaningful progress on leveraging your GNA.
27:01
Speaker 3: Yeah, I mean, we don't expect leverage on GNA in
27:04
Speaker 3: twenty twenty three. And a large part of that is
27:06
Speaker 3: because we believe that the stage we're in that we
27:09
Speaker 3: have a lot of investments that we can make that
27:12
Speaker 3: are wise to drive our long term growth algorithm. KTS
27:15
Speaker 3: was a great example of that. You know, that was
27:17
Speaker 3: an investment last year that was pretty significant. But when
27:20
Speaker 3: you look at what that does for our restaurants, and
27:23
Speaker 3: I talked about the complexity of you know, our kitchens
27:26
Speaker 3: previously were you know, regulated by a human being, and
27:30
Speaker 3: so now you know the efficiency and the ability for
27:34
Speaker 3: especially if you think about hiring and bringing in new
27:37
Speaker 3: team members, the learning curve for them to understanding how
27:40
Speaker 3: to work in the kitchen.
27:41
Speaker 4: It just gets so much easier.
27:42
Speaker 3: And so you look at things like that as well
27:45
Speaker 3: as you know, you might have seen that we made
27:46
Speaker 3: an investment and increased benefits for our team members and
27:50
Speaker 3: our employees as well this year, and we look at
27:52
Speaker 3: things like that and we're not afraid to make those
27:55
Speaker 3: investments right now because we know that we've continued to
27:58
Speaker 3: grow adjusted and we have a very healthy business and
28:03
Speaker 3: strong unit economics, like you said, and so you know,
28:05
Speaker 3: we haven't talked about it in not years, but you know,
28:08
Speaker 3: we've continued to feel like we will invest to make
28:11
Speaker 3: sure that we uh, you know, deliver our long term
28:14
Speaker 3: growth algorithm.
28:15
Speaker 1: Yeah, and those I'm sure those investments in your employees
28:19
Speaker 1: are going to pay dividends.
28:20
Speaker 2: Man, it's so important right now.
28:21
Speaker 4: That's the way we look at it.
28:22
Speaker 3: I mean, I think part of our success going back
28:25
Speaker 3: to the beginning, and you asked what's driven our successes,
28:30
Speaker 3: we we try not to get too distracted on what
28:32
Speaker 3: may be happening right now but might be a fleeting
28:35
Speaker 3: moment like we have. We are very focused on the
28:37
Speaker 3: long term and we you know, like those COVID decisions
28:41
Speaker 3: that we talked about earlier, we we we didn't know
28:44
Speaker 3: what was going to happen in the environment, but we
28:46
Speaker 3: were looking at you know, beyond it and saying, you
28:48
Speaker 3: know what did we want to signal to customers about
28:52
Speaker 3: the long term And it's the same same thing here.
28:56
Speaker 1: Great, can you talk a bit about the mobile app
28:59
Speaker 1: digital marketing?
29:01
Speaker 4: Uh?
29:01
Speaker 1: And I guess any other tech initiatives that you think
29:03
Speaker 1: listeners should know about.
29:06
Speaker 3: Yeah, it's been it's been an area that we've been
29:08
Speaker 3: spending quite a bit of time on in the last
29:09
Speaker 3: year and a half. You think back to twenty nineteen,
29:14
Speaker 3: and you know, every brand was beginning to invest in
29:17
Speaker 3: customer data right they were making the investments, they were
29:20
Speaker 3: moving into determining, you know, how to leverage customer data.
29:24
Speaker 3: And then twenty twenty hit and brands. I think everyone,
29:28
Speaker 3: everybody I talked to, no matter how big the brand,
29:31
Speaker 3: is now sitting with all of this data on their
29:34
Speaker 3: laps because everything for several years went through you know,
29:37
Speaker 3: digital digital ordering, and so I think what you're seeing
29:41
Speaker 3: is everyone's sitting with all this data and saying, how
29:43
Speaker 3: do I how do I leverage it? And you know,
29:46
Speaker 3: for us, we've been very methodical in making sure that
29:50
Speaker 3: we understand what our customers are doing.
