Sweetgreen: limp office return spells trouble for fancy salads

The “sad desk salad” is not quite the status symbol it once was. Start-up restaurant chain Sweetgreen went public last November. Its shares nearly doubled in the days after its listing, implying an enterprise value of above $6bn.

The company is known for its lettuce and grain-based inventions that are both healthy and pricey; a Sweetgreen bowl can approach $20 in total costs. The chain has fewer than 200 locations now but is aiming to get to 1,000 by the end of this decade. Its role model remains Chipotle, the burrito vendor that has strived to be a superior fast-food model and now has an enterprise value of $45bn.

Sweetgreen’s core customer so far has been the busy, upscale office worker with deep pockets. But fewer bankers or corporate executives are now motivated to commute five times a week. In August, Sweetgreen reported a soft second quarter and lowered its 2022 forecast. Its management blamed the shortfall in part on an uneven return to the office in such dense locations as New York City.

September has seen improved office occupancy as summer vacations have ended. But even Sweetgreen says that the new world will reflect at best four or even three in-office days as the norm. The company has said that it may even thrive as weaker competitors will simply close shop.

Even with the trimmed 2022 sales forecast, Sweetgreen says its same-store sales growth could still reach as high as 15 per cent this year. After building the brand in big cities, the management now sees its future in American suburbs where a majority of its locations will eventually be.

Growth companies such as Sweetgreen have depended on abundant cheap capital. While individual Sweetgreen locations have operating margins approaching 20 per cent, at a group-level the company still loses money. At the same time, its enterprise value to forward sales ratio has fallen from 13 times to under three times. That is a measure of the reduced appetite for unprofitable business models.