Sweetgreen, Inc. (NYSE:SG) Q3 2023 Earnings Call Transcript

Operator: Your next question comes from the line of Brian Bittner with Oppenheimer. Your line is open.

Brian Bittner: Thanks. Just a follow-up to that question. I mean I think the Infinite Kitchen dynamic is pretty popular, just given how successful it’s been early on, even though it’s only been in one unit. Can you help us understand maybe the longer-term retrofit opportunity? I know there’s a big opportunity in your new unit pipeline, but what are the main restrictions or maybe even perhaps opportunities as it relates to this dynamic on being able to insert Infinite Kitchens into existing legacy units?

Jonathan Neman: Thank you for the question, Brian. So as we mentioned on the prepared remarks, we’re planning two to four retrofits next year. We do see a huge retrofit opportunity, and that’s again something we’re looking to learn. We’re looking to learn a few things in a retro that I think will be different from a new store. Specifically, what does that max throughput do to our AUV in that restaurant? As we mentioned before, the Infinite Kitchens can do about 500 bowls per hour, so really fast production. And so we want to understand you put in a high really high-demand store, think about like a CBD store that has really high peak demand. Can we not only get the margin leverage, but could we capture more demand in those restaurants, and have, of course, a better consistent experience.

So that’s what the retrofit learnings will be for us next year. In terms of where we’ll go with it, we do see a lot of restaurants that can eventually be retrofitted. The way we’re thinking about the technologies, is it’s quite modular, both in terms of layout, it can be square or can be linear, also can be modular in terms of components to scale costs up and down depending on the AUV. So a lot of flexibility with the machine and still – I just want to caveat, lot of learnings to have. We have one that we’re really happy about, but still a lot more to learn. And I think next year, we’ll start to provide a lot more of those learnings for us. And the last thing I’ll say, what’s interesting about the Infinite Kitchen is, the cost on the Infinite Kitchen as we scale will go down, as we start to see economies of scale, we’ll continue to scale down, and we’ve already started to see that.

On the flip side, as we’ve all seen labor is inflationary. So we have two cost curves going; one, significantly inflationary on the labor side, while the cost of the technology will come down. So over time, this can become very – a really powerful tool for us, especially as we see significant wage increases around the country.

Brian Bittner: And you have seen wage increases, but one very positive dynamic this quarter, is the leverage that you’re getting on the labor line, third quarter, a couple of hundred basis points there. I know you slightly touched on some of the drivers of that, but can you dive a little deeper into how you’re pulling this off? I know you’re getting tighter with operations, but is there maybe – are some of the new stores that you’ve built just doing much better on labor? Is there anything else to unpack to help us better understand the drivers of the year-over-year leverage on the labor line?