Okay, well thanks everyone for joining us today. I'm Sharon Zachy of William Blair. Really excited to have Brett Schulman, who's a co-founder and CEO of Kava, with us today. For those of you who haven't been to Kava, there are a few within walking distance of here, so go check it out. We're really excited on Kava. It's clearly a brand with a lot of momentum. We're seeing rising brand awareness, really healthy seems for sales growth, rising the productivity. And ultimately, we think this is a story that will have thousands of locations versus less than 500 today. So a lot of goodness here in the story that we'll talk about. Brett's going to go over a few slides, and then we're going to do a fireside chat. But of course, you should check out our complete list of research disclosures of potential conflicts of interest at WilliamBlair.com. Thank you.
Thanks, Sharon. And welcome. Thank you all for joining this morning. So as Sharon said, I'm the co-founder and CEO of Kava. And if you're not familiar with the story, those are my co-founders, Ted, Ike, and Dimitri, all sons of Greek immigrants. Really, the heritage and culinary of their upbringing is what was the impetus for the Kava brand. Founded out of a single full-service restaurant 20 years ago, and then I met up with the guys, and we co-founded the Fast Casual 15 years ago, celebrating our 15th anniversary this year. And our mission is to bring heart health and humanity to food, really that Mediterranean way. so our mediterranean cuisine matched with our mediterranean hospitality and it is a unique cuisine where taste and health unites that we believe is meeting the moment for the modern consumer when you look at the secular trends in our country whether it's the growing diversity of our country and shifting palates seeking bolder more adventurous flavors matched with the increasing interest in modern health and wellness and longevity that's where our food sits at the nexus of that unique cuisine where taste and health unite and we deliver it in a multi-channel format. For us, it's not an either or, it's an and. We have great digital channels and great physical channels. So we have everything from 75 plus digital pickup lanes, where you don't even have to get out of your car to pick up your digital order, to digital pickup off the shelf in every location, to delivery, but also physical experience. We believe the demise of the dining room is greatly exaggerated. And we think it's important because we think human connection is more important than ever especially at the advent of AI and all of the modern technologies in the world people are craving human connection especially when they're sharing a meal that is often a social visceral experience so again we think we want to give you the remote control to have the channel of your choice and meet you in your needs whether that's digitally or physically in one of our dining rooms that we've invested in something called Project Soul in recent years to warm up our dining rooms, a more inviting aesthetic for you to share a meal, whether with us or with your family or friends. Just to touch on our 2026 strategic pillars, we have four pillars. The first one, expand our Mediterranean way of correcting communities across the country. That's first and foremost, expanding new restaurant growth, but it's also the test of a new catering channel. So we know there's high demand for our product in a catered channel, but we want to make sure that we set up our operators for success from a load balance and the capacity management standpoint. So we're testing different formats and production capabilities to ultimately launch a catering channel in the future. Second, develop personal relationships with guests even as we scale. This is really building out our first-party audience. We've talked, you've heard us on our earnings calls about our new loyalty program that we relaunched two years ago. We launched new tiered status last fall. We'll have more phases of loyalty, really, again, creating those one-to-one connections with our guests from a communication standpoint and a motivation standpoint. And then third, run great restaurants every location, every shift. So we're always thinking about how do we make it easier for our operators to run our restaurants, whether it was our new kitchen display screen systems that we rolled out across the fleet last year to improve order accuracy and digital order production, or our Turbo Chef ovens to drive better consistency, quality, and ease of production on some of our items like our roasted vegetables or our new pomegranate-glazed salmon that we recently launched. Last, operators are a high-performing team. If you listen to our recent earnings call, we talked about our new unified data platform, our Kava core platform, and our new edge-enabled customer data platform, Kava Current, which is now ingesting all of our order flow that we think really positions us to set the stage to take advantage of modern generative AI technologies and build an intelligence layer in the coming quarters and years. Just a few Q1 business highlights. Revenue up over 32%. Same restaurant sales 9.7% driven by 6.8% traffic. Really proud of what the team was able to deliver from a traffic standpoint. A little bit north of 20% unit growth quarter to quarter over last year. And then last, just some general highlights, $3 billion system-wide AUVs for the first time in our history, 25.1% restaurant-level margins in the quarter, and then 100%-plus new restaurant productivity. So this is two years in a row now. Our new restaurants across the country are opening at very significant elevated levels, very driven also by awareness increase. So around the IPO, we had about 40% national awareness. our most recent brand health survey that increased to 66 percent over 62 percent from our last survey so again we operate in 29 states in the district of columbia and as we've grown across the country as people have become more aware of our brand as since we've been public as well as the benefits of mediterranean eating uh you've seen that new restaurant productivity increase to 100 percent
