⛫ Only the Strong Can Thrive

Hope everyone is enjoying their MDW 🇺🇸 . It’s been a rainy weekend in the northeast, so here I am typing away on my couch.

If you’re a multi-unit franchise owner considering selling your locations, reach out to my team at FD Capital for valuation & sell-side services.

It’s no secret restaurants have had a tough go in the last few years.

In Q1 of this year, the following brands reported [dramatic] same-store sales declines:

• Pizza Hut -4%

• Papa John's -6.4%

• Popeye's -6.5%

• Jack in the Box -6.7%

• Wendy's -7.8%

• Wingstop -8.7%

• Sweetgreen -12.8%

Slop bowls in particular have taken a lot of heat this year. As you can see above, Sweetgreen led the way with the steepest decline.

But I made the argument in February that it’s not a category problem, and Cava in particular is quite strong.

Well, Q1 results came in this week…

• Cava: +9.7% same-store sales+6.8% traffic growth !!

• Sweetgreen: -12.8% same-store sales-11.2% traffic growth

I should start picking stocks That’s an 18% delta in traffic between two concepts with very similar positioning, and the same format.

Yet Cava is a complete narrative violation, not only for “slop bowl” concepts, but the restaurant industry in general.

They’re winning for 3 boring reasons:

1. 1st and foremost - they have a craveable product

2. They’ve stayed in their lane (1 cuisine, dialed in ops)

3. Their brand has demand pull (hence traffic growth)

I’d argue the 1 & 2 are what fuel #3 over time, but regardless, operators should take note -

Despite a soft consumer environment, the winners are the concepts with the tightest identity and most craveable core products.

Sweetgreen has a clear identity, but their salads leave a lot to be desired in the craveability category. And if you’re a disciple of Todd Graves like I am, you know craveability is rule #1.

And yes…..pricing, brand marketing, managing COGS, labor, etc. all matter too.

But without nailing the big 3, you’re competing with your arms tied behind your back.

Dutch Bros & Taco Bell are two other concepts that check all three boxes, and their Q1 results are top of the line too:

• Taco Bell +10%

• Dutch Bros +8.3%

The brands winning today have built to this point over years if not decades, and will take outsized marketshare as their weaker counterparts struggle.

Because in today’s macro, it’s unclear who survives, but only the strong will thrive.

Be on the lookout for a new episode with an entrepreneur who became a partner at an iconic New York City pizza shop that’s now franchising.

This brand is well known in Manhattan, and has already signed a few of the top QSR operators (50-100+ unit owners!) in the country.

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