Q4 2021 Sweetgreen Inc Earnings Call
Thank you and good afternoon, everyone here with me today are Jonathan Neiman co founder and CEO and Mr. <unk> <unk> CFO .
Before we begin we have a couple of reminders.
We issued our earnings press release for the fiscal quarter ended December 26, 2021. After the market closed today and we will file our Form 10-K for the fiscal year ended December 26, 2021 in the upcoming days.
These documents are available and will be made available on our investor Relations website.
During this call we will be making comments of a forward looking nature, including statements regarding our financial outlook for the first quarter and for the full fiscal year 2022, our expectations regarding financial and business trends, our growth strategy and business aspirations and our expectations regarding the impacts of the COVID-19 pandemic.
On our fitness each as more fully described in our earnings release.
Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties.
For more information about some of these risks. Please review the company's SEC filings, including the section titled Risk factors in the prospectus filed by the company in connection with its initial public offering and our upcoming Form 10-K .
These forward looking statements are based on management's current business and market expectations. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP.
Conciliation of these items to the nearest U S. GAAP measure can be found in this afternoons press release, which is available on our Investor Relations website with that it's my pleasure to turn the call over to Jonathan to kick things off.
Thank you Rebecca and good afternoon, everyone.
We're excited to be with you here today as we begin our journey as a public company.
We typically start meeting with sweet Green by sharing what we call a moment of gratitude I'd.
I'd like to do that here and offer my thanks to our team members as well as our network with more than 200, sustainable farmers and suppliers, who partner with US every day, our oldest ship building healthier communities by connecting people to real food.
Their passion and purpose has been instrumental in helping us deliver a strong financial performance in our first quarter as a public company.
2021 was a record year for sweet Green with revenue of $340 million, an increase of 54% from fiscal year 2020, our performance demonstrates the strength of our business and we believe we are well positioned to create long term sustainable shareholder value.
Given this is our first earnings call I'll begin with our long term vision.
When Nicholas Nathaniel opened the first weaker restaurant in 2007, we were three college students who are simply looking for a healthier way.
We saw an opportunity to create a business for quality, we will never sacrifice for convenience driver.
Throughout our journey, we remain committed to this long term vision to redefine fast food globally.
Our goal is to be as ubiquitous as traditional fast food, but with the transparency and quality that consumers increasingly expect.
We believe we are well positioned to be the category defining food brand of our generation.
We sit at the intersection of powerful consumer trends, a greater focus on health and wellness our connection to purpose driven brands and rapid adoption of digital connectivity.
Studies show that nearly two thirds of Americans want to eat healthier and nearly half of all Americans are planning to incorporate more plant based foods into their diets Sweet Green is poised to benefit from this shift.
Our food ethos is rooted in the delicious nutrient dense and sustainable.
We serve a healthy craveable customizable menu that features fresh vegetables, wholegrain and lean proteins that can accommodate any flavor profile for dietary preference.
Our food ethos gives us license to expand our offerings beyond sells a warm roles, including warmer part of your place in size to grow our base price in basket size.
Over the next few years, we will invest in executing our mission at scale through four strategic pillars.
First is to expand and evolve our footprint in new and existing markets.
The second is to enhance our digital experience with a focus on our own digital relationships.
Third is to solidify our brand as the industry leader.
And the Florida.
Obsess over the team member experience.
Curious how we believe each of these pillars will be critical to continuing our competitive advantage.
Rapidly expanding and evolving our footprint will allow us to connect more communities to real food.
A proven portable restaurant model and brand that resonates across geographies and.
In 2021, we successfully opened 31, new restaurants and enter two new markets Atlanta, and Dallas, We ended fiscal year 2021, with a 150 securities.
While we are still in the early stages of our growth journey, we believe sweet Green has tremendous white space since.
Since fiscal year 2014, we have more than five echostar footprint and are on track to double over the next three years to five years we.
We see a clear runway to 1000 restaurants by the end of the decade.
In 2022, we anticipate opening at least 35, new Sweet dreams, and two to three new markets as well as in existing markets to densify our footprint there.
This year to date, we've opened six restaurants, and one new market San Diego.
As part of expanding our footprint, we are exploring new restaurant format to enhance convenience.
