Operations

Cava expects a late-day sales boost with its new grilled steak

The new protein will be offered at a premium price, but the chain's guests are showing resilience. They're trading down from casual dining and trading up from fast food.
Cava opened in Chicago for the first time last month. | Photo courtesy of Cava Group Inc.

Steak is coming to Cava systemwide next week.

After testing the addition of a Mediterranean-spiced grilled steak at units in Boston and Dallas, Cava said Tuesday the new protein offering will be rolled out to all restaurants on June 3. The beef menu option will “fill a perceived gap on the menu,” said CEO Brett Schulman, during the company’s report of first-quarter earnings.

Cava hasn’t offered beef since meatballs were taken off the menu last year, but he said it’s something diners have been requesting. The new steak is also expected to boost traffic at dinner, a daypart that already accountsfor about 46% of sales.

Schulman has described the new steak as “rich but not heavy,” with a touch of sun-dried tomato, oregano and Aleppo pepper. It is grass-fed and pasture-raised.

And it will allow the fast-casual chain to match the new steak offering by rival Sweetgreen, which rolled out earlier this month.

At Cava, the steak will be a premium offering, and prices vary by market. But Schulman said it will be priced in line with lamb that has been on the Greek-influenced menu since early days.

Though other restaurant chains have seen lower-income diners shy away from higher pricing during the first quarter, Schulman said that hasn’t been the case at Cava.

Casual-dining consumers are trading down to the relatively more affordable Cava, he said. And with fast-food prices increasing significantly, diners are seeing Cava as a good value.

He pointed to a Lending Tree survey that indicated 78% of consumers say “traditional fast food has gotten expensive and has become a luxury,” Schulman said. “And as those prices have gotten closer to our prices it’s increased our value proposition and we’ve seen trade up from a healthfulness and a food-quality standpoint.”

The Cava consumer has remained resilient across all income levels, Schulman said.  

“We do recognize that consumers are becoming increasingly discerning about where they’re dining and what the value proposition is that they’re purchasing,” he said, “and they’re dining at Cava more.”

Still, Cava’s traffic dipped 1.2% during the April 21-ended first quarter, though that was offset by 3.5% increase in menu pricing and product mix to put same-store sales up 2.3% for the quarter.

Schulman blamed the traffic decline primarily on weather, the holiday shift and lapping strong trends from last year. He pointed to the chain’s extraordinary two-year same-store sales increase of 30.7%, with traffic up 17.2% during that time.

In fact, Cava is so confident in the current strength of its guest trends, the company has raised guidance for the year, saying same-store sales growth will increase 4.5% to 6.5%, rather than the 3% to 5% projected earlier.

“That’s reflective of the resiliency and strength we’re seeing from our guests and the new folks coming into our doors,” said Schulman.

The chain expects to add 50 to 54 new restaurants this year, more than the 48 to 52 projected earlier. And restaurant-level margins are expected to grow even more to 23.7% to 24.3%, rather than the 22.7% to 23.3% range estimated earlier.

The chain already exceeded its expectations with margins of 25.2%, though that marked a slight decrease from 25.4% margins a year ago, which in part was due to higher labor costs. The chain increased wages an average of about 8%.

During the first quarter, Cava grew revenue 30.3% to $256.3 million, and the company swung to a profit with net income of $14 million compared to a net loss of $2.1 million a year ago.

The chain’s average unit volume also ticked up a notch to $2.6 million, compared with $2.5 million the prior year.

The chain added 14 new restaurants during the quarter for a total of 323, now in 25 states and the District of Columbia. Units in new markets, like the recent opening in Chicago, have been going gangbusters.

“With every new restaurant we build, Cava is getting stronger,” said Schulman. “And as Cava grows, so does the passion for our brand.”

 

 

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