so with that i'll head it over to sharon and we can have a conversation so i think um you know You had the slide with the same store sales, and I think what you can't really see in that slide is that you had accelerated two-year trends for the past five quarters, and that's been arguably what's been one of the most promotional restaurant environments that we've seen probably since the Great Recession, honestly. And you don't do a lot of promotions. Can you talk about why you think the brand has been so resilient and why you've seen that acceleration and how durable those underlying factors might be. I think it's a testament to our
long-term strategy. We've talked about this since we went with public is, you know, in the public markets, there can be a lot of focus on the short-term quarter-to-quarter movements, and we've tried to stay steadfast in our long-term strategy, and part of that certainly is underpinned by our differentiated Mediterranean cuisine and the hospitality and operational excellence we deliver it with. But it's also things like underpricing inflation. So we've underpriced CPI by over 10% in recent years, and we've taken less than half the price increases of the average restaurant company. And we think that's improved our relative everyday value proposition each and every year. And this year, as an example, you look at the recent CPI report, 3.8%, food away from home 3.6%, food at home 2.9%, Cava 1.4%. And that 1.4% was distributed this year across premium and attachment items. We held the base grilled chicken, falafel, and roasted vegetables and pitas to the same price as they were last year, so the cost of admission hasn't changed. So we've worked very hard to drive traffic, have that flow through on some of our fixed costs creating that operating leverage, but not just pocketing that operating leverage. We do not have restaurant-level margin targets. We believe that we want to reserve the right to reinvest in our team and reinvest in our guests. And that will drive sustainable long-term restaurant-level margin productivity over the long haul. You know, I point to people that, you know, when you look at our top quartile, there's $4 million plus ADBs with 30% plus restaurant-level margins. So we know the power of the model. We just don't want to over-earn in the short term at the expense of the long-term brand. how often we want to invest in all of our stakeholders, guests, team members, and our shareholders.
We were talking a little bit about Chipotle when we were outside before we came in. And I think since you went public in 23, there's been that constant comparison between Cava and Chipotle. I guess where do you think that analogy is accurate and where does that break down? And what do you think the more accurate framework is for investors to think about Cava in your prospects?
I think it's a very good frame of reference from an operating model standpoint, right? Because it's a very similar operating model, similar unit economic model. So as a framework, certainly our cuisine is very different. And I think from a life cycle standpoint, that business is 10X our unit count. So they're at a different stage of life. And the decisions that they may be making for their business, I think, are very different than how we're thinking about our business in a brand building phase, at a much younger phase. And so sometimes I think people want and extrapolate what a peer may be doing versus what we're doing and project it on us when that peer is a very different stage and scale of where we are that our decision-making calculus is
very different. Yeah the new unit productivity you talked about a little bit in your presentation have you done anything differently over the past few years that's driven up that new unit performance and you talked about brand awareness but you know site selection change is the way that you seed the units with labor changed?
We haven't done a lot, to be candid. It has been driven a lot by awareness, and social media has been very effective. And, you know, it's almost this kind of metaphor of flowers blossoming in the spring. It's like we're in 29 states in the District of Columbia now, and during COVID, a lot of people, you know, the metaphor of a snow globe being shaken up and sprinkled around. And so a lot of people have carried their Kava passions with them, whether they've experienced less traveling or having eaten, living in another city, and now they've moved to another city. And so we see a lot of pent-up demand. I think one thing we have done in the last year as we've seen these restaurant openings accelerate to record levels is, and we noted this on the most recent quarterly earnings call, is we've invested, again, in some pre-opening costs to make sure that any GMs that aren't internally promoted that we're hiring externally, we're actually bringing them on board even earlier and we're taking them to markets like New York City peak lunch rush so they can experience the intensity with the intensity of what they're experiencing now in the openings and then we're leaving trainers behind even longer to make sure that these restaurants are stabilized because the volumes are fairly intense at these new locations and we want to put our best food forward. I think
you know going back to Chipotle one of the differences between you at you know a little under 500 locations and them at the same point in time is just the amount of investment you have to do at a tech stack these days versus like the early 2000s where you would just build a new location and hope people would come. Yeah. Can you talk about how you built your tech stack because it is relatively unique and also maybe explain in more layman's terms what core and current really
