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Is Sweetgreen worth $1B?

A reported valuation of the salad chain seems like a lot, but it’s not unprecedented, says RB’s The Bottom Line.
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The Bottom Line

Sweetgreen is looking for more green.

According to CNBC, the salad chain is nearing completion of a new funding round, led by Fidelity.

That’s not terribly surprising. But this is: The company is apparently seeking a valuation of $1 billion.

That’s an eye-popping number, especially considering the chain’s size. It only has about 100 locations, which would value Sweetgreen at about $10 million per restaurant.

But it’s not remotely unprecedented.

In fact, it’s similar to the appraisals public investors handed out to growth concepts not that long ago.

Shake Shack, for instance, received an initial valuation of $1.6 billion following its 2015 initial public offering. Habit Burger was valued at around $1 billion during its IPO just a month earlier.

In 2014, Portillo’s Restaurant Group was sold for around $1 billion. At the time it had just 38 locations.

To be sure, valuations tend to be based upon future growth rather than existing size, and locations make for poor comparisons. A typical Portillo’s, for instance, generates about five times the revenue of a typical Sweetgreen location. Shake Shack generates three times the unit volumes of a Sweetgreen and also has a sizable international market.

The more comparable concept in that sense is Habit, which has average unit volumes of just more than $1.8 million and operated 98 locations at the time of its initial public offering. Habit has doubled in size since then, now operating well over 200 locations, though it has struggled to generate consistent same-store sales.

A Sweetgreen spokeswoman said she was unable to comment on the CNBC story.

Just a couple of years ago, Culver City, Calif.-based Sweetgreen would likely have had investment bankers falling all over themselves to take the company public. That it is raising its funds privately is a clear sign of the shift in investment away from public investors to private fundraising.

Private funds remain readily available, and especially for companies that have seemingly strong growth potential. As such, chains such as Sweetgreen or others from its generation of fast casuals such as MOD pizza or Blaze Pizza have plenty of options among private investors and don’t need to go public.

And the public markets clearly remain skeptical of fast-casual growth chains.

All that said, there is plenty of evidence to back a $1 billion valuation. Sweetgreen generated $120.6 million in system sales in 2017, according to Technomic Ignite data. Assuming the concept grows by 40% this year, that would be about $160 million in 2018. That would give the chain a valuation multiple of six times revenues.

Sweetgreen is seemingly tailor-made for a millennial workforce, with a “food ethos” that preaches local sourcing, transparency and sustainability and a menu featuring salads and warm bowls and seasonal and regional ingredients.

It is also among the most tech-forward chains in the restaurant universe, which is something you’d expect from a chain that counts AOL co-founder Steve Case among its early investors.  

The chain has raised millions to date, including rounds of $18.5 million, $22 million and $35 million.

It has also received its share of plaudits from mainstream publications, such as this one from Inc detailing its plans to be “bigger than $12 billion Chipotle,” or this one from Fast Company saying the chain plans to build a “farm-to-counter empire.”

All that said, Sweetgreen’s long-term growth will depend on consumer adoption of a menu that features salads and bowls with grains such as quinoa, and beverages such as kale gingerade. While more consumers are clearly looking for healthy fast-food options, plenty of the chain’s would-be rivals have struggled.

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