Cava Group, a popular fast-casual Mediterranean restaurant chain, has reported a significant slowdown in sales growth, highlighting the challenges it faces amid rising economic concerns. On a recent quarterly Cava earnings call, co-founder and CEO Brett Schulman underscored a critical silver lining. Whatever the reasons, diners are more deliberate in their spending. The company’s alarm bells should be ringing, too, because of this rapid change in consumer behavior. Due to the circumstances, its stock price is down over 90%.
In that same quarter, Cava reported a 2.1% increase in same-store sales growth. This number was well below Wall Street’s expectations of 6.1%. This is a huge drop from last year’s spectacular 14.4% growth. This success was primarily driven by the ongoing Bowen success of a successful steak launch and strong demand at our newer restaurant base. The disappointing results caused Cava’s stock to tumble 16% during afternoon trading, as analysts began to reassess the company’s position in a challenging market.
To Cava’s Chief Financial Officer, Tricia Tolivar, it’s a “fog,” this current dining climate. Without clear, reliable signals from government, consumers will find it difficult and confusing to make informed decisions against an economically uncertain landscape. She added that consumers are spending more cautiously, avoiding protein items at lower price points that usually signal a shift to trading down.
“Certainly, we’re operating in a fluid macroeconomic environment and it’s one that sort of creates a fog for consumers where things are changing constantly and it’s hard to see the clear. And during those times, they tend to step off of the gas.” – Tricia Tolivar
The company’s catastrophic collapse has opened up a much wider conversation about the future of the fast-casual dining industry after its meteoric rise. With consumer sentiment changing for the worse, bigwigs in the space have started to feel what seems like a clear movement towards cheaper dining. Cava’s same-store sales decline of 1.9% for the recent quarter raised concerns about whether the company could maintain its previous growth trajectory.
Scott Boatwright, another industry expert, commented on this trend, stating, “You have to look no further than what’s going on with our competitors with snack occasions or $5 meals. That’s where the consumer is drifting towards, [with] value as a price point, because of low consumer sentiment.” He pointed out that rising consumer sentiment would bring faster and more favorable business conditions for consumer-facing companies such as Cava.
Cava has experienced strong top-line growth since its IPO two years ago. The prevailing economic headwinds are creating obstacles that may threaten this progress and future expansion. Schulman named these economic worries as “probably the biggest headwind” the company has going forward.
Industry analysts are split in their analyses of Cava’s pandemic-stuffed success. Tracey Ryniec remarked on the company’s diminishing growth rate: “Cava isn’t so special after all. In Q1, you posted very strong same store sales – 10.8% growth. By Q2, your sales tracked to the industry mean rate of decline at 2.1%. It’s not negative, so that’s helpful.” That sentiment is indicative of rising skepticism among investors over whether Cava’s recent boom has staying power.
For now, Cava’s leadership is optimistic that once macroeconomic conditions get better, consumers will revert to more premium dining options. But until then, the business she’s charting course for now has plenty of unknowns on the horizon and increased competitive threats to steer through.
As Michael Skipworth noted during our Tasting Table panel, new consumer research shows increased fear from consumers about rising costs and employment opportunities. He stated, “Through our regular consumer research, we hear concerns about elevated prices, future job prospects and general anxiety about the future.” These types of discoveries further highlight the need to read and respond to consumer sentiment as it changes.