29:52
Speaker 4: Well. Who is the first watch customer? How often do
29:54
Speaker 4: they come?
29:54
Speaker 3: I mean, even when you think of something like frequency,
29:57
Speaker 3: you know, it seems like an easy metric, but there
30:00
Speaker 3: is no standardized way in the industry right now to
30:03
Speaker 3: really you know, look, what metrics do you look at
30:06
Speaker 3: from from a customer frequency standpoint? How do you look
30:08
Speaker 3: at it, how do you define it? And so we've
30:10
Speaker 3: spent a lot of time there over the past year
30:12
Speaker 3: or so. And the other thing that we're thinking really
30:15
Speaker 3: heavily about is, you know, sometimes those in a full
30:20
Speaker 3: service environment can get fearful of leveraging technology because it
30:24
Speaker 3: can interfere with that experience in hospitality.
30:28
Speaker 4: It can add.
30:28
Speaker 3: Complexity for your for your team members, it can it
30:32
Speaker 3: can make it a little bit more transactional for customers.
30:35
Speaker 3: So what we're really focused on is how do we
30:38
Speaker 3: develop digital tools and leverage our customer analytics to enhance hospitality.
30:42
Speaker 3: And a lot of that has to do with you
30:44
Speaker 3: have to start with your employees. You know, I've seen
30:47
Speaker 3: brands before that we'll just you know, they'll they'll develop
30:51
Speaker 3: some out of the box loyalty program and someone from
30:54
Speaker 3: the home office is setting out you know, offers or
30:57
Speaker 3: whatever that might look like. And then you know, if
30:59
Speaker 3: it's not well understood or thought through from an employee perspective,
31:03
Speaker 3: you know that that doesn't make anyone's life easier. And so,
31:06
Speaker 3: you know, we're spending a lot of time on how
31:08
Speaker 3: do we look at points of friction in the in
31:12
Speaker 3: the first watch experience and how do we use technology
31:14
Speaker 3: to help both our customers and employees. I'll give you
31:18
Speaker 3: one example of that if you went I don't know
31:20
Speaker 3: if you went on a weekend, but you know we
31:23
Speaker 3: have weightless where a significant amount of our traffic on
31:26
Speaker 3: the weekends goes through waitless technology. And our host areas
31:29
Speaker 3: are very congested and and so you've got people coming in,
31:33
Speaker 3: they got to check in, people want to pay their
31:35
Speaker 3: check when they're going out, and so that's that's an
31:37
Speaker 3: area where like there there's a way where we can
31:39
Speaker 3: leverage technology here to make it better for both the
31:42
Speaker 3: customer and the employee for sure.
31:46
Speaker 2: So what what keeps the first Watch team up at night?
31:49
Speaker 4: Culture?
31:50
Speaker 3: People and and you know growth at times, for any
31:55
Speaker 3: growth brand, it can be something if you take your
31:57
Speaker 3: eye off that, it's it's the it's the silent killer
32:01
Speaker 3: that you have to be careful of. Like so, we
32:04
Speaker 3: we're very very proud of our culture, and I'm sure
32:06
Speaker 3: you read all about it. We call our culture you First,
32:10
Speaker 3: which means we actually focus first our employees. They in turn,
32:15
Speaker 3: we'll focus on our customers. And there's a lot of
32:17
Speaker 3: different things that we do to empower our employees but
32:21
Speaker 3: you know, when you think about it, if you think
32:23
Speaker 3: of like you know, call it forty new employees for
32:26
Speaker 3: every restaurant, and you just told you you know, we're
32:28
Speaker 3: going to open around fifty and you think about how
32:30
Speaker 3: many new employees you're bringing in, and then every year
32:33
Speaker 3: that number of units is going up, and then you
32:36
Speaker 3: think of opening brand new markets. Like we talked about,
32:39
Speaker 3: like culture is what happens when you're not around, and
32:43
Speaker 3: so you have to have it strengthened, Like you have
32:45
Speaker 3: to have culture keepers throughout the organization. So for us,
32:50
Speaker 3: you know, things like we have what's called First Farm,
32:54
Speaker 3: First Watch Academy of Restaurant Management where every month we're
32:57
Speaker 3: bringing in thirty five managers from across the kind where
33:00
Speaker 3: it's like it's all about culture. It's not about teaching
33:03
Speaker 3: you more things to do or more process and procedures.
