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QSR
In 2024, Cava’s stock is up ~150%…
Known as a Mediterranean alternative to Sweetgreen, Cava has quickly made a name for itself as an extremely efficient fast casual operation
Cava boasts a market cap nearly 3X the size of Sweetgreen even though revenue is just ~25% higher
Although the operation is more expensive on a revenue basis, Cava’s price is justified by its impressive profitability compared to Sweetgreen’s inability to turn profit
Cava is now the poster child for fast casual, and I want to dive into the reasons why + examine its effect on early stage financing in QSR
double up
The fast casual category was born with Steve Ells in the 1990s
Steve was working under celebrity chef Jeremiah Tower in San Fran when he saw how popular California style burritos were in Mission District
So he moves to Denver and tries his hand at opening a small burrito shop on UD’s campus with a $85,000 loan from his pops
The rest is history
first child
Nowadays, Steve is focused on launching a plant based, automated restaurant in NYC…
In 2006, the next generation of fast casual rockstars began to sprout, this time, from the east coast
Sweetgreen: founded in 2006 by three Georgetown students with $375,000 in funding from 50 investors. First location in D.C
CAVA: founded in 2006 by three friends of Greek descent, originally a full service concept until bringing on Brett Schulman in 2009, who pivoted the brand to fast casual. Originally based in the DMV area, near D.C.
Both concepts followed similar trajectories, with Sweetgreen reaching an IPO in late 2021 while Cava went public in 2023.
Zooming in on Cava, there are several key ingredients that separate them from the pack:
Intense Focus on Profitability. With Ted Xenohristos, Ike Grigoropoulos, and Dimitri Moshovitis providing an authentic Mediterranean experience, bringing on Brett Schulman provided a new level of operational efficiency.
The first fast casual restaurant had 26% profit margins, which blew average fast casual margins (~10%) out of the water. To this day, Cava averages 24% profit margins with 300+ locations
Effective Acquisition Strategy. In 2018, Cava acquired Zoe’s Kitchen for $300M. Zoe’s is a Mediterranean restaurant chain with a large Southern footprint and 260 locations. The plan was to convert the acquired locations into Cava locations, and they’ve completed this goal as of mid-2023
Employee Mobility. Cava prides itself on being a career and not just a job. The company claims that “75% of general managers are internal promotes”, a much higher proportion than industry standards
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The world of finance revolves around comps, or comparable companies / transactions
Cava’s (and Sweetgreen’s) success on the public market has spurred an increased demand for fast casual concepts in earlier stages
From the fast casual standpoint, we think those businesses have very strong momentum… They are still in their infancy. They’re hitting younger, they’re hitting wealthier demographics
Early stage financing at the restaurant level is very different from venture capital financing
Restaurants are not hyperscalable - even when employing tech, the costs of real estate, employees, and ingredients bog down the likelihood of outlier returns. Venture investors have a higher cost of capital
Due to the lower ceiling, terms for restaurant concepts are often very attractive from a risk perspective. Equity holders get cash-on-cash returns and debt-like repayment structures, while still maintaining equity upside
When a restaurant expands, early investors can have their equity rolled into the parent company brand
Successful chains typically go from:
1st Location Funding →
Expansion Funding →
Large Financing Rounds / Acquisition / IPO
Here’s an example of some fast casual funding rounds from 2021/2022
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