do for you going forward? Well we think these investments are going to pay a return for all of our stakeholders and I've written about this in our shareholder letter the last couple years where I think it's very analogous to I think we're all we were on the precipice we're in the early stages now the decade plus of data transformation very similar to the decade plus of digital transformation that we experienced in the first 10 to 15 years of our journey so you think about when we first opened in 2011 we had a humble website with about 1% online ordering over time we did a white label app then we built we brought it in house we build our own digital order ecosystem. We added second make lines to every restaurant back in 2015, digital menu boards. We re-platformed the app to be a microservices scale architecture. Fast forward to today, it's about 38% of our business and it'll be roughly a $600 million business this year. So it's been a big impact in a positive way. We're investing similarly in data where we think it can have a step function change in the productivity of our business. So I'll give a, I like my metaphors. I'll give a metaphor of the data house. And so Kavacor, we poured the foundation of the house. This is a unified data platform. So if you think about all of our data fees, whether it's our POS feed, our HRIS system, our inventory management system, our FSQA tracking system, or external data feeds, like we have our AccuWeather data feed coming in. Now you have all that with a single source of truth, unified data, all the same characters, clean data. Layering now, building the walls of the house we have our our edge enabled kava current platform this is very if you're familiar with any kind of customer data platforms that you would get like an parity or some of these other platforms we basically build that in-house where it's ingesting all of the order flows now you have all the the main data fees from all of our drp systems external data fees you have the real-time order flow and the walls going up what that allows us to do is now fit out the interior of the house or the intelligence layer And we can do that and leverage these capabilities of KavaCore and KavaCurrent in what we view kind of three main buckets. One is corporate business intelligence. Two is personalized marketing. And three would be operational efficiencies. And we're already seeing this on the corporate side. It's fascinating. You can see the productivity improvements and the power it's unlocking for our team members where we use Katie Brooks Jr., which is powered by Claude, and layered over that Kava core. For example, we just launched our new Pomegranate Clay Sandman. And we started launching digital menu boards in 2022. So we haven't got 100 restaurants that still don't have digital menu boards yet. And I can just ask it and say, okay, what's the instance rate of sand in restaurants that have digital menu boards versus ones that don't? And I can immediately chart it. I can see the difference. And so that would have taken spreadsheet work and hours or days of analyst work in the past. And that's just one little question. that we can ask and so my cto will tell you that you know our data used to be structured to answer specific questions now it's structured that our team can ask any questions it has of the data one of our values is constant curiosity so we want our team to be curious and say you know how can i learn or understand what's happening in the business or where there's opportunities or where there might be challenges to immediately address in real time and be a more efficient effective business and the other two buckets certainly personalized marketing which goes back to our second pillar in our strategic plan, building out our first-party audience to have those one-to-one lines of communication. So, Sharon, if we know that you might be a vegetarian eater, we're not going to send you spicy lamb meatball communication. And we also can understand your purchasing behaviors and match you against look-alike guests and understand there might be an ingredient or two you might not be trying that has a high probability of success, increasing the efficacy of you as a guest, also increasing increasing guest value and there's a lot of other ways that we can use that from a personalization standpoint and then the third certainly lays the groundwork to do more predictive cook predictive prep labor scheduling things like that in the coming quarters of the year so very excited but I think it's again we just embarked on the beginning of what I think is going to be a
decade-long journey in data transformation do you think ultimately it's a bigger impact to customer frequency or the way that you communicate with the customer or on the efficiency side of the restaurant?
I think there's productivity gains on the G&A side. I think there's productivity gains on the RLM piece and then I think there's revenue growth opportunity on the personalization piece and you know even at the restaurant level it takes all that computational complexity. I'll work to members mind share and frees them up to deliver that human connection I talked about in the opening.
On the RLM it's been really healthy in the mid-20s even though you've been growing very quickly. And how do you think about the long-term target? You talked about the top quartile being in the 30s. You know, we haven't really seen a restaurant go that high, you know, in the public realm that's not a beverage concept. So is there a continual reinvestment there back to the consumer? Would you rather reinvest and get those sales kind of spinning at a faster velocity?
Certainly right now. And I think, you know, the world will tell us when we have permission more to expand it. I think right now, consumers are feeling a lot of headwinds, a lot of challenges, and we're mindful of that. And so we want to be a bit of a port in that storm. And when they're feeling pain at the pump and all these other pressures, we want to continue to make ourselves more accessible to more people across the country. We want to be able to pay our team members more and invest. And as things get maybe more front-footed economically and we have the ability to flow some of that through, then we'll reserve the right to do that. But we think right now, you know, we even talked about it as we had that strong comp in Q1. We didn't really raise our restaurant level margin guidance that much. We wanted to account for potential fuel surcharge increases in the back half of the year and not have to pass that on to the guests. So really kind of using that mentality when these, you know, other inflationary pressures or headwinds are coming our way that we can absorb it on behalf of our guests.
