There are few things more exciting on Wall Street than a young, up-and-coming restaurant brand. Geographic expansion plans for companies like Cava Group (CAVA 2.07%) and Dutch Bros (BROS -0.84%) often result in incredible revenue growth. But there's more to look at when picking an up-and-coming food concept than rising revenue. Here's why Cava looks like it is in a better position to thrive than Dutch Bros right now.
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Both concepts are growing fast
Cava and its Mediterranean-themed food was able to increase revenue nearly 60% in 2023. That was helped along by the opening of 73 new locations, bringing the total store count to 309 by the end of the year. That's a massive 30% jump in the store count in just one year. That pace of store openings is not sustainable, and management knows it, with the new store growth target for 2024 set to come in between 48 and 52 new locations.
Coffee house Dutch Bros was able to boost its top line by roughly 30% in 2023. The company opened 159 new locations, bringing its total store count to 831. That's a nearly 24% increase in the chain's store base. The goal for 2024 is to open around 150 to 165 locations, keeping the pace of expansion roughly in line with 2023's level.
These two restaurant companies are clearly growing quickly although Cava achieved more rapid growth in 2023. That said, over time as Cava's store count expands, it will probably become harder and harder to post such impressive numbers. Yes, it has an edge on growth today, but don't expect that to last forever.
One big factor is the nature of restaurants, which tend to draw from a larger area, and coffee shops, which tend to have a smaller area from which they pull in customers. In short, more Dutch Bros coffee houses can probably be put in the same geographic region than Cava can put Mediterranean-themed food joints in one area. In fact, saturating an area, which management calls "fortressing," is a basic part of Dutch Bros' approach. All told, Dutch Bros may have a longer runway for new store openings.
There's more to the story than just store count
So in some ways, it seems like Dutch Bros might be the more attractive option. But there are a couple of additional interesting numbers to look at beyond store count. For example, same-store sales growth, which excludes the sales of new restaurants, came in at nearly 18% for Cava in 2023 versus 2.8% for Dutch Bros. That suggests that Cava's concept is resonating much more strongly with consumers than Dutch Bros' concept right now.
That is a point in Cava's favor, though Dutch Bros is intentionally suppressing same-store sales growth with its fortressing strategy. The goal is to start new locations off with a built-in customer base, but even accounting for that, customer demand for Cava's food is still impressive.
There's also an interesting difference when you look at each company's balance sheet. At the end of 2023, Dutch Bros was carrying around $93 million in long-term debt. Cava ended 2023 with no long-term debt and a cash hoard of over $332 million. This isn't to suggest that Dutch Bros is taking a huge financial risk because of the leverage it is using, only that Cava looks way better positioned to continue investing in new store growth. This is another big point in favor of Cava.
Cava is working from a stronger position
The truth is that both companies are heavily focused on growth, and near-term profits will probably take a back seat to the expansion effort. That's not unusual for a young restaurant chain. So the fact that Dutch Bros lost $0.02 per share in the fourth quarter of 2023 while Cava earned $0.02 per share probably isn't particularly important.
But it is hard to ignore the cash Cava has to invest and the strong demand for its food based on same-store sales. Even though Dutch Bros probably has a greater opportunity to open coffee shops over the long term, it seems like Cava is better positioned right now to execute on its growth objectives.
