First Watch — the Bradenton, Fla.-based breakfast and brunch chain — reported slightly negative same-store sales numbers of 0.3% and a 4% decrease in traffic for the second quarter ended June 30, as the casual-dining chain faced softer consumer spending. First Watch has particularly struggled to reach lower-income and less frequent guests, though notes that visits from the brand’s repeat customers have remained largely consistent.
It’s a familiar tale that has played out across the foodservice industry in multiple sectors. Many operators, particularly quick-service and fast-casual brands, have met this more cautious consumer with a wave of promotional activity, including new value meals and regular discounts. However, for First Watch this does not make sense strategically for multiple reasons:
“Our approach is in stark contrast to the broad-based discounting that many in our industry are deploying,” First Watch CEO Chris Tomasso said during Tuesday’s earnings call. “While aggressive promotions drive short term traffic, in some instances, we view that tactic as sacrificing margin from loyal customers while also attracting temporary discount-motivated customers with low recurrence rates.”
Instead, First Watch will be implementing strategic pricing increases, doubling down on digital marketing initiatives “to increase the frequency of targeted customer groups,” and taking advantage of the company’s new opt-in database of around seven million customers to create custom communications for different segments.
First Watch’s data segmentation just “kicked off in July,” Tomasso said, and so it’s still early days, but the company expects to see an impact in later quarters this year.
“I think as an industry we've been behind when it comes to data,” Tomasso told Nation’s Restaurant News after Tuesday’s earnings call. “We now have more access to data like that, so really, what we're doing right now is building that customer profile database. Whether it's frequency, demographic, psychographics, purchasing habits, etc. just to inform our decision-making around site selection for new restaurants, around marketing, and around impacting individual visits to the restaurants.”
One of the targets for First Watch’s database analysis is the infrequent customer, who appears to be contributing to the company’s challenged traffic numbers, particularly during the weekday breakfast and brunch service. The solution, Tomasso said, is to reach them via digital marketing and introduce them to the brand, because in an inflationary environment, customers are more likely to stick with what they know, he said.
“This is not a time where the consumer is up for surprises, and so the frequency of that first-time user is probably not happening for a lot of concepts right now,” Tomasso said. “The customer who might have bounced around and tried different places, that behavior is starting to subside… if we can influence that that infrequent and first-time user, we would need to lean on our core attributes and hopefully that resonates with them.”
Despite some of these challenges, First Watch’s second quarter traffic numbers have improved over the first quarter, bolstered by the largest strategic franchise acquisition in company history in April, with the acquisition of 15 restaurants in the Raleigh area. The company also opened seven restaurants in six states over the last quarter, bringing its portfolio total to 538 restaurants across 29 states.
In other good news for the Florida-based breakfast brand, operational efficiency is up, and labor turnover is down, marking six straight quarters of staffing improvements.
For the second quarter ended June 30, First Watch reported total revenues of $258.6 million, up 19.5% from $216.3 million the same quarter the year prior. Net income increased to $8.9 million, or 14 cents per share, up from $8million, or 13 cents per share the same quarter the year prior.
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