Cava’s traffic increases sharply in the second quarter

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Diving certificate:

• Cava’s comparable-store sales rose 14.4% in the second quarter of 2024 and customer traffic increased 9.5% year over year, putting the fast-casual chain clearly on the winning side of the quarter, according to the chain’s earnings release emailed to Restaurant Dive.
• Cava CEO Brett Schulman said the company is seeing consumers shift away from casual dining and away from QSRs and toward other fast-casual chains, attracted by value and menu variety.
• Unlike many other chains in California that raised their menu prices, Cava did not increase prices due to the federal $20 minimum wage for fast food that went into effect in April.

Diving insight:

Schulman said Cava’s refusal to raise prices in response to AB 1228 helped Cava outperform its competitors. The company’s wages were already closer to California’s minimum wage, so wage increases would not have a shock effect on the company’s costs, he said.

“We’ve driven a lot of traffic momentum in California. Others have talked about a downturn, but we’re not,” Schulman said. “Our philosophy is to continue to invest in the business, in our guests, which leads to long-term, sustainable margin growth at the restaurant level.”

The chain’s restaurant-level margins increased from 25.2% in the first quarter to 26.5% in the second quarter, primarily due to revenue leverage.

Schulman attributed the chain’s success to its value proposition, which he said was bolstered by a number of factors. But the root cause, Schulman said, was the divergence between the prices on Cava’s menu and inflation.

“If you look at the period from the end of 2019 to the end of 2023, we raised prices by about 12% during that period. (The consumer price index) is up 18%. (The) Department of Labor has found that fast-food prices have increased by over 30%. That has increased our relative value proposition,” Schulman said.

The chain took several big initiatives during the quarter. Most notably, Cava added grilled steak to its main menu in June. Although the protein weighed on margins somewhat, it was neutral in terms of absolute profit, according to Schulman. That said, steak exceeded Cava’s expectations – based on market testing – by about 20%.

In the second quarter, the chain also expanded into the Upper Midwest with two stores in the Chicago area and was able to record considerable sales success in its first new stores.

“It’s the best market opening we’ve ever had,” Schulman said.

The biggest challenge for Cava, Schulman said, is opening new restaurants and training enough managers to keep up with the chain’s planned 54 to 57 new openings this year.

“Restaurants don’t scale like software-as-a-service,” Schulman said. “It takes a lot of people, a lot of processes, building physical restaurants and a lot of training. And that’s why we’re focused on training our future leaders.”