We also enabled convenience through our digital ecosystem, allowing us to add new customer channels and drive frequency and additional restaurant volume at the center of this ecosystem is our award winning out.
Early in our history, we realize that digital connection was essential to deepening our customer relationships.
We're a pioneer with the introduction of digital pick up in 2013, an outpost our <unk> delivery model in 2018.
Were an early mover in developing our own native delivery experienced in 2020 alongside marketplace delivery.
There are customers visit their local sweet green on our fresh meal delivered to their homes or grab lunch on output shelf at work they can get their personalized order and a convenient frictionless way wherever they are.
We consider ourselves an industry leader in the shift to digital digital sales represented 67% of our fiscal year 2021 total revenue.
Two thirds of those digital sales came through our own digital channels, our app and website, which provided the most seamless and personalized ordering experience for our customers.
Our high percentage of owned digital revenue contribution has several strategic advantages. These include greater order frequency larger average order value and access to data to better understand consumer preferences and behavior.
Have a clearly defined strategy to drive one digital acquisition.
To make our App the best way to order Sweet Green offer the best value in App and enable exclusive experiences, including our seasonal menu personalized promotions curated collection and chef and Influencer influencer collaborations.
Yes.
As an example today you can only find esports gamer and sweet green customer balanced crazed custom role on our own digital channels.
Next season, you could only order our delicious too material placed on the street right now.
<unk> is a key advantage is our healthy customizable menu offering and digitally frictionless experience offers the potential for increased occasions versus traditional fast food.
We are at the start of our journey to create a tailored promotions and loyalty to drive incremental customer frequency and improve customer spend.
In January we piloted suite pass a limited time offer subscription.
We exceeded our pilot expectations across all customer cohorts, particularly with new and lapsed customers and look forward to sharing more takeaways on our Q1 earnings call.
As a first mover in the industry, we're always looking for new and creative ways to engage with our guests and are excited to continue to test and learn how we can offer flexible options that fit their lifestyle, including digital challenges personalized offers and membership option.
Our delivery business continued impressive growth as well to enable a better delivery experience for our customers. We transitioned in November and door dash as our primary carrier partner for delivery orders may be <unk>.
It was a smooth transition that resulted in improved per delivery rates per sweet green and faster delivery times for our customers leading to higher customer satisfaction within our own delivery channel.
Additionally, we are testing, we expanded delivery radii to reach more customers in our marketplace channel.
Our brand is designed to inspire consumers to live healthier lives without compromising their values. This allows sweet green to lead conversations on the importance of what we eat and the impact it has on the environment.
From our music Festival suite life in 2011 to 2016 to our collaboration with like minded partners, such as David Chang Mountain within Iot Osaka over the past 15 years, we maintained our relevance by incorporating lifestyle music and social impact into our mission driven Brian .
Our goal is to connect food agriculture to help redefine what's the SaaS food industry will look like in three years ago.
Enabling all of these strategies is our ability to operate great restaurants and that starts with people.
Our team members are our most important ingredient and we will continue to be a leading brand because of that.
Happy team members lead to happy customers, we nurture this in several ways, including investing in our talent continuously simplifying our operations and investing in tools to optimize execution.
Our almost 5000 team members joining sweet green to be part of a fast paced mission driven company with significant growth opportunities.
We obsess over their experience fostering development of lifelong skills and helping advance their careers.
And as few as three years team members can become a head coach our version of a restaurant GM and earn a six figure package, including equity and Sui rate.
In October 2021, Sweet Green was named number 18 on Newsweek's top 100, most level workplaces.
I think we make in our people return tangible benefits, including better customer experience and improve restaurant operations.
Additionally, we have invested in technology to empower our people our team members, who bring our food ethos to life by freshly preparing our ingredients in each of our restaurants daily.
To optimize for food safety execution and efficiency, we have simplified our menu and digitize processes to help manage daily inventory to ensure freshness guide recipe preparation and cooking times as well as increased accuracy and speed of service.
We believe that these strategic pillars fuel our flywheel for growth and profitability. Our brand residents combined with a massive Tam menu design during a situation digital channels designed to increase customer frequency and restaurant productivity with a highly passionate team makes for a very valuable and scalable.
