Two weeks ago, the landlords for many of the locations owned by Salad and Go appeared stuck with a declining chain.
They’re probably feeling a lot better today, after Dutch Bros, the drive-thru coffee chain, revealed that it was buying up to 65 of the brand’s locations, in four states: Arizona, Nevada, Oklahoma, and Texas.
But the acquisition says more about the insatiable need for real estate in the fast-growing, drive-thru-beverage business. And it all means that Salad and Go’s bankruptcy and closure, while unfortunate, featured some awfully fortuitous timing.
Dutch Bros is based in Tempe, Arizona, just 14 miles away from Salad and Go’s headquarters. According to court documents, it has agreed to $105 million in cash for the locations. That’s a lot.
For the beverage chain, the locations were simply too attractive an opportunity. The company is hell-bent on getting to 2,029 locations by 2029. The locations are expected to be converted by next year.
“We see this as a nice addition to the overall portfolio,” Dutch Bros CEO Christine Barone told analysts. “The sites themselves are right around our size shop, so lead to easier conversion to a Dutch Bros.”
Salad and Go ended up in this position because it made a bad bet. The chain expanded rapidly after 2021, when it made the fateful decision to open locations in Texas and Oklahoma. At its peak it had just under 150 locations.
That expansion proved too much, too soon. The company invested nearly $73 million in a commissary facility in Texas to support its expansion. Many of the locations it picked were not as visible or accessible as its Arizona locations. And the locations were opened before anybody even knew who Salad and Go was.
That region alone was cashflow negative before accounting for the $15 million to $20 million annually in overhead associated with the commissary.
All of which made it more financially amenable to close its Texas and Oklahoma locations and pay “dark rent,” or rent on closed locations, than it was to keep them open. Yet that was apparently not enough to solve the company’s liquidity challenges and by this summer the company was looking for buyers.
Salad and Go operates a specific type of concept. Its restaurants are small, about 1,000 square feet. They do not have a kitchen, hood, grill, or fry equipment.
That would normally make them a tough sell. According to court documents, the company could pinpoint just three concepts that wanted a drive-thru model, planned to expand in Arizona along with some other states, can open them quickly and don’t mind the lack of a hood or other equipment. Two of them were interested.
But Salad and Go shut down in the era of the drive-thru beverage boom. And two of those three companies had a real need for those locations.
Salad and Go approached the companies in late July with some urgency, as the company “would soon run out of cash,” according to court documents. The company also placed a premium on “the certainty of closing” on a sufficient number of locations.
Dutch Bros has been looking far and wide for real estate where it can place its shops. The company earlier this year acquired the 20-unit North Carolina chain Clutch Coffee, with plans to convert the concept. It has its eyes on other such opportunities, executives said. In Arizona and Las Vegas, where most of those 65 shops are located, the company has “an incredible bench of really, really strong leaders” ready to step in and operate the shops.
“We’re opening shops ahead of schedule, our pipeline is rapidly growing, and we continue to see attractive conversion opportunities both from emerging growth concepts and legacy beverage and drive-thru players,” Barone said.
Dutch Bros will get 51 locations in Arizona and Nevada, for which it is paying $105 million. It will also get some locations in Texas and Oklahoma, for which it is paying $50. It is subject to certain adjustments if some locations prove unviable. But that amount is sufficient enough that Salad and Go will be able to pay all its claims in bankruptcy.
That’s rare, at least these days. In most cases, bankruptcy sales leave vendors scrambling for what’s left. In this case, Salad and Go apparently picked the right time to shut it all down.