Operations

First Watch's efforts to boost unit volumes are paying off

New units are breaking records as the daytime-dining concept evolves to serve more diners and build profitability.
First Watch exterior
Traffic increased 7.7% for the year at First Watch./Photo courtesy of Shutterstock.

First Watch Restaurant Group’s new units are breaking sales records as the daytime-dining concept evolves to meet consumer-led demand.

In an earnings call Tuesday, the Bradenton, Fla.-based chain said 43 new restaurants opened in 2022, including 29 company locations, which were seeing annualized AUVs that are about 7% above the overall comp group AUV of $2 million.

“More notably, these restaurants across all geographies appear to be building off of those volumes as they continue to mature,” said Chris Tomasso, First Watch’s president and CEO, according to a transcript from financial services site Sentieo. “What’s most exciting to us is that we are seeing volumes higher than we’ve ever experienced before.”

Before 2022, the chain’s weekly sales record was just below $70,000, he noted. But a Virginia restaurant that opened in November had almost $75,000 in sales the first week, and went on to break that record three times, reaching $110,000 in the fifth week. Year-to-date, that restaurant is averaging about $90,000 per week, and other new units have also surpassed the $75,000 threshold.

“We believe that one of these exceptional restaurants from our 2022 vintage will be our first $4 million restaurant,” said Tomasso.

He credited First Watch’s ongoing efforts to meet consumer-led demand and minimize the “look-and-leave phenomenon,” when consumers arrive at a busy restaurant and decide to go elsewhere.

While other restaurant chains are shrinking their footprints to reduce costs, First Watch is planning to open larger stand-alone units, and taking over second-generation locations from closed casual or fast-casual restaurants. Larger footprints will generate higher volumes, Tomasso said, and the chain has seen little cannibalization, even when infilling core markets.

The chain is also investing in kitchen upgrades to increase volume, like double makelines that will help accommodate more off-premise business as well as better support the dining room during peak hours. Restaurants are also adding double dishwashers and wider grills, as well as energy-efficient smart ovens to cook faster and more consistently.

First Watch has completed a rollout of a new Kitchen Display System to company-owned units in 2022, which Tomasso described as a critical piece in driving higher throughput, and sets the chain up for growth as it reaches a goal of 2,200 domestic locations.

The chain is also testing a “specialized” approach to job functions, particularly in the back of the house. The test is looking at creating positions like a dedicated expeditor or dedicated beverage position, which would free up servers in the front of the house.

And First Watch is leveraging new technology for front-of-the-house management that builds on the waitlist system to better manage traffic flow, like seat utilization, table turns and reducing waitlist abandonment.

As outlined earlier this year at investor presentations, 2022 was a “stellar” year, with same-store sales up 14.5%, driven in part by a 7.7% increase in traffic.

The double weather whammy of Hurricane Ian and Winter Storm Elliott contributed to a $3.1 million bite out of fourth-quarter sales, and traffic took a 210-basis-point hit. Comp sales for the quarter were up 7.7%, though traffic was down 0.6%.

Revenues for the quarter increased 14.2% to $185.7 million and the chain narrowed its net loss to $486,000, compared to a loss of $4.7 million in the fourth quarter a year ago.

For the year, revenues increased 21.5% to $730.2 million, and the company swung to a profit of $6.9 million, compared to a loss of $2.1 million the prior year.

For fiscal 2023, First Watch is projecting same-store sales growth between 6% and 8% built on positive traffic growth. The company expects to open between 38 and 42 company-owned restaurants and 10 to 12 franchise units, but openings will likely come in the second half of the year.

Three company-owned units will be closed, however.

First Watch ended the year with a total of 474 restaurants, including 366 that were company owned and 108 franchised, across 29 states.

 

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