Model.
I want to end by again thanking our team members for working tirelessly to help us deliver our mission of building healthier communities by connecting people to real food.
They are our most important ingredient and are key to long term success now I'll hand, it over to Mitch to review, our Q4 financial results.
Thank you all for joining us today I'm excited to be here with you for our first earnings call.
IPO in November marked a major milestone for sweet Green as we enter our next growth phase I want to begin by taking the financial community and our investors for their support.
Well capitalized to execute on our long term strategic priorities.
We are happy to report strong fourth quarter results, even with the continuing impact of COVID-19 total revenue in the fourth quarter reached $96 4 million up from $59 2 million in the fourth quarter of 2020 growing 63% year over year.
This growth was primarily driven by same store sales growth of 36% of which are transactions and mix was 32% and a price increase of just under 4%.
For the important part of our digital mix was 65% of total revenue and our own digital revenue that is transactions made under suite printed out for website was 43% of revenue.
<unk> digital purchase we understand who our customer is when and where they visit US we are able to leverage data for personalized marketing, resulting in higher customer frequency and higher average order value.
Our digital revenue as a percentage of total revenue fell slightly given the positive growth of our frontline channel, which we view as healthy for our overall business is our in store volume has continued to recover from Covid through 2021, we are very pleased with the stickiness of our delivery business.
During the fourth quarter, we opened 10, new restaurants up from four in the fourth quarter of 2020. Since this is our year end call. We wanted to reflect on how the class of 2021 performed in total we opened 31 restaurants in 2021 13 of these stores are urban and 18 or suburban.
In residential we opened up the following new markets Atlanta with three restaurants in Dallas with one we are currently projecting that as a group the class of 2021, new restaurant openings will at least achieve our year two revenue targets for new stores of between two eight and $3 million.
Our average unit volume grew to $2 6 million from $2 2 million in 2020 restaurant level margins for the fourth quarter were 13% rebounding from a negative 4% in 2020. The margin improvement was largely the result of sales leverage the impact of our price increase and the elimination.
Our loyalty program.
These factors led to an improvement across all major line items food and beverage labor occupancy and other costs for reconciliation of restaurant level margin to comparable GAAP figures. Please refer to the earnings release.
Food and beverage and packaging costs were 28% of revenue an improvement of 170 basis points from 2020.
We did experience some inflationary pressure on commodities, which were more than offset by improvements in packaging costs.
Anticipate some inflationary pressures in 2022, particularly coming from freight expenses at this time, we believe as a percent of sales of our food beverage and packaging costs for 2022 will be in line with 2021.
Labor related costs were 32% of revenue an improvement of 560 basis points from 2020. This margin improvement resulted from reducing the complexity of our menu at simplifying our label sculpturing with some of these gains being invested into higher wages at this point in time for 2022.
We believe labor and related costs as a percentage of revenue will be in line with 2021.
Occupancy and related expenses were 15% of revenue an improvement of 460 basis points. This improvement is the result of sales leverage from higher volumes.
Our G&A expense for the quarter was $47 million or 48% of sales compared to $27 million or 46% of sales in 2020.
This $20 million increase in G&A is primarily attributable to a $21 $5 million increase in stock based compensation expense and 300000 of non reoccurring spice acquisition costs <unk>.
Excluding the stock based compensation and Spice acquisition costs G&A for the quarter was $24 million compared to $26 million. In 2020. This decrease in G&A was largely the result of lower costs associated with onetime COVID-19 expenses offset by higher public company costs over the past several.
Years, we have made significant investments in G&A, excluding stock based compensation, primarily in technology and our people.
We believe that we will continue to experience meaningful sales leverage in G&A, excluding stock based compensation moving forward for 2022, we anticipate stock compensation will be around $82 million.
Our net loss for the quarter was $66 million up from $41 million in 2020. The increase was attributable to a $22 million increase in stock based compensation. There was also a $17 million increase in other expense of which 13 billion is due to a onetime noncash adjustment really.
<unk> to the change in fair value of our warrants issued prior to the IPO as the warrants converted to common stock at the IPO. So there will be no further adjustments related to the warrant valuation.