You are, though, I think one of very few restaurant concepts that's really defying the whole cave-shaped economy, you know, theory I think you talked about in your first quarter that lower-income cohorts actually grew very quickly or one of the fastest growing for you, which is counterintuitive, because historically that would be the segment that would be the most impacted by gas prices. I mean, you've said that before, I think a couple of years ago, that was also happening in 24, if I'm not mistaken. I mean, what is happening with the brand where you can get that lower income consumer to kind of trade up in an environment like today?
I think it's a couple of things. I think, again, first it goes back to having this differentiated Mediterranean cuisine that's meeting their needs. And it's allowing them to eat better without having to make sacrifices or compromises. Everybody wants to eat better, but they don't want to have to give up flavor or being satiated. And that's where our food comes in. And then when you pair that on the kind of trade-up end from traditional QSR, as I mentioned, we've underpriced that segment by over half. So our relative value proposition from the trade-up perspective has become more within reach relative to their other options on that end. And then on the higher end, I think in a lot of these markets, especially small-town markets, We've become a very optimal trade-down option from, say, a casual dining experience where for a better cost, a more affordable cost, less of a time commitment, and then a good aesthetic, you lean into Project Soul. On a Wednesday night for a family, we're a good affordable option for a dinner out.
Yeah. You crossed a billion in revenue last year. So as we think forward and, you know, we look to like five billion in revenue over time, what does Kava need to do culturally and operationally to get there? Like what is different in the business?
I think one of the things we've done in the past that we've been successful is staying in front of the business so we need to keep investing in that infrastructure in our people to stay in front of that growth so things like our AGM position right that we we've talked about in recent months where as our AUVs grew from 2.6 to 3 million those are very busy restaurants as we stare down the barrel of potentially opening 100 restaurants a year plus how do we make sure we have the breath and depth of role-ready leadership to go open those restaurants. And so the AGM position is an upgrade of our historical GMIT position, and it provides more seasoned, experienced leadership across all 14-8 parts, 7-1-7 dinner and weekends. And it serves a dual purpose of broadening and deepening that pipeline for future restaurant leaders. So it's continuing to do that and instilling a true owner-operator mentality. We think it's very important to deliver the elite hospitality that we want to deliver on top of in our flavorful food, that we really want to develop, train, nurture leaders in our restaurants who truly act as like an owner-operator in those restaurants.
I think I have this number right from the IPO, but I think it's 1,000 units by 2032. So I think you're right. So that's more than a double over the next six years. You're well on pace to do that. But how do you think about ultimately the TAM for Cava? I mean, since the time of the IPO with these new unit openings, you must be reassessing kind of where where the brand can go and what density yeah we've always
said that that was just a point in time it wasn't the destination it was a stop along the journey and we've seen that runway extend further and further every year we've been doing this i mean if you had asked me five years ago would we be in topeka kansas or have three restaurants in chattanooga phantasy i said i don't know if they're quite ready for amazon tzatziki but clearly they are. People want this cuisine and it's not a matter of if we get to a market. When you look at our proven portability and the consistency of performance whether it's any region across the country whether it's the urban markets, the suburbs or the exorbs, we have tremendous consistency and performance. That gives us a lot of confidence in the white space of this works everywhere but the question is just how deep does that runway extend over time? There's Chattanooga 3 restaurant market? Is it a six restaurant market? Is Chicago? Is it 60 restaurants? Is it 100 restaurants? And what we've seen is that runway continues to extend as Mediterranean becomes more familiar. People recognize the benefits. Mediterranean diet, number one ranked diet, nine years rowing. And then it becomes the next large scale cultural category. You have a new COO who started in March.
