– [Narrator] Fast casual chain Cava has turned Mediterranean dishes into a nearly $4 billion business. But most of its growth came
from an uncommon strategy: buying a competitor quadruple its size and converting all its
locations into Cavas. (lively music) – I like to say I went to bed
running about 70 restaurants and woke up running over 250 restaurants. – [Narrator] The strategy: turn Cava into the country's biggest
Mediterranean restaurant chain, leaving many to compare it to where Chipotle was a decade ago. Its success depends on how
long the Mediterranean diet can remain popular.
The company says it's
using lots of customer data to strategize where to open new locations, but now that Cava can no
longer rely on an acquisition to scale up, how can it continue to grow at such an ambitious pace? – Growth takes time, it's
expensive, it's variable, and I think that's a little
bit of coming down to reality. – [Narrator] This is
"The Economics of Cava." Cava has been rapidly expanding for years. – Cava really likes the suburbs. They really see potential there, and some of those communities probably don't have other
Mediterranean food options or readily, you know,
marketed to them options that they might seek out.
– We've built a really
robust real estate model that includes demographic
and psychographic analysis and we then use mobile
analytics to understand where our guests are coming
from, where they're going, and then kind of create
a DNA of our guest base, and then heat map that
DNA across the country to then show us where we have the highest
likelihood of success. – [Narrator] In 2018,
Cava bought Zoe's Kitchen, another chain of fast casual
Mediterranean restaurants, for $300 million. At the time, Zoe's Kitchen
had 261 locations compared to Cava's more than 70, but Zoe's kitchen was
burning through cash. – It was a melting ice cube and we didn't want it
to turn into a puddle. – [Narrator] Zoe's Kitchen, Schulman said, had lost its identity, serving as a cautionary tale for Cava. – I think over time,
Zoe's had lost its focus. It had added many menu items. I think the consumer was kind of confused as to what the brand really stood for and what their core
competency is versus at Cava, we're really about these
modern Mediterranean flavors. 38 ingredients, very
simple, focused operation. – [Narrator] Most of the
new restaurants Cava opened from 2019 to 2023 came from converting existing
Zoe's Kitchen locations.
This meant Cava could scale
faster and at half the cost of building new restaurants from scratch. – When we looked at the
Zoe's real estate portfolio, we saw many sites across the
portfolio that we would love as a Cava site that we felt was really underperforming its potential. So we felt like this would be a way to rapidly expand our brand in a part of the country we were
trying to enter into. And we could do it in a much faster way than if we were trying to
source these deals one by one. – [Narrator] Cava converted
its last Zoe's Kitchen in October 2023, which means that now it has to build new
locations from the ground up. Cava is currently in 24
states, plus Washington, D.C., and it went public in June 2023. As it looks to grow, it hopes to capitalize on the rising popularity of the Mediterranean diet,
which it hopes to appeal to a broad range of
customers across the country.
Right now, only 1.4% of US restaurants primarily
serve Mediterranean cuisine. In its last quarterly report, Cava Group reported a net
income of $6.8 million with a restaurant level
profit margin of 25.1%. Cava is now the largest
Mediterranean style restaurant chain in the country, but is
it the next Chipotle? – Chipotle was really
taking Mexican nationwide in a very unique way that's an assembly line style
of creating burritos and bowls and Cava is seeking to take
Mediterranean food nationwide with also kind of more
of an assembly line, fast casual style of service. But Chipotle was getting going when fast casual really was barely a blip. So there was a lot less competition then. Cava has a lot more competition now. – [Narrator] Whether
the restaurant succeeds may largely depend on
whether customers continue to seek Mediterranean food.
– Mediterranean has gotten
a lot of good buzz, right? It's seen as healthier,
it's good for the heart and you know, overall body. That said, it's still new. Harissa, tahini, falafel,
for a lot of communities, these are still new kinds of foods and that's still a question mark. Do people wanna eat
this day in and day out as opposed to just trying it? – As of October 2023, Cava finished converting
all Zoe's kitchen locations into Cavas but it's told investors that it will continue growing
its number of locations by at least 15% each year.
– I think the biggest question
is can they grow in the way that they've said that they're going to for their investors,
and do it organically? Now they have to open their own
sites, find their own sites, make sure the sites are good,
be able to afford paying for this real estate and
construction costs and other costs. – [Narrator] It plans to open at least three restaurants in Chicago, which will be its first
major foray into the Midwest. It's targeting 47 to 50
new restaurants in 2024 with locations based
on a significant amount of customer data. – I think restaurants are
a blend of art and science, and so we love the science part and understanding how do we use data to inform our decisions? So it gives us great
visibility into being able to take this brand to the 26
states we're not in today, and to go broader and deeper in the 24 states we already
currently operate in. – [Narrator] But it's a difficult time to be expanding a fast casual restaurant.
The economic slowdown has led to many restaurants struggling, and while chain establishments
are better positioned than independent ones,
the market is saturated. Despite this, Cava is planning for a 15% growth in
store numbers next year. – If you look at where US-based
restaurant chains are now, I mean, Wingstop, which is mentioned as the big growth engine
is at something like 11%, and I believe Cava is
projecting even more. So they have grown very quickly and they've really promised
more growth at a very high rate. And so investors are gonna be looking for those numbers every year. (lively music).