In its first full year of being a public company, First Watch has been the exception to the rule in the restaurant industry. As many restaurants have struggled to bring traffic numbers up to pre-pandemic levels, the Florida-based breakfast chain’s traffic keeps doing better and better: restaurant traffic growth was up 3.7% for the third quarter ended Sept. 25, over 2021 (and 7% on a three-year basis), while same-store sales were up 12% (and 32% since 2019).
While much of this success has to do with the robust physical growth of the burgeoning brand — adding 11 stores in Q3 with another 17 restaurant openings planned for Q4 — CEO Chris Tomasso noted on Monday’s earnings call that the business model of First Watch is particularly well-suited for the financial uncertainty and change in habits of the post-pandemic consumer:
“In addition to appealing to a high-income consumer, we've seen a desirable balance balancing out of our customer base with strong growth among the Millennial and Gen Z segments who now make up a majority of our heavy users,” Tomasso said. “These customer groups have the highest stated likelihood of increasing usage at restaurants, especially during the breakfast day part and in an environment where consumers are nervous about inflation. Breakfast or lunch at First Watch is an affordable luxury and an appealing alternative than more expensive meals like dinner […] with per person average check at just under $15.50.”
Besides breakfast prices naturally appealing to the penny-pinching crowd, First Watch’s growth has a lot to do with its focus on innovation (particularly menu innovation) and people. According to Tomasso, the rotating seasonal menu keeps people coming back for me, and to experience new food items like the holiday gingerbread doughnut holes, which were just added to the menu. Another major addition to First Watch has been an alcohol menu, which is now in 75% of restaurants after being rolled out initially in 2020 and drives up the price of the average check. A complete rollout systemwide is expected by the end of the year.
In addition to menu investment, First Watch is primarily focused on maintaining and supporting its people, Tomasso said, which has been crucial to lowering turnover rates. Of course, the company is in a unique position, since their hours are so much more flexible than the typical restaurant that’s open for dinner.
“We've done a tremendous amount of work around the employee proposition and benefits and other things,” Tomasso said. “I think being the fastest-growing full service restaurant company in America helps us attract applicants out there. […] It’s honestly a perfect time for us as we continue to ramp up our growth, to have the management pipeline that we have in place to support that growth is really important right now.”
Total revenues for First Watch increased 18.7% to $186.9 million in Q3 2022 from $157.4 million in Q3 2021. Net income was $46,000 in Q3 2022 compared to $0.8 million in Q3 2021.
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