First Watch sees price-sensitive consumers trading down from delivery

Chain officials say the high prices of third-party services are driving patrons to dine on-site.
First Watch CEO Chris Tomasso sees customers trading down from delivery. / Photo: Shutterstock

Off-premise sales for the First Watch breakfast-and-lunch chain softened during the first quarter, prompting leaders of the brand to speculate that consumers are beginning to balk at the high price of third-party delivery.

The executives noted that guest orders were up 5.1% overall on a same-restaurant basis, primarily because of a rise in dining room visits. The metrics led the officials to speculate that delivery is where patrons are cutting back.

“Let's just be honest, the third-party delivery occasion is very expensive,” said First Watch CEO Chris Tomasso, according to a transcript of the company’s Q1 analysts call from the financial services company Sentieo. “And it doesn't surprise me that that's where we see [cutbacks]—and not just with us, by the way. It's a discretionary occasion.

“My opinion is that the off-prem business is, frankly, the new check management kind of bellwether,” he concluded.

Tomasso was quick to note that patrons balking at the steep price of a delivered First Watch meal weren’t necessarily abandoning the brand. Rather, he remarked, they seem instead to be opting to dine on-site.

“We're happy to have more people in our dining room, frankly,” he said.

First Watch’s same-store sales for the quarter rose year over year by 12.9%, on top of a year-ago comp gain of 21.9%.

Tomasso indicated that the chain will continue to rely on limited-time offers and other menu tweaks to drive traffic, with margins helped by a faster-than-expected decline in food inflation. Unit-level profits averaged 21.2%, compared with a year-earlier figure of 19.6%.

He also detailed First Watch’s plan to continue acquiring franchised stores when the opportunity arises. On Monday, the company announced that it had acquired six franchised units for $8 million. The franchisor intends “to acquire franchise-owned restaurants as an element of our long-term growth strategy,” Tomasso said.

“As of today, we have 14 franchisees who operate 109 restaurants. And of those, 60 are subject to purchase options,” he commented.

First Watch finished the quarter with 484 restaurants systemwide.

Overall, the company posted a net income for Q1 of $9.4 million, an increase of 104%, on revenues of $211.4, up 22.1%.

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