Cava aims to forge a new path in fast casual, says CEO

The Mediterranean food chain plans to operate 1,000 locations in the US, which CEO Brett Schulman says is very manageable.

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Cava (CAVA) is often called the next Chipotle, but CEO Brett Schulman says they're carving out their own identity.

"We want to be the next Cava," he said at the Yahoo Finance Invest conference on Tuesday. "That's defining the next large-scale culture cuisine category, which is Mediterranean."

Shares of Chipotle (CMG), which went public in 2006, are up more than 4,400% since the IPO. At the end of Q3, Chipotle had more than 3,300 restaurants.

Schulman said there are similarities between the two chains and it's a compliment to be compared to the household name, but his company is focused on popularizing Mediterranean cuisine.

In a note to clients, William Blair analyst Sharon Zackfia called Cava a "clear leader" in the category with "attractive unit economics with ample white space." It's set to report third quarter earnings on Tuesday after market close.

Cava plans to open 65 to 70 new locations this year. By 2032, the company aims to operate 1,000 locations in the US, which Schulman said is a "very manageable outcome."

He said the company grew at a "higher growth rate in recent years" as it completed its acquisition of Zoe's Kitchen. It also expanded to new market areas, based on demand.

The chain is poised to enter the Upper Midwest with its first Chicago location set to open in Q1 2024.

While Cava's stock is still down more than 10% from its IPO debut, Schulman doesn't seem concerned. The company is focused on the next decade and beyond, he said.

"Stocks will go up and down. We're excited with how the market received our offering and how it's been received since."

No 'final determination yet' on how it is addressing California's FAST Act

Cava also weighed in on other headwinds facing the restaurant industry as of late, including the potential impact of California's FAST Act, which raises starting pay for fast food workers to $20 an hour. It takes effect on April 1, 2024.

Cava has roughly 20 locations in the state. Schulman said the regulation will likely be a bigger factor for smaller operators competing for labor and talent. Cava, on the other hand, has typically paid higher-than-average wages.

"[Cava] wouldn't have a lot of room to make up," Schulman said on the wage raise, but the company has not made a "final determination yet" on how it will combat the higher costs, though it has no current plans to raise prices.

Starbucks CFO recently told Yahoo Finance the team is still evaluating the FAST Act as well.

PASADENA, CALIFORNIA - FEBRUARY 06: A person sits outside a Cava restaurant chain location on February 6, 2023 in Pasadena, California. The Mediterranean restaurant chain announced that it has confidentially filed paperwork for an initial public offering (IPO) with the Securities and Exchange Commission. (Photo by Mario Tama/Getty Images)
A person sits outside a Cava restaurant chain location on Feb. 6, 2023, in Pasadena, Calif. (Mario Tama/Getty Images) (Mario Tama via Getty Images)

Another issue top of mind for investors lately has been weight loss and diabetes drugs — a potential $100 billion industry.

Though the drugs have not yet had an effect on overall food consumption, Schulman said Cava could end up a winner as its Mediterranean cuisine is known to be healthier, and the fast casual service allows customizing.

"It could be a net benefit for us," Schulman said, given that early data shows consumers are eliminating "salty snacking, fattier foods, late night eating, and alcohol."

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].

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