Marksman Monday Update

Sweetgreen has been one of our favorites here at Marksman research due to their ability to fundamentally disrupt the fast-casual dining space here in the US.

Sweetgreen's strong revenue growth is a reflection of their successful expansion strategy and innovative automation model in select locations. Targeting health conscious gen-z and affluent professionals, the brand capitalizes on increasing demand for premium, nutritious meals. Their ability to entice customers with new menu items, like steak, have driven same-store sales growth of up to 9%. Analysts project nearly 17% revenue growth next year for the salad chain, outpacing the industry’s 12% growth. This reflects the company’s success in replicating its model across new locations. 

Social Media & Health First Menu Is Key To Growth

According to a Mediabistro study, more than 40% of consumers base their healthcare decisions on the information found on social media platforms. With almost half of social media users relying on social media for their dietary recommendations and the popularity of going to the gym, more people are shifting towards eating more protein-filled, nutritious foods. However, a 1997 study published in the European Journal of Clinical Nutrition, identified significant barriers to eating healthier, including convenience, taste, and lack of awareness. 

Sweetgreen aims to emphasize the importance of eating healthy while reducing the barriers that prevent people from easily accessing healthier options. Committed to serving “Real Food”, Sweetgreen offers plant-forward dishes, seasonality, and fresh preparation in restaurants. The company facilitates convenience through mobile ordering and a quick order line that allows customers to personalize each ingredient in their food. Additionally, by providing 13 curated, signature items and more seasonal options throughout the year, Sweetgreen offers healthy food that doesn’t compromise on the taste. Sweetgreen’s social media campaigns have successfully reshaped consumer perceptions by promoting the idea that healthy food can be satisfying, satiating, and delicious, not a challenge. 

Sweetgreen’s target customers—young professionals and affluent individuals—are willing to pay premium prices and Sweetgreen is placing itself in a position to take full advantage of that. With the implementation of automation into a new Seattle restaurant, robots will be able to speed up the process of making salads as they are programmed to function significantly faster than human labor. If Sweetgreen can successfully market this automation to its customers, much of the younger targeted audience will grow fascinated by the technology and trend in the direction of Sweetgreen over other potential options. Not only will this expand sales, but it will also cut the cost of wages for the physical labor previously being used. Consequently, the quantity of salads supplied will increase due to a rise in productivity, thus boosting revenue growth. Additionally, the recent addition of steak onto the permanent menu has shown to additive to the firm’s growth as of Q3. By nature, steak is going to be a higher price than, say, chicken or eggs because it is a richer and more nutritious option, so this itself will increase sales because Sweetgreen will be able to sell these new menu options at a higher price. Furthermore, because many customers are affluent individuals that are willing to pay more for higher-end foods, demand is relatively inelastic. Since this implementation, Sweetgreen has seen a 9% growth in same-store sales—above the roughly 6% growth that analysts were expecting. By evolving into more than just a salad company, analysts expect an increased valuation for the company in the future quarters as these new implementations are rolled out on a national scale. 

A growing wave of health-conscious Americans has reshaped the fast food and fast-casual dining industry. However, the expectation of a convenient dining experience is still a top priority for consumers. A study from the Cleveland Clinic shows that around 23% of Americans lack the time necessary to include healthy options within their diets. Sweetgreen not only caters to this emerging health-conscious trend but also provides a convenient access point to these healthy foods, where consumers can expect to have their order within minutes. 

Sweetgreen still incorporates the customizability aspect seen throughout other fast-casual options, However, the firm has carved itself a niche, focusing uniquely on offering salads and green bowls. While Sweetgreen faces increasing competition from competitors and fast food chains alike as healthier options are adopted, its brand recognition and loyal customer base provide a cushion and platform to excel in the future. With the recent adoption of SweetPass, a loyalty program, as well as expansion into urban environments and college campuses, Streetgreen has exposed itself to many diverse individuals. Expanding the recognition of Sweetgreen as the market leader in catering to health-conscious consumers. 

Sweetgreen will see increased demand from a more fully implemented return-to-office environment, as well as heightened health awareness demonstrated through the rise of GLP-1 drugs and health-conscious post-COVID lifestyles. As a by-product, Sweetgreen’s premium, nutritious offerings align well with consumer preferences. These trends, coupled with operational efficiencies like the Infinite Kitchen, support higher margins, as evidenced by a recent increase in Restaurant-Level Profit Margin. 

Analyst projections estimate Sweetgreen could reach approximately 334 locations by the end of 2026. Given recent momentum, however, a more optimistic forecast would target 350-360stores. With strong demand tailwinds and an expanding customer base willing to pay premium prices, Sweetgreen is positioned to leverage its operational model for accelerated store growth, reaching significant national scale over the next three years. We’re really optimistic.