Cava looks to convert Zoe's restaurants as it sets its sights on growth in suburbia

Key Points
  • The pandemic has altered consumer preferences in the restaurant space, with a heavier reliance on delivery and digital.
  • A shift to the suburbs is creating opportunity for some restaurant brands.
  • Cava is banking on both trends moving ahead, with its completed acquisition of Zoe's Kitchen in late 2018, the brand says it is poised to capitalize on its presence in the suburbs.
Brett Schulman trades a career in finance for food.
Source: Cava

Guess who's moving out to the suburbs now?

The Covid-19 pandemic set into motion several trends that stand to alter the restaurant space even after vaccines are widely administered and life returns to a new normal. From the migration out of dense cities to the suburbs, to a heavier reliance on digital ordering for pickup, curbside and delivery, the space continues to evolve, and Mediterranean chain Cava is banking on all the above.

The restaurant's parent, Cava Group, acquired Zoe's Kitchen in late 2018, taking the company private. The group said its new real estate portfolio of 288 stores allows it to expand into new suburban markets more quickly, as it can convert a Zoe's into a Cava location in half the time it takes to open a brand new restaurant — and at a lower cost.

Last year, the Washington, D.C.-based company did seven conversions of Zoe's locations and there are 12 in development for 2021. About 80% of Cava's sites are in suburban markets.

"We see the ability to unlock significant revenue growth in Zoe's real estate when we convert it to a Cava location," CEO Brett Schulman told CNBC. As a privately held company, Cava does not publicly report its annual revenue.

Cava, which also has a consumer packaged goods business that sells dips and spreads at Whole Foods and other specialty markets, has seen its restaurant business shift from a focus on lunch to dinner, Schulman said.

"When you're serving a suburban customer, whether it's a family or a couple or singles living in the suburbs, [you need] to be relevant to their needs both at lunch and at dinner. I think that is really important when you're in suburbia," he said.

Cava isn't the only chain looking to the suburbs for opportunity. Chipotle has seen success with its "Chipotlanes," drive-thru lanes reserved for mobile order pick ups, and is seeing a greater opportunity to build them in suburban and rural communities, the company has said. The burrito chain expects about 70% of its new stores this year will have these lanes.

Shack Shack recently said in its earnings report that suburban Shacks were performing better than those located in cities. And Starbucks is boosting its drive-thru portfolio in the years to come as it closes some underperforming locations and opens new smaller pickup stores in cities and drive-thrus in suburbs.

'Digital agility'

Cava also has second digital and off-premise kitchens in every restaurant that are dedicated to preparing food for online orders, something Chipotle has become well-known for as its digital business has boomed.

Digital revenue at Cava has grown 140% year over year, and 30% of total revenue is coming from digital channels that didn't exist pre-Covid, including curbside delivery, Schulman said.

"I think that's been one of the things we were able to do, have what I call 'digital agility,' in Covid. We have an in-house engineering team and those capabilities allowed us to stand up those channels rapidly and create those access points based on Covid consumers' needs," he said.

And the brand is prepared for a shift back to on-site eating later this year, but Schulman expects being in all locations — on site and online — will help bolster the consumer experience.

"We've really focused on the hospitality, it's a core aspect of our brand, and people having that engagement, walking down the line with our team members [in stores] and melding those physical and digital channels. So whether you want to engage with us through our digital channels or through our physical channels, that hospitality is at the core of it," he said.