Operations

Sweetgreen to slow the pace of growth to focus on profitability

The fast-casual chain is also looking to cut $10 million from support center costs in effort to be more nimble and efficient.
Sweetlane
The new Sweetlane drive-thru unit is expected to see AUVs above $3 million./Photo courtesy of Sweetgreen.

In an ongoing effort to become profitable by 2024, Sweetgreen is pulling back slightly on the pace of growth and has flattened its management structure to cut costs, the company said Thursday.

Jonathan Neman, co-founder and CEO, said in an earnings call the chain expects to add 30 to 35 net new units in fiscal 2023, down from the 36 net new restaurants opened in 2022, in an effort to focus on “quality over quantity.”

Sweetgreen opened 39 units in total in 2022, but three restaurants were closed—in Los Angeles, Boston and New York City—which was partly blamed on the slow recovery of urban job centers.

Neman also outlined plans to cut support center costs to $98 million in 2023, down from $108 million last year, by reducing the velocity of hiring and capitalizing on attrition, as well as reducing non-compensation expenses.

“To put this into context, our 2023 support center spend as a percentage of net revenue is half of what it was in 2019 and will support almost double the store count,” said Neman.

The management structure changes include establishing a regional general manager in each region, who will report to the senior vice president of operations. Financial incentives will be aligned with the performance of those regional GMs, he said.

That move has allowed Sweetgreen to remove a layer of middle management, and Neman said the regional GMs will have “greater ownership and authority to make decisions in the best interest of the customers and the business.”

Sweetgreen’s sales were softer than expected for the Dec. 25-ended fourth quarter, but CFO Mitch Reback said traffic picked up in January. Same-store sales for the quarter were up 4%, but that was comprised by a 6% increase in menu prices, offset by a 2% decline in transaction mix.

Revenues were up 23% for the quarter to $118.6 million, and the company narrowed its net loss to $49.3 million, compared with the net loss of $66.2 million the prior year.

For the year, revenues increased 38% to $470.1 million and same-store sales grew 13%. But the company reported a wider net loss of $190.4 million, compared with a net loss of $153.2 million the prior year.

Sweetgreen has been working on boosting restaurant level margins and improving both the digital and in-store experience, and efforts are paying off, said Neman.

New restaurants are opening strong, he said. A unit in Ann Arbor, Mich., that opened in January, for example, had one of the top three opening weeks in chain history, with sales of $113,000.

A unit in the new market of Tampa also opened well, with $65,000 the first week. It was the fifth new market for the chain in 2022. This year, Sweetgreen plans to move into three new markets: Seattle; San Antonio, Texas; and Milwaukee.

The new restaurant class of 2022 included two new formats, which are also showing better-than-expected results. Neman said the plan is to open more of them.

One was the first drive-thru Sweetgreen, which opened in Schaumburg, Ill., in November, which is expected to top $3 million in its first year, above the chainwide AUV of $2.9 million. Neman said so far roughly 75% of pickup customers use the drive-thru lane and spend about 20% more than the average pickup customer in the Chicago market.

And a digital-only location that opened in Washington, D.C. in October also showed no negative impact from removing the customer-facing front line, he said. Instead, guests increased their frequency.

Neman also expressed optimism about the fully automated Infinite Kitchen units that will be tested this year. One will be a new build and the other a retrofitted unit, though he didn’t offer further details.

“As the Infinite Kitchen comes online, that will also enable us to accelerate growth,” said Neman.

Sweetgreen is also hoping to drive traffic with investments in its digital business.

The chain is planning to roll out its Sweetpass loyalty program nationwide in April, which was tested last year and includes customized reward offers along with a subscription component. The chain started a phased rollout of the program in Colorado this week.

The chain also recently launched a new app for both iOS and Android designed to improve the customer experience. Digital revenue was about 61% of sales in the fourth quarter, down from 65% a year ago, but about two-thirds of digital guests come through the brand’s app or website.

The company plans to start marketing its catering program this year. Catering sales “organically” doubled in the fourth quarter, without the support of marketing, Neman said, indicating an opportunity for growth.

Another strategy to drive traffic is with menu innovation.

In January, a miso bowl with roasted root vegetables was added to the winter seasonal menu, along with a barbecued chicken and squash plate. In February, Sweetgreen brought back a “fan-favorite” crispy chicken salad, and in March a Chipotle Chicken Burrito Bowl is coming, along with the return of the Hummus Crunch Bowl, and a side of hummus and focaccia, said Neman.

More desserts are also coming, following the successful launch of Crispy Rice Treats last year, the first sweet treat on the menu.

The chain’s efforts to fully staff its restaurants are also paying off. Turnover was low in December and the number of workers calling out sick was reduced by about 25%, Neman said.

And, to further boost retention, Neman said Sweetgreen plans to launch tipping across the fleet before the end of the year, which he said would “create a better customer experience.”

UPDATE: This article has been updated to specify the growth outlook for 2023.

 

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