May 17, 2024 - Business

Sweetgreen's future in a new norm: Suburbs, steaks, shiny automation

Illustration of a steak with grill lines made of upward trending arrows, resting on a bed of greens.

Illustration: Shoshana Gordon/Axios

Sweetgreen appears well-positioned to ride new trends in the economy.

Why it matters: Restaurants have been among the slowest businesses to recover from the pandemic — battling financial hardship from closures and broken supply chains, then worker shortages, inflation and the fallout of remote work.

CEO and co-founder Jonathan Neman doesn't expect "a step change in a return to office at this point" and that doesn't seem to worry him.

  • He's now steering Sweetgreen — in its third year as a publicly traded company — toward suburban expansion, in-store automation and beefed up menus (literally) to drive growth and to reach profitability.

Zoom in: "So much of our business was heavily dependent on urban and office traffic before COVID," he told me during a conversation Thursday on "Leading Indicator," a show from Public, an investing platform.

  • "[W]e've only gotten back to 50% of pre-COVID levels today," he added. "We've now seen kind of [that] this is the new normal."

Flashback: Americans packed their U-Hauls for cheaper and less dense locales amid the pandemic and they haven't looked back.

  • Suburbs and exurbs are now some of the fastest-growing places in the country and where "most of" Sweetgreen's growth is taking place, said Neman.
  • "Four years ago, the company was 75% urban. Today, we're 50-50 and starting to lean more suburban — a product of what the country looks like … and [because] we had already penetrated much of the urban [areas]."

Physical expansion strategy

Sweetgreen, with about 230 locations at the moment, aims to grow the number of its restaurants at a rate of 15% to 20% a year by 2026.

  • "We think that there can be thousands," he said, noting that fast-casual competitor Chipotle has goals of doubling its footprint to 7,000.

Factors considered when choosing new locations include retail spending, high foot traffic, education and income levels, and "iconic real estate."

  • And after one store opens in a new market, Sweetgreen likes to "follow customers home," to decide where its next stores should pop up.
  • "Densifying and building out" existing markets is where the company sees the "biggest opportunities," said Neman.

Urban automation

For its busiest restaurants, Sweetgreen sees huge potential in its Infinite Kitchen system — which automates and speeds up the assembly of the brand's dishes to a rate of about 500 meals an hour.

  • The machines not only increase output, helping to prevent impatient customers from walking out, but also provide "perfectly portioned" orders that can lead to more precise use of ingredients and ultimately reduced costs.
  • Because locations with the technology operate with fewer people, Neman says that leads to a better worker experience, more career growth and earnings opportunity, and less employee turnover.

By the numbers: The average Q1 margin for the two first Infinite Kitchen stores was 28%, or 10 percentage points higher than its average stores, per Sweetgreen's latest earnings call.

  • The company plans to open seven new restaurants with the technology as well as retrofit three to four large urban locations, one of which will be in New York in the summer.

Our thought bubble: Neman has previously hinted at the possibility of selling the technology to other restaurants.

  • As minimum wage for workers in service roles continues to rise, Sweetgreen and other high-labor businesses won't be alone in searching for ways to bring costs down.

What's new: protein and AI

To attract more male customers, create more dinnertime demand and appeal to more markets across the country, Sweetgreen has been adding meat to its menus.

  • It's still too early to tell how its recently launched steak option will benefit the bottom line because it's a "slightly more expensive" ingredient, Neman notes.
  • But the brand's protein plates, which include salmon and chicken, have been a "huge driver" of same-store sales over the past few months, he said.

The intrigue: In response to the perception that adding beef is counterproductive to its climate goals, Neman said the company is "very proud" of the product because of the thought that's gone into finding the right supply chain from which the meat is sourced.

Over time, Sweetgreen expects the mix of its business from lunch and dinner to reach a 50-50 split, and for its customers to be a 50-50 split of male and female, he told Bloomberg in a separate interview.

What we're watching: Sweetgreen sees potential in using AI to create personalized nutrition products and menus in a mainstream way.

  • Neman says "it's important" to be curious about new technologies and that he hits the topic regularly with leaders across departments.
  • At the moment some employees are mainly using AI for tasks like sales forecasts.

🧸 Fun fact: The most fun way he's been using generative AI, is with his kids at bedtime.

  • "With my 3½ year old — we'll write a story together. We'll ask him for some prompts on what [he wants] the story to be about. And I'll put his name in there and I'll sneak in some lessons I wanted to teach."

Disclosure: The reporter was a paid moderator for the Sweetgreen conversation.

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