Additionally, in the quarter, we incurred $4 million of noncash expense related to the increase in fair value of our contingent consideration issued as part of the Spice transaction.
Adjusted EBITDA for the quarter was a loss of 14 million for an improvement from the 2020 loss of 29 million.
This improvement is the result of higher sales improved restaurant level margins and lower adjusted G&A for a reconciliation of adjusted EBITDA to the comparable GAAP figures. Please refer to our earnings release.
Now looking forward to 2022.
Given sweeping theres a long term focused company, we plan only giving annual guidance. However, given the timing of this earnings report in relationship to the quarter end, we are issuing a one time quarterly guidance for the first quarter of fiscal year 2022.
Like most businesses during the beginning of the quarter.
Obviously, we saw a significant impact from Loma crop. The imperative is broadly felt across many areas, including lower demand reduced staffing and in some cases, leading to a limited operating hours and reduced line capacity. Additionally, adverse weather on the east coast impacted sales by mid February .
During these impacts dissipated and we returned to our pre omicron growth trajectory.
Taking all of this into account we believe in the first quarter, we will deliver seven new restaurant openings in the first quarter of 2022 revenue ranging from $100 million to 102 million same store sales growth between 30, and 33% restaurant level margins between.
10, and 11% and adjusted EBITDA loss of between 20 million and a loss of 18 million for fiscal year 2022, we anticipate the following assuming no additional COVID-19 headwinds.
At least 35, new restaurant openings revenue ranging from $515 billion to 535 million.
Same store sales growth between 20, and 26% restaurant level margins between 16, and 17% and adjusted EBITDA between a loss of $40 million and a loss of 33 million.
In closing we are very pleased with our 2021 results. We are confident about us we queen is positioned and our ability to scale our mission of connecting people to real food. We have built a great brand a solid infrastructure across our people supply chain and technology that we believe positions us to profitably grow our business.
It creates shareholder value.
Want to end by extending my gratitude to our team members in the restaurants and our support center, who have worked tirelessly. During these challenging times to a 2021 to a successful year with that I will turn the call back to the operator to start Q&A.
At this time I would like to remind everyone in order to add.
Ask a question press star followed by the number one on your telephone keypad.
Your first question comes from the line of Jared Garber with Goldman Sachs. Your line is open.
Hi, Thanks for taking the question and congrats on.
Strong quarter.
Typically related to some of the omicron headwinds I.
I wanted to get a sense Mitch you guided to basically in line unit growth next year in 2022, and I think the fourth quarter came in just slightly ahead of where you would.
We're expecting a couple of months ago can you talk about some of the headwinds that youre seeing or lack thereof in terms of the supply chain and opening the restaurants, we've obviously heard a lot about the ways in labor and staffing challenges as it relates to opening so wanted to discuss sense of your comfort and your confidence in hitting that number for 'twenty two.
Hey, Jared Hi, Jonathan.
As you noted we've definitely seen some challenges as it related to new openings from our construction and labor perspective, but having said that we feel very confident in the guidance of at least 35, new stores. So I want to give a huge hats off to our real estate and development team really building a healthy pipeline of just iconic location.
And for US it's about Optionality as we've opened in more and more markets. We have more places where we can continue to grow the brand and I think there's been a bit of a shift and how we have been received in new markets not just from a customer perspective or from a landlord and community perspective, So we're starting to see better real estate, which creates the flywheel.
For us and I'll say, despite the challenges around supply chain on the labor from a construction perspective, we feel we feel really confident in the 30 at least 35 new stores for the year.
Okay.
Okay, great. Thanks, so much.
Yes.
Your next question is from.
Ivan with Jpmorgan Your line is open.
Hi, Thank you how are you.
Are you guys.
In the prepared remarks, I mean, I think I heard.
Labor being flat 'twenty, two versus 21, I wanted to kind of dive into that a little bit I think you're.
Guidance assumes some pretty significant average unit volume increases 22 versus 21, so labor leverage might be expected.
In such an average unit volume increase so are there any significant changes that are happening beneath the surface in terms of the employee that you're attracting.
What youre doing on the retention side. Please comment on your turnover numbers. If you can both at the hourly and manager level.
If youre beginning to change your human resource practices in some way that might be leading to higher labor costs at least as a percentage of sales than what the topline with otherwise suggest.