so two months into the job can you talk about why you kind of made a COO switch and what the key priorities will be of Doug as he's getting his feet wet in the business
I'm excited to have Doug Thompson on board Doug is a lifelong operator decades in the business 23 years at Texas Roadhouse most recently he was CEO of a small growth chicken chain in Texas called Humble 22 and but it was small and you want to get back to kind of a big impact because Doug is a phenomenal people leader and leader of teams and want to make an impact that's what this industry is about it's one of the few industries especially if you're out of AI where anyone from any background can come and build a live leader for themselves and build a career for themselves and their family and so Doug understands what it's like to build leaders and and develop people pipelines and I think, you know, we were doing a really good job. We had gotten very consistent discipline in our operations. But as about 18 months ago, as I was digging into the business, felt like we had over indexed a little bit on being overly prescriptive on the metric side. And you need the metrics for the discipline and kind of guardrails. But we, you know, you can only shine a light on so many things when you're running these large organizations. And what you shine a light on sends a real message to your teams and if it becomes overly emphasizing the metrics you can use the people and ultimately the great people are going to deliver great metrics so how do you strike that balance and you know my partners and I we always talk about you know I waited tables and expo to helping my way through college my partner's families grew up in the restaurant and sure Ted will tell you you know his mom was a lifelong waitress and all she really had to show for was a couple bad hips and so like we really wanted to make this a place where our team could build careers and what we were seeing at the gm level was a big counter to that and we're seeing turnovers start to creep up and like all right well our gms are saying well what you're saying isn't really what we're feeling and so you know i i want to double down and make sure that our team understands and that the actions we're taking and what we're showing the light on truly created that people pipeline development really proud of the progress we've made and i think you know what the team delivered in the first quarter is a real reflection of that energy and i excited for doug to really amplify that energy as he he focuses really on three things one is people development two is his next level elite hospitality and three is new restaurant opening excellence
there are a few more things i wanted to touch on you've got five more minutes so marketing you kind of underspend as a percent of sales relative to the industry when do you start to test more on marketing um and you know what do you think ultimately when we talk about that five billion dollar brand you know a few years from now yeah you know well where do you expect
marketing to settle as a percent of revenue over time well if you look last year we went from one percent to 1.2 percent of revenue a lot of our peers are around three percent i don't think that's unrealistic over time but we want to again be good stewards of capital and we've had tremendous organic momentum with our restaurant growth and the ipo on awareness we've been very very efficient and effective on social media, driving some morality and awareness, and I think you'll see us start to test even more upper funnel activities as we establish who Cava is as a brand, who we are as a personality, and really building and deepening that emotional connection at scale as we become a more national brand, because I think it's very important as people build relationships with brands to deepen that emotional connection and make clear external vision of who we are to our guests in that world in the external world so we did a fun little thing in New York salmon we did these bears carrying cobwebugs all around the city we got a lot of social media posts about it but it was just a fun way again to express who we are our NIL partnership with AZFUD the number one pick in the WNBA draft and Yaxel London Ward men's national champion we did it during the tournament with them again a couple amazing student athletes who are incredibly accomplished that have just you know show up in the world in a great way and are very welcoming to to all of their fans and that's kind of the reflection we want to exhibit in the world yeah last thing i wanted to talk about was catering
so you're not the only brand talking about catering these days i guess you know first i'd be interested in hearing what your learnings are i believe it's houston where you have the most meaningful test what your learnings are what you need to see to roll it out more broadly and kind of why now why is 2025 and 2026 been the year of of brands talking about catering what we've been
talking about for 15 years our guests have always wanted catering from us but we uh we're very mindful with our advs how much production capacity we have because catering is a very different production muscle you know when you think about our restaurants manufacturing food in a sense, our regular in-restaurant line, our digital serving lines, are very similar production rhythm. Catering is very concentrated, very intense, high volume in a short period of time, so it's a very different rhythm. And so how does that work with our other production? And so when we bought Zoe's Kitchen and we had some locations that we felt we could test a hub model in rather than making just a regular restaurant, we wanted to understand, is there a way to complement restaurants that may not have capacity with more centralized up production. And so we've evolved that test over time, and now we've done a market test to understand the critical question, which is really taking all the demand we know is out there. We've catered every major league baseball team, most professional sports teams, college teams, local offices, and schools. So we know the demand's there, but how do we make sure we appropriately load balance and capacity management against the production capacity in the market? So we set our operators up for success and ultimately deliver on our commitments. And so what we're working to test and understand is, is it all purpose-built, pump capacity, or is it complemented by regular restaurants that do a certain limited amount of production? And how do we distribute that? So ultimately, as a guest, when you're opening up and ordering from Cava, it's in a sense if you're going on OpenTable or Resi and you put in your variables and it tells you where there's availability. And that availability is driven by the logic on the back end that's understanding how we're setting up capacity management. And so we want to be very thoughtful. We think there's a great growth channel opportunity, but we don't want to rush it that sets our operators up in a bad position and ultimately delivers a bad guest experience.
What inning do you think you are in figuring out Houston?
Fifth inning. I'll take it.
All right, I bet there's a Cubs game tonight.
There you go.
All right, thank you, everyone. We're going to be in the mayor room for the breakout.
Thanks, everybody.