Why analysts are calling Cava the next Chipotle
Fast-casual Mediterranean chain Cava has had an impressive year since going public in June 2023. It posted a profit in its first quarterly report, repeatedly beat Wall Street’s earnings estimates and now boasts a more than $14 billion market cap, nearly 500% higher than its initial valuation.
Now, Wall Street analysts see shades of another fast-casual success story: Chipotle Mexican Grill.
In its most recent results for the second quarter of 2024, Cava bucked industry trends by posting same-store sales growth of 14.4% and traffic growth of 9.5%. Revenue rose by 35.2% from the same quarter the year prior.
“Cava seems to have found a magic formula,” said Wedbush Securities restaurant analyst Nick Setyan.
Cava shares closed at $127.12 on Thursday and are up 211% this year.
One area where Cava may have gained an edge is pricing: it raised prices by 3% in January and has none planned for the rest of 2024. Cava Group co-founder and CEO Brett Schulman has said its prices increased 15% between 2019 and 2024. Other restaurant chains like McDonald’s have seen prices rise by nearly 40% since 2019 during a period of high inflation — making their meals less of a bargain relative to companies like Cava and Chipotle.
“You hear a lot about the value wars lately. And we think that that’s a misnomer, that it’s really those are discount wars,” said Schulman. “We think that value is a combination of attributes: the quality, the relevance and the convenience and experience of what you get. And for us, that’s the quality of our food. It’s the relevance of our Mediterranean cuisine.”
Cava has bucked industry trends at a time when fast food restaurant traffic and consumer spending are down, as many people, especially those with higher incomes, trade full-service and traditional quick-service restaurants (QSRs) for cheaper options, according to Setyan.
“Paying a Cava price versus, let’s say, the premium offering at a QSR burger,” said Setyan. “The prices are actually pretty comparable now. That’s also benefiting, you know, this sort of category including Cava.”
The company’s concept is similar to that of rival Chipotle’s: a customized meal prepared with fresh, high-quality ingredients, created in a fast, production line format. It has allowed Cava to be highly efficient with lower labor costs.
Cava’s model is just one reason investors keep comparing it to the burrito maker.
“No one had been able to kind of transform the Mexican category into a national chain, and Chipotle did that, said Setyan. “Cava is doing the same thing with the Mediterranean cuisine and concept.”