Yes, Hi, Jon how are you.
As you can as you've seen across the industry labor has definitely been a challenge both largely due to the pandemic.
The impacts we saw there as models a lot of the wage inflation that we've seen so we're not immune to that and maybe talk a little bit about those inflationary pressures the price offset that we've had to your point there is definitely a lot of sales leverage they're having.
Having said that the recovery that we are expecting.
This is not significant and significantly more than the recovery already seen we're looking just to return really to pre omnicom recovery levels.
But we do need some little bit more recovery.
We hit our numbers from a from.
From a people perspective, and we've done a lot last year, we made a few a few really important moves to set us up one was.
What we call is a simplification around how we are around our store structure. So we went from about 25 different job codes out of our restaurants.
Sure.
<unk>. So we cross trained all of our team members. So it created a much more resilient labor where team members have been cross trained that can work across different position. While this does is it helps us as we flex.
And beyond that we made a number of investments in our team members whether that be holiday pay taking average wages.
We introduced our retention grant at the end of last year and we also.
Have you been investing in equity in our team members last year right before the IPO, we did what we call. Our gratitude grant every single team member working at Sweet Green, We Havent principled leadership principles, we began acting like an owner and for US. It was really proud moment to actually make every team member and owner there and our goal is not just.
On the compensation side, but on the environment, making sweet Green a great place to work. So one of the thing that one of the things that really sets us apart in the industry is the opportunity around growth and development. We are in the very early stages.
156, restaurants, and we've developed a clear path to the head coach which is our GM from a key member you can join Sweet Green and within three years go from a team member to our head coach making $100000 plus package.
So while there's a lot of lot of things going on and how we how we develop our team members and really support them.
Hi, John Let me just filling up a little bit of the data to answer your question.
Took a 6% price increase at the beginning of the year and in terms of wages were envisioning approximately a 7% inflation is back in 2022 as a result of that we held our labor as a percent of revenue was 32% of sales for 2022 in line with 2021.
In short a slightly higher wage pressure will offset any gains from the leverage from the higher rates.
Yes.
Okay Alright.
And if I can can you.
I don't know if you want to do it once a year.
We're prepared to do it once a quarter.
Can you talk about the turnover numbers that you have at the staff and the head coach level, just kind of where that's trending and if you've got caught up in any of the kind of great resignation. If you will that this the overall industry has seen over the past six months.
Yes, Jonathan I guess, what I can say that you think so there is definitely a spike last year due to a few things one omni cry and a lot of them.
Called the great resignation pressures that the whole industry saw.
Adding to that a lot of the vaccine mandate that we had that were in place, which forced us to make some changes to our team having said all of that we've seen our turnover has stabilized and are seeing our average tenure increase so our today. Our average tenure for our head coach is that two and a half years and our average team member tenure at that one year.
So we're seeing.
Definitely some pressure in the first 90 days, but add team members make it past 90 days, we're seeing a lot of stickiness and I think that says a lot about the growth opportunities we offer for our team members and the environment culture.
And lifelong skills that we're providing for them. So again I would like to.
Hats off to our store leaders and our leadership team as well as our our people team for some a really amazing work in a really challenging environment.
One thing I'd build on that is as we saw pressures building into the fourth quarter, we put in place a retention bonus program, which ran through December through January to really hold the labor in place as we saw a lot of disruption in the labor market that program was successful and what we've seen recently is really an improvement.
Slow about because you've got the labor market.
Thank you very much.
Okay.
Your next question comes from the line up with John Glass with Morgan Stanley . Your line is open.
Thanks, Good afternoon, everyone.
Would you like commenting on.
On the recovery by sort of urban versus suburban markets.
We did the comp with the comp led by recovery number, but maybe you can comment on the Manhattan units. For example, other suburban markets recover just getting a sense of what's driving the sales and how those different cohorts are performing thanks.
Hi, John .
Let me say.
In terms of the suburban and urban split to their business, we don't disclose specific numbers around that but what we found is the fourth quarter.
<unk> is growing piece of our business what is the urban segment and it was specifically into Midtown Manhattan market, but we saw very rapid recovery.
