The company’s operating profitability is much higher when it uses machines to make its salads.
Would you let a robot make your salad?
For customers at a pair of Sweetgreen (SG 5.16%) restaurants, the answer is a clear “yes.” At both outlets, the company is road-testing an automated system called Infinite Kitchen. This sets Sweetgreen apart from its peers in the hotly competitive fast casual space; while many are seeking to adapt AI to their operations, Sweetgreen is already using the technology to get food to its customers quickly.
Robot chefs
Now, two restaurants out of a total of 227 Sweetgreens across 19 states (as of the end of March) is only a drop in the bucket. But what Infinite Kitchen promises is very enticing for investors.
In the salad and healthy food restaurant chain company’s latest quarterly earnings call, management pointed out that the outlets with Infinite Kitchens averaged an operating margin of 28%. That’s 10 percentage points above the restaurants more traditionally staffed with humans. In a world where companies often devote lots of time and resources to improving metrics such as operating margin slightly, that gap is very wide.
It’s no wonder, then, that the performance of the twin Infinite Kitchens is, in the words of CEO Jonathan Neman, “giving us confidence in our go-forward deployment strategy.”
As can be imagined, outfitting its kitchens with robotic systems isn’t cheap. They cost roughly $450,000 to $500,000 to build out, and the changeover from human salad chefs to robots isn’t quick or easy.
Nevertheless, that operating margin spread is too wide to ignore. Sweetgreen management aims to open seven new Infinite Kitchen-equipped restaurants this year and retrofit three or four existing outlets with the system. That’ll cost a pretty penny, sure, but the company’s wallet is relatively fat. At the end of the aforementioned quarter it held nearly $244 million in cash in its coffers, and the machines clearly have vast, bottom-line-lifting potential.
Hungry for growth and profitability
Sweetgreen could use that lift because the young and ambitious restaurant operator — which hit the market in a splashy initial public offering (IPO) toward the end of 2021 — has yet to book a net profit.
That said, an assertive growth strategy that’s seen 41 of those 227 restaurants sprout up in that first quarter alone has greatly helped improve the fundamentals.
Revenue growth is tech company-level hot, with a 26% year-over-year improvement. And the net loss narrowed during that time frame, landing at just over $26 million from the year-ago deficit of almost $34 million. In fact, the former was one of the narrowest losses since the IPO. With that kind of performance, it’s not surprising that the company’s stock price has more than doubled from the beginning of the year.
The improvements should continue. The company is slated to release its second-quarter results on Aug. 8, and on average analysts expect it to reduce its per-share loss considerably — to $0.10 from the second-quarter 2023 shortfall of $0.19. The top line isn’t anticipated to jump as much as in the first quarter, still, those pundits are collectively modeling a 15%-plus improvement (to almost $181 million).
Sweetgreen isn’t the only restaurant company harnessing next-generation technology to bolster its operations. Anyone who’s visited a McDonald’s lately has probably used one of the convenient ordering kiosks or experienced the impressive speed of the drive-thru ordering and pickup process.
Those Infinite Kitchens hold a great deal of promise for the salad slinger, though. If effectively and widely deployed they could make a monster difference in both its operations and fundamentals.