At a time when restaurant discounting is rampant, Cava’s decision to undercut pricing is paying off.
The fast-casual chain grew same-store sales 1.9% during the third quarter, lapping a 21% increase a year ago. Traffic was flat for the second consecutive quarter, which CEO Brett Schulman blamed on the larger economic pressures on consumers, particularly those aged 25 to 35.
Younger diners are struggling with higher housing and healthcare costs, stagnant wage growth, layoffs and other financial challenges, resulting in a “choppy” economic environment, Schulman acknowledged (echoing comments made by Chipotle CEO Scott Boatwright last week.)
“They don’t have the steam that they had last year, in the way that they were visiting, or their frequency of visiting,” Schulman said. “It’s not necessarily they’re so challenged with us. It’s just that they don’t have the vigor of the frequency of occasions that they did last year.”
As a result, Cava downgraded expectations for the year, projecting same-store sales will be up 3% to 4%, rather than the 4% to 6% expected earlier in the year.
Still, Schulman said Cava continues to grow its market share, which he credited in part to the brand’s strong value proposition. Over the past 18 months, Cava has raised prices less than 2%, he said.
Since 2019, overall restaurant industry sales have grown, while transactions have declined about 7%, said Schulman, citing data from Technomic, a sister-brand of Restaurant Business.
But Cava has grown its transactions in the mid-20% range during that time, while underpricing the Consumer Price Index by almost 10%, he said.
Cava has raised menu pricing about 17% since 2019, and that’s less than half of the 34% in increased price taken by the brand’s peers, he said.
Despite the “most intense discount environment since the Great Recession,” don’t expect Cava to start discounting, Schulman said.
Instead, Cava is doubling down on enhancing the guest experience, with a new interior design called Project Soul that is being rolled out to newer units, with warmer lighting, softer seating and hospitality. Recent openings in Miami and Chicago sport the new look, for example.
The brand also plans to be conservative with pricing next year, saying any increases will be very modest and less than increases in 2025.
“We’re not oblivious to the commentary about the $20 lunch,” he said, referring to complaints about the high cost of fast-casual food. “But the reality is you can get a chicken bowl at Cava with all the toppings included, three different spreads, grains and greens for $10.65 to our highest price of $12.95 in New York City. So that’s a sub-$13 bowl in the most expensive market, not a $20 lunch.”
October marked the one-year anniversary of the launch of Cava’s loyalty program, which has grown by 36%.
The chain’s Chicken Shawarma, launched in September, did well, meeting expectations. Now Cava is testing its first seafood protein: Salmon, glazed with harissa and pomegranate with a touch of red wine vinegar.
If the test continues to go well, Schulman said the chain could roll out the new protein next spring. The dish makes good use of new TurboChef ovens, which have rolled out across the 415-unit system.
Cava is also rolling out a new kitchen display system, which is in 200 units currently, and will reach 350 by year’s end.
The chain is also expanding its catering test, which began in Houston and will move to a second market that was not identified.
Revenues in the Oct. 5-ended quarter grew 20% to $289.8 million, and Cava’s average unit volume increased to $2.9 million, compared with $2.8 million a year ago.
Net income, however, declined to $14.7 million, compared with $17.9 million in the third quarter last year.
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