And we're very very pleased with that the urban stores certainly if you compare them to 2019, we would say.
Fully recovered to those levels that we saw.
Yes, if I can just build on that what gives us confidence here is made of lumpiness. Some moves during the pandemic, specifically around our digital channels and building out our delivery channel.
And so when you take the growth of that panel and then look at the actual recovery one metric. We track closely is the castle office recovery data today nationally that's at 36% in New York, It's about 30% and so we're not expecting that come anywhere near 100%, but for us It does it.
So we feel we feel really good about where we sit today and with all of the removal of mass mandate and returned to all of the states that are being set it gives us pretty good line of sight and confidence that covered the urban recovery need is there for us.
That's very helpful.
<unk> talked about.
You're most excited about for 'twenty, two you mentioned subscription and Ela you maybe want to talk about that later, but is that a key part of the 'twenty. Two plan is menu innovation and what maybe what parts of menu.
Innovation is important to 'twenty, two where you're thinking about bringing beverages back online or more beverages things that what are you doing internally I guess to drive sales and kind of what are the rank order of things do you think are most important in 'twenty two aside from just recovery from Covid.
Yeah, Great question. So there's a number of things that work on you touched us royalties to be passed we ran a pilot in January .
Something we called Sweet path and it was a membership test for us essentially the way. It work is we spent $10 and exchange you've got $3 off every day for 30 days.
The results really exceeded our expectations across all cohorts, especially with new and lapsed customers and lower frequency customers. So it gave us a lot of interesting data and things for us.
As we look forward and test and iterate, our way through what our future loyalty could be for us.
Beyond that digital driving our digital sales as a huge opportunity so in the prepared remarks.
Heard you heard us talk about delivery and the move towards the door dash.
Through the optimization around that channel, we're offering a much better quality of service faster delivery time more on time rate cheaper better economics for us and our customers.
And we're beginning to test into larger radius delivery radii. So that's another channel that we're continuing to push on another place, where we're continuing to push us around personalized promotion.
On some really interesting work around around this idea of personalized promotions, so giving you the right promotion at the right time, whether that be by channel by day part or by menu. So we have some some cool things coming out throughout the year and it's a constant test and iterate approach and the data that we have and the high digital penetration.
How's us to really flex that muscle.
From a menu perspective, we're constantly optimizing and innovating so.
Break that up into three categories three buckets, the first being constant optimization of our menu. We're constantly looking at both our bowls and our skus and figuring out ways to make them better. So youll see constant improvement there throughout the year. The second is you mentioned is around the catchment and we've actually had a lot of success around some of them.
Our new beverage programs and some of the size that we've been testing so expect expect some more.
Some more news there in the coming quarters around around attachment and then the third is around new menu innovation.
Any new menu innovation, we think about it.
Really in two ways one how.
How can we push our core menu to acquire new customers for us that's a pretty big push towards hardier food. We've had a lot of success with our place really the hot Honey chicken plate had been a huge success for us and so we're going to continue to push on hardware foods, specifically with in place and things that will do well for us and broadening our.
Our consumer base.
Getting us a little bit being more relevant at dinner as well as creating more frequency.
We also have what we call digital exclusives, so within our menu we have a number of menu items that you can only have but you can own are only offered on our own digital channels and again, that's where we can test the number of new things.
Kind of mid season, using our a lot of data that we're able to collect and what's amazing about the digital exclusives, we are able to do them without any complexity added to the restaurants. So so today disciplined approach to creating units for our guests without any additional.
<unk>.
For our team members and the last thing I'll say is that the and definitely not least probably most importantly is running great restaurants.
Our people.
Great leadership, and running a great restaurant drive loyalty and drive the AEP East and so we're really focused on developing great leaders.
Painting, great talent, and creating great customer experiences and we believe some of that just execution and executing brilliantly within our restaurants is also going to be a sales driver for us.
Thank you so much.
Yes.
Thank you.
Your next question is.
Line of Andrew Charles with Cowen Your line is open.
Great. Thanks.
John that's a great segue to my question you guys called out the stickiness of digital sales the frontline reopened I know it ticked down a bit but you know really what sticky where do you envision the long term digitally digital mix settling out I would imagine that you'd love to get it as high as he possibly could but I mean, what do you think is a realistic level just given proactive efforts that you have in place to build this via digital.
