How higher wages at Cava help boost traffic

Because the fast-casual chain had already invested in increasing pay, they were ahead of the game when the labor crisis hit. As a result, Cava hasn't raised menu prices as much as peers, giving guests a strong perception of value.
Cava has also increased benefits and a program to develop restaurant leaders from internal ranks. | Photo: Shutterstock.

Hourly workers at Cava got about an 8% raise at the beginning of the fourth quarter, a move that is expected to result in a 100 to 120 basis point hit to margins next year, but will pay off, the chain’s executives said at the Morgan Stanley Global Consumer & Retail Conference this week.

Cava Group Inc. CFO Tricia Tolivar said the chain’s higher wage rate is fundamentally tied to its value proposition, which in turn impacts traffic.

Back in 2016, Cava took on the investment of raising the average starting wage to $13 per hour, which was at the time ahead of many in the fast-casual space, and certainly well ahead of most state minimum wage requirements.

“So when rates got challenging over the past few years, we had less of a hill to climb to remain competitive,” she said. “And so we didn’t have to lean into price changes as much as others, and that really, I believe, is a differentiator for us and how we can continue on that value proposition.”

Over the past few years, while most in the industry were forced to raise menu prices to address both higher labor and food costs, Cava was able to hold prices to modest increases. Next year, the company expects to return to a more normalized 2.5% to 3% range for menu price hikes.

Tolivar noted that data research firm Blackbox Intelligence has reported that companies that were more modest in their price increases saw positive traffic benefits. “We were close to 8% positive traffic in the third quarter, and we think our value approach is one of the things that contributed to that,” she said.

Cava also expects to be relatively unphased by the $20 per hour fast-food-worker wage coming to California next April. The company is not anticipating the need for any significant price increases there, as other companies have warned.

CEO Brett Schulman contends that taking care of people has a direct impact on operations.

“There’s no question to me, and we’ve seen it over the years, that engaged teams, happy teams, equal happy guests, equal happy P&L,” he said. “And stable teams. Stable teams that have worked together for a while instill those great cultures and are delivering on those experiences. We can see it in the data. We can see it in the correlation.”

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