Agriculture & foodtech IPO

Sweetgreen Hopes A Healthy Helping Of Tech Will Bring Profitability After IPO

Salad-slinging restaurant chain Sweetgreen is set to start trading on the New York Stock Exchange Thursday, following an IPO that company leaders hope will price between $23 and $25 per share, valuing the startup at about $2.7 billion. 

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The Washington, D.C.-based company, which was founded in 2007, has 140 stores in 13 states, where it employs more than 5,000 people and tries to tap into what it describes as a grossly underserved market for fast-food that is also fresh, seasonal and healthy. 

Its updated IPO prospectus, filed with the U.S. Securities and Exchange Commission last week, shows it’s expecting to double in size in the next three to five years after opening at least 30 new stores in 2021—despite the fact that it has yet to turn a profit. 

But remaining unprofitable isn’t unusual for startups, even many years after a launch. Sweetgreen leaders say that detail isn’t slowing their plans for a tech-fueled future that they hope will lead to profitability for the restaurant chain sooner than later. 

“We have built a purpose-driven brand with significantly greater reach than our current physical footprint,” company leaders said in IPO filings. “Our brand recognition, in combination with our passionate customer following, has enabled us to lead conversations on the importance of what we eat.”

Currently, the company relies on its digital presence and storefronts, primarily located in walkable financial and commercial districts in the U.S. But in the future, Sweetgreen could include drive-thru and pick-up only locations or international locales, the company said in its filing.

The road to profitability

When it comes to revenue, 2021 is turning out to be a better year for Sweetgreen than 2020, which was plagued by lockdown orders as the novel coronavirus swept the country. 

In the 39 weeks of 2021 leading up to Sept. 26, 2021, the company had recorded about $243 million in revenue, which is a significant jump from the $161 million in revenue it had recorded in the same time frame in 2020, when it also recorded $141 million in losses. In 2019, before the pandemic arrived, the startup saw $274 million in revenue for the entire year with $67 million in losses. 

Those numbers came as a surprise to some in recent weeks because they are in direct contradiction to what Sweetgreen co-founder and CEO Jonathan Neman told Recode editor Kara Swisher at the end of 2018, when he claimed the company had reached profitability. 

But the goal is to scale and become profitable, the company says in its prospectus. It hasn’t gotten there yet because of investments in operating efficiencies and new technology meant to help automate many of its processes—including preparing the food. 

That includes its September acquisition of Boston-based Spyce Food Co. “The purpose of the acquisition is to serve our food with even better quality, consistency, and efficiency in our restaurants via automation,” company officials said in the filing. 

“We are one of a select few restaurants designed with technology as the basis for all elements of our operations,” the company added. “Many restaurants were built on antiquated technology, and while they have tried to slowly adapt, we believe they are at a fundamental disadvantage given their large legacy footprints and historical underinvestment.” 

Even before robots start mixing their salads, Sweetgreen’s profit margins are beginning to return. 

In 2019, the restaurant reported a 16 percent profit margin, which quickly dipped to 4 percent in 2020. But that profit margin has bounced back to 12 percent as of Sept. 26, 2021, and to 14 percent for the third quarter alone. 

Company officials noted, however, that “urban stores in central business districts, in particular, continued to be significantly impacted by the pandemic and the spread of the Delta variant.”

That could change as workers begin to return to the office, according to J.J. Taughinbaugh, a senior vice president of investments who focuses on retail at commercial real estate brokerage Marcus & Millichap. Taughinbaugh is optimistic that retailers, including restaurants like Sweetgreen that cater to the work lunch crowd, will bounce back stronger than ever in the coming months as more employers begin bringing employees back to offices. 

“A lot of individuals do want to get back and see their coworkers and get out of the home, have that collaboration in the workforce,” he told Crunchbase News. “I do believe those same individuals will want to go out to lunch with their employer, coworkers and walk downtown and grab a salad. I think you’re going to see a lot more foot traffic in these coming months after the holidays, and restaurants, I think, are going to do very well.” 

Whether that will be enough to shoot Sweetgreen into the profitability they aspire to remains to be seen. 

Big winners

The investors who stand to gain the most from Sweetgreen’s IPO this week include Fidelity, which currently owns 13.4 percent of the company’s Class A common stock, and T. Rowe Price, which owns 10.6 percent. 

Not far behind is Revolution Growth, which owns just shy of 8 percent and D1 Master Holdco I LLC, which owns 7.2 percent of the company’s Class A common stock ahead of the IPO.

Sweetgreen will trade on the NYSE under the ticker symbol SG.

Illustration: Dom Guzman

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