Issue #2: Strong Q1 Retail Earnings Released

Trend of the Week: Strong Q1 Retail Earnings Released

Cava, a fast-casual Mediterranean restaurant chain founded in 2006 in Rockville, MD. Abercrombie & Fitch, a clothing store founded in New Albany, Ohio in 1892. Seemingly, they are two different businesses with very little in common. However, that may not be the case. This past week, both reported Q1 earnings and had very impressive showings. Abercrombie had their highest Q1 revenue and increased revenue year-over-year by 22%. Cava had their fourth consecutive quarter of positive net income and their first quarter of positive free cash flow (not bad for a company that recently IPO’d, just look at Sweetgreen’s financial struggles).

What both companies have in common is a strong brand and a clear value proposition. When you go there, you know exactly what to expect. This was emphasized in the earnings calls, with the Cava CEO saying “Our differentiated Mediterranean cuisine, where taste and health unite, and our compelling value proposition are resonating more than ever,” and the Abercrombie & Fitch CEO saying how they clearly defined “brands stands for and the customers they serve.“ For retail stores, it is crucial for customers to clearly understand your value proposition and know exactly what they will receive when they purchase from you (value, quality, etc.). This has led to customers increasing their spend with these companies. Plus, in Q1, Cava had 37% digital sales and Abercrombie had about 45% digital sales - omnichannel continues to drive the bus!

How have your experiences been at Cava and Abercrombie & Fitch recently?

News of the Week:

Positive:

1. From a studio apartment to a 2,000-square-foot store - Le Alfre, a menswear brand based in NYC, announced they were opening a store in Flatiron. It started in the founders apartment, then moved to a 400 sq. ft. office, and culminated in a physical store in Flatiron. As many startup retail brands struggle, it is exciting to see one flourish. By taking each step incrementally and being smart with capital, it makes a huge difference. While ecommerce is available for Le Alfre customers, consumers frequently want to buy clothing in person, regardless of brand. This omnichannel strategy is crucial across industries, but especially in clothing. Has anyone visited their store yet?

2. Amazon integrates with Grubhub - This week, Amazon announced a direct integration with Grubhub, which makes it the first time you can directly order third-party restaurants within the Amazon app. While this is exciting for some restaurants, it can be concerning for others as this will continue to add layers of cost to the restaurants. Now, in addition, to Grubhub, there are additional fees from Amazon. Why is this a positive for retail? For consumers, this means more bang for their buck, with a prime membership giving them access to additional Grubhub perks. As commerce continues to consolidate, we will see more super apps like in other countries. Walmart has also been working on similar initiatives. Time will tell whether this is a net positive, like anything in retail things are complicated. My prediction: eventually you won’t go to food-specific delivery apps, instead it will consolidate to the big apps, which will lead to lower fees for restaurants as food delivery is not their primary game.

Negative:

1. NYC Outdoor Dining Updates - Every spring in NYC, the first nice day, when the temperature just reaches the 60s, the streets are mobbed. People are outside hanging out in the park, eating at outdoor tables, and doing whatever then can to soak up as much outdoor space. Recently, restaurants have been able to use parking spaces and build permanent structures, which increased that ability to enjoy outdoor dining. However, all that is going to change starting August 3rd with a rules update announced recently. Starting then, there will be additional fees and rules, like the sheds must be deconstructed every winter. The impact of these new rules is it will be much more cumbersome for businesses to build these outdoor dining experiences, which is ultimately going to lead to less revenue for them and less experiences for customers. Unfortunately, a lot of restaurants will remove their outdoor presence, so enjoy it while you can!

2. Film At Chipotle, Get More Portions - Chipotle was in the news again this week, dominated by short-form videos and articles titled “How to Get Bigger Portions at Chipotle.” The answer: by filming the person making your food. At other fast casual chains, like Sweetgreen, there have been similar issues with customers comparing in person versus pickup orders, and receiving less online. This is bad for Chipotle as the negative press could be turning people away from ordering there as customers are looking for value right now. Personally, I noticed my burrito this week at Chipotle was smaller than normal. Chipotle has been known for big portions, so these new portions are more regular sized, but the fact it keeps getting more expensive, while portions decrease, is concerning.

Startup Feature: Kernel Foods

• Summary: Vegan, fast-casual, omnichannel-focused restaurant using humans and robots working together to serve food

• Founder(s): Steve Ells (also founded Chipotle), Stephen Goldstein

• Amount raised & investors: $36M from Willoughby Capital, Raga Partners, Virtru Investment Partners

• How this will shape the future of retail: By using robots and humans together, Kernel is able to maximize efficiency while also building a delivery/omnichannel focused model.

• Noah’s take: Kernel has built their business focused mostly on serving office lunches, as they scale, it will be interesting to see how that stays the same or shifts.

Jobs:

Burq | Remote - Chief of Staff / Business Operations

Luxe | New York, NY - Chief of Staff / Business Ops

Rent the Runway | New York, NY - Store Manager

Wonder | New York, NY - Director, Forecasting & Planning

Additional Links:

1. Ollie (e-commerce dog food) and Van Leeuwen (ice cream) partnered to launch an ice cream for dogs (read more here)

2. CBRE agrees retail is not dead (read more here)

3. Lagunitas is struggling and trying to find itself after leadership turnover and sales decreasing (read more here)

4. FC Barcelona Icon Gerard Pique is launching a new soccer league with a unique, streaming-focused distribution model (read more here)

5. Podcast: Table22 founder Sam Bernstein talks about the founding journey and how they help restaurants expand revenue streams (