33:06
Speaker 3: It's all about your development and culture. Or you look
33:09
Speaker 3: at something like we call it the Why Tour that
33:12
Speaker 3: we Hear You Tour, and it's the leadership team here
33:16
Speaker 3: directly listening. They go to every we Hear You tour
33:20
Speaker 3: and so once a year, the leadership team actually gets
33:25
Speaker 3: on and speaks with hourly team members from every part
33:28
Speaker 3: of the country, and our whole point is to make
33:30
Speaker 3: sure that we understand the things that may not be
33:33
Speaker 3: going well or things that they need and allowing that
33:36
Speaker 3: communication to.
33:37
Speaker 4: Come directly to us.
33:39
Speaker 3: And it's the coolest thing, like because we sit after
33:42
Speaker 3: we go through every region and we have every leader
33:44
Speaker 3: from every department around a table and we go through
33:47
Speaker 3: all the feedback and we talk about what are we
33:49
Speaker 3: going to do and how fast can we go back
33:51
Speaker 3: and show them that progress. So I say that because
33:55
Speaker 3: we have things in place to ensure that our culture
33:58
Speaker 3: remains strong. But know that's the thing that it's the
34:01
Speaker 3: glue that holds everything together. So that's still the thing
34:03
Speaker 3: that keeps us up at night.
34:05
Speaker 2: Yeah, that's very cool. What percentage of your new units are.
34:12
Speaker 1: Are being staff with managers from from existing restaurants?
34:18
Speaker 4: We we always bring them in from other locations. I
34:21
Speaker 4: mean we and we.
34:23
Speaker 3: Have a program specifically for that because you know our
34:27
Speaker 3: you said, our operational systems have been decades in the
34:31
Speaker 3: making and so we know that you have to live
34:34
Speaker 3: it within another First Watch location. And you look at
34:37
Speaker 3: some of the locations that we've opened recently have like
34:41
Speaker 3: we've broken a record record after record. We had one
34:44
Speaker 3: recently that literally kept breaking its own record several times
34:48
Speaker 3: at the end of last year, and so you can't.
34:50
Speaker 3: It's not fair to take someone brand new and just
34:53
Speaker 3: put them in there and say good luck. So yeah,
34:55
Speaker 3: that's a really important piece for that.
34:57
Speaker 2: That success for sure. All Right, that's great man. Well listen,
35:01
Speaker 2: I want to I want to thank you for doing this. Uh,
35:03
Speaker 2: that was great.
35:04
Speaker 1: I'm very excited to continue following the story. You work
35:07
Speaker 1: with some great people over there. It's a great team. Uh,
35:11
Speaker 1: you know, and I wish you a lot of success outside.
35:16
Speaker 1: I guess, uh, would.
35:17
Speaker 2: You say Instagram and TikTok uh in the first one?
35:21
Speaker 4: Follow us on Instagram?
35:22
Speaker 3: Yeah, you got, you gotta follow us on Instagram and
35:24
Speaker 3: uh and also next time you go, you got to
35:27
Speaker 3: send me some pictures.
35:27
Speaker 4: We always you know, and you go go into a
35:29
Speaker 4: first watch.
35:30
Speaker 3: We always love to see people either post pictures or
35:33
Speaker 3: send us pictures. Chef Shane is always sending around pictures
35:37
Speaker 3: from social media and he shares them with our restaurants.
35:39
Speaker 3: He's always on there on there looking.
35:41
Speaker 2: So yeah, give us a follow, all right, I'll be
35:43
Speaker 2: sure to do it cool, you know.
35:45
Speaker 1: Thanks again, thanks for listening to everybody have a good day, well,