On the innovation and initiatives like Sweet pass that you know it sounds like we're gonna see more to come on that.
Yes, so maybe.
It's Andrew good to hear from us.
For us the frontline coming back and our digit overall digital revenue going down is actually a very good for us what I would say at our restaurants are at one of our best customer acquisition vehicles, and we are very clear ways and strategies and tactics are moving frontline customers and moving them onto our digital channels and we.
We understand what happens when we do that once we take our frontline customer moving to digital they are coming at least one five times more frequently more frequently and they are spending 20% more per transaction once we move them to it too.
Two channel customer they are coming to five times more so for us it.
There is a healthy ecosystem of having that customer kind of discover us on the frontline and then being moved to a digital customer.
Over time, we're going to continue to lean into and to a lot of the strengths. We have from a digital perspective. So today, we do things like digital exclusives our menu.
Our menu and our deliveries cheaper on or it's more affordable for our customers.
And it is our marketplaces and we're going to continue to invest in better experiences to make this the best place to order Sweet Green in many ways. We're at reasons for you to use our digital experience beyond.
Beyond that you can't get in their restaurants, and we already have some of those so we're pretty confident in continuing to hold that number, but we're not really stuck or not.
Too worried and hung up on that number slightly going down because we see that is a good thing.
The business.
That makes total sense.
Mitch I appreciate the detail on labor inflation, that's expected to be 7% in 2022, you called out just want to turn to the Cogs I mean, you called out a recent spike in Cogs and guided 2022 <unk> in line with 2021 levels, what's the underlying level of Cogs inflation embedded in 2020 guidance and can you comment specifically on avocados just briefly.
<unk> led to heightened inflation versus your prior expectations.
So.
<unk>.
Looking back at 2021, we had approximately 3% inflation in food and beverage.
We offset that with price.
Since we made the source when you look out to 2022 here, we see approximately a 6% inflation rate, which has been offset with price increases.
We're fortunate that we don't source beef and other items that have had a lot of rapid inflation in most of our sourcing is local and work down there, which is providing some degree of insulation. Some of the recent cost pressures spill.
Specifically mentioned avocados.
We do see some pressure in avocados, beginning of this year, but according to our supply group, we actually see that reversing towards the back half of the year.
Yes, if I could just add.
If I could just add one note on that I think I think the fact that we do not serve in our restaurants is a huge advantage for us for us we do it more front of food eat those perspective.
And a sustainability perspective, but it's been a lot of pressure on beef prices.
One thing that we're insulated from.
Yeah.
Very good thanks, guys.
Thank you.
Your next question comes from the line of Brian Bittner with Oppenheimer. Your line is open.
Thanks for the question and congratulations guys on your first earnings call here.
I wanted to also stay on margins the margin outlook for 2022 is very impressive, particularly given these inflationary pressures but.
As you think about catalyst to improve margins and longer term past 2022, what are the top drivers. There I know sales leverage is a big driver, but outside of that what are the top drivers and how impactful could automation beat your margin path is.
Fully integrate the Spice acquisition.
So let me start off with.
Thank you for your comments, we see the business continuing to we have to have margin expansion over the next few years.
Carter this is approximately a six 2% margins at the restaurant level this year a part.
Part of the improvements in margins you mentioned are largely coming out sales leverage as you know.
We operated five channels of our stores in store checkout.
Native delivery marketplace delivery hubs.
And we really have never operated all five channels.
Yeah.
Fire, but so we're starting to see some sales lift from that but we think that will propel us forward for several more years to come.
And we think that that's just going to be to accelerate on our margins. In addition to which John talked about we don't think of our loyalty program.
Location, so we see a major lift in volume trends.
Motion of reps.
Addition to that as.
At the restaurant level, but we've got a lot of work around what we call our operation simplification initiative to really screen blanked the way we operate our actual restaurants.
The simplification of labor classifications has given us more flexibility and labor essentially and in addition to what are some sourcing changes that it can be margin accretive over time.
Very confident on the long run and larger.
As you know we can make the spice acquisition spuds that position is.
