Third-party delivery has emerged as a key traffic driver for First Watch this year.
The breakfast and lunch chain reported same-store sales growth of 3.5% in the second quarter, its best mark since the fourth quarter of 2023, thanks in large part to more delivery orders.
In-store traffic was slightly negative in the period, but that was offset by a big jump in third-party delivery orders. It’s a reversal from a year ago, when delivery was a traffic drain for the 600-unit chain.
“It was a big headwind for us last year,” CEO Chris Tomasso said in an interview on Tuesday. “We went about addressing it in January of this year and worked with our partners on what I call right-sizing or optimizing our offering there, and how we show up there, and we’ve seen the expected results.”
Specifically, the brand lowered its surcharge on DoorDash. Combined with other areas where First Watch performs well, such as order accuracy, speed and food quality, the adjustment has boosted the brand’s visibility on the app, which has led to more orders.
The pricing change did result in a lower check size at the chain, but Tomasso said the higher order volume offset that decline.
The chain believes those orders are incremental, but said delivery customers are not much different from those who dine in.
“I mean, I’m still surprised by the number of people who will go on there and order a kale tonic to have it delivered to their house,” Tomasso said. “But for the most part, those orders come in at the same busy times … and other than the surcharge impact, per person average is very similar.”
First Watch does not report how much of its overall sales are made up by delivery. Off-premise orders in general account for about 18% to 20% of its sales mix.
The brand’s on-premise traffic, though still negative, continues to improve as well, hitting a six-quarter high in Q2. Mother’s Day was the busiest day in the chain’s 42-year history, with record same-store traffic and sales. First Watch has seen no signs of a “skittish” consumer, Tomasso said.
Unlike many chains, First Watch has not used value offers or discounts to get customers in the door. However, it has been conservative on price increases. And in recent quarters, it has amped up its generosity, increasing portion sizes in certain dishes and empowering staff to surprise customers with freebies, such as a food item, a special mug for first responders or a First Watch onesie for customers with newborns.
“Little things you don’t expect from a restaurant, we do,” Tomasso said. “Things like that help and go a long way.”
On the bottom line, First Watch continues to face higher costs for key ingredients such as eggs, coffee and avocados. Commodity inflation was 8.1% in the period, and restaurant-level operating margins fell to 18.6%, from 21.9% a year ago.
However, the company is already seeing relief on egg prices, so much so that it lowered its annual expectations for commodity inflation and raised its guidance for earnings before interest, taxes, depreciation and amortization (EBITDA) just one quarter after dimming its outlook.
First Watch now expects commodity inflation in the 5% to 7% range, down from the high single digits previously. And it is now predicting EBITDA in the range of $119 million to $123 million. That’s up from the most recent guidance of $114 million to $119 million, but still below its initial forecast of $124 million to $130 million.
On the development front, Bradenton, Florida-based First Watch continues to open new locations at a rapid clip. In the second quarter, it opened 17 restaurants in eight states and now has 600 units across 31 states. It expects to add a total of 59 to 64 locations this year.
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