As more Charlie Munger tributes circulate the internet this weekend, one nugget from his early years stands out.

Before becoming a household name in the investing and business communities, Munger was in a world of hurt. At 31, he was divorced, virtually broke, and burying his 9-year-old son, who had died from cancer.

Yet Munger, who would later go blind in one eye, said that “every mischance in life, however bad, created an opportunity to behave well.”

🍻 Cheers to that.

Today, we'll discuss the story of Cava, the Mediterranean fast-casual chain, and whether it can be the next Chipotle.

All this, and more, in just 4 minutes to read.

— Matthew

QUOTE OF THE DAY

"The best thing a human being can do is to help another human being know more."

— Charlie Munger

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QUICK POLL

COULD CAVA BE THE NEXT CHIPOTLE?

A taste of Greece

It’s 2006 in Washington, D.C., and three friends are catching up over coffee.

As the story goes, Greek-Americans Ike Grigoropoulos, Ted Xenohristos, and Dimitri Moshovitis got talking about ideas. Eventually, they agreed to bring the Mediterranean flavors to the nation’s capital and give Americans a taste of Greece with a restaurant.

They opened their dream establishment, a full-service Mediterranean restaurant called Cava Mezze, in Rockville, Maryland. It became a popular neighborhood hangout, but their restaurant was a full-service, traditional sit-down restaurant, not a quick in-and-out establishment. 

As Chipotle popularized the fast-casual restaurant, Cava Mezze’s owners wanted to try to bring fresh, healthy Mediterranean food to the masses. They’d already begun selling their signature dips at Whole Foods and felt an untapped market existed. 

In 2011, Cava Group opened its first fast-casual restaurant. Today, the chain is known for serving bowls and pitas and has since expanded to more than 280 locations across 24 states, growing its footprint by 50% annually. 

Earlier this year, Cava became the first restaurant company to go public since Sweetgreen in 2021, with a roughly $4.7 billion valuation in June. That raised one big question: Could Cava follow in Chipotle’s footsteps?

Taking off

Building a fast-casual restaurant is a completely different game from running a single neighborhood hangout. 

Cava’s founders worked 80- and 90-hour weeks to build the chain. They poured most of their life’s savings into the endeavor. And they wanted to emulate Chipotle’s build-your-own bowl concept, which has made the Mexican chain a $61 billion giant. 

“One of the main reasons we’ve been successful is that we remember at the end of the day that we’re friends,” said Dimitri Moshovitis, one of the founders and former chef. “We still make fun of each other the same way we made fun of each other when we were younger. 

“We find time to hang out. We go to each other’s houses on the weekends to watch football. I don’t think there’s a day that goes by that we don’t talk to each other. It’s a stressful business, and we try to keep it as fun as possible.”

Many Americans loved the chain from the get-go, pointing to its quality ingredients and healthy bases. Cava’s menu items include rice bowls with protein, spicy falafel, tzatziki and harissa honey chicken, all of which are tough to replicate at home.

In November 2018, Cava Group acquired Zoës Kitchen, a renowned restaurant chain with over 250 locations, for $300 million, further propelling their reach. 

Today, Cava has about 265 restaurants. Most (82%) are suburban. Sensors throughout its stores track customer traffic to reduce congestion and improve flow, and it has doubled down on its mobile app. Its popular bowls start at about $11.

Tailwinds have also powered Cava’s rise: The rise of the fast-casual industry and increased health consciousness. Mediterranean diets are regarded as among the healthiest in the world. 

“This is certainly not something you can whip up at home when you’re trying to be quick and efficient,” Cava’s CFO said this year, adding that the chain imports feta from Greece.

Strengthening the business

Cava wants to have more than 1,000 restaurants in the U.S. by 2032, a goal boosted by its $190 million financing round in 2021.

But as it grew, so too have its losses. It lost $59 million in 2022 and $37.4 million in 2021, though it has been cutting losses this year to be profitable. 

It’s already the largest Mediterranean-style restaurant chain in the country, though its annual restaurant sales of $2.4 million per location in 2022 are still below rivals Sweetgreen, Panera, and Chipotle. 

Thus, investors are trying to weigh the right valuation for Cava, and whether it’s a success story like Chipotle or just another food chain. Chipotle has been an outlier in the food industry, with shares up over 3,000% since its 2006 IPO. Chipotle has over 3,000 restaurants, making roughly $3 million annually each. 

Still, many Cava investors are optimistic. Its stock (ticker: CAVA) once traded at 60 times profit behind the idea that it could be the next Chipotle, but shares have fallen nearly 20% since it went public in June. 

As you can see below, Chipotle's stock is an outlier in the restaurant business:

Final thoughts from the CEO

Cava emphasizes its healthy fare, like lentils, pita, hummus, and feta cheese. It believes its salads and bowls worked pre-pandemic for office workers and travelers alike, but it also believes its fast nature works in a post-pandemic world, especially in the suburbs. 

“Covid only served to accelerate trends that were slowly growing prior to pandemic,” CEO Brett Schulman said this year, including “a continued shift to suburban living, and acceleration of digital-channel usage.

“We’ve been able to drive a really great value proposition with very differentiated unique cuisine—that Mediterranean cuisine, where taste and health unite—that’s allowed us to be resilient in the face of those broader headwinds,” Schulman said this year, referencing inflation.

“You’re getting this really satisfying, healthful bowl of food, or pita, for a great price.”

Dive deeper

For more, check out MarketWatch’s visual breakdown of the company.

See you next time!

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