Major acquisition in terms of changing the labor model and at this point, we really don't have a lot to add to that except to say, we're very pleased with the progress we've seen with our Spice acquisition and at this point in time. This certainly at time.
Great. Thank you.
Okay.
Alright.
Your next question is from Chris Carroll with RBC capital markets. Your line is open.
Thanks for the question and good afternoon, and great to hear from you all.
I think you mentioned additional pricing actions at the beginning of the year. So I was hoping if you could provide an update on just kind of philosophically, how you're thinking about pricing today, perhaps how customers have responded to pricing actions and to what extent you think you have further pricing power should cost headwind to last longer or greater.
Than anticipated.
Thanks, Chris.
<unk> for the question Eric.
Let me first answer that a little bit of a historical perspective.
We believe as a company we have a lot of pricing power with our customer. We think that comes from the fact that we have or a cult like following with a lot of customer loved that we built through marketing over many many years our customers can taste the difference in our product and the freshness product and they all start with highly value the convenience we offer them.
Up to our technology with our ordering app really seamless pickup. So we do believe we have a lot of pricing power. We also have recognizance that our mission is to connect more people to real food and as such we would like our price points to be accessible. So when we look at our pricing architecture, what we've done in the past few years is spread.
Out of our price points to be sure. We always maintained high value entry price points to bring new customers yet.
So we think that we are kind of have the correct pricing architecture in place.
A lot of pricing power.
And my view use that judiciously, because we certainly want to continue to connect with our customers, but if need be we are certainly prepared to use some nominal price increase towards the middle back half of the year to protect margins in the event, we see inflation runaway.
Yes.
Great. Thank you.
Okay.
And your final question comes from the line of Sharon Zackfia with William Blair. Your line is open.
Hi, Good afternoon I appreciate the commentary on the class of 'twenty. One I was also curious on how the digital spend is ramping in that class maybe relative to prior classes and then on the outpost I think you ended the third quarter with around 350 reopened where are you at now.
For all post and how do you expect that to ramp in 'twenty two.
Hi, Sharon Thanks for the question so.
I'll start with the outflows part in that and then I guess.
The digital and the new store. So we've actually been pleasantly pleased with outflows for us what's interesting about our posted its bit of a leading indicator on return to office and so it's been ahead of our expectations. We're today at over 500 outpost and are seeing some really nice.
Kind of like record revenue of outflows.
Yes.
Above and beyond where we expect it to be at this point in the recovery. So for US it's still very early in the world.
Office coming back which is the primary use case for us, but overall overall, it's been a nice leading indicator for us and pleasantly surprised with over 500 outflows.
Today, and more and more launches have the sign ups are accelerating we have having 17 launching next week.
Yeah.
Got it.
Sure Let me take the second part of your question, which is how do we see a digital a ramp in our new stores is fairly interesting, we see our new stores adopting our digital ordering app at a much faster rate.
The historical scores have done as a result, when you look at it as a percentage of revenue and new stores are roughly in line average.
And that happens.
Proximately 60 to 90 day period of our opening so we're very pleased with the progress we see.
Okay, great. Thank you.
There are no further questions at this time my pleasure to turn to call back.
Over to Mr. Jonathan <unk>, CEO and co founder.
Thank you.
Want to take a moment to thank you all for joining us on our inaugural <unk> inaugural earnings call. We really believe we have the winning recipe for long term growth and shareholder value creation I can leave you with one major takeaways about sweet Green is that 2021 and in particular Q4, which to be honest is typically our most challenging quarter because of this.
Seasonality in our business shows the strength of our products our brand and our mission.
As the country started to emerge from the pandemic in the second half of 'twenty. One we saw significant improvement in our revenue same store sales and restaurant level profit and we firmly believe that this is just the beginning of the recovery as we look out in 2022, we're optimistic while we experienced some choppiness in the Army Corps in the first four weeks in the quarter.
And there are larger global macroeconomic forces at play we are confident that the remainder of 2022 combined with our focus on execution as we scale provides a strong indication of what we can expect in 'twenty two and beyond so thank.
You all for joining us on today's call and on this journey, it's only the beginning as we redefined fast food.
Ladies and gentlemen, thank you for your participation.
Includes today's conference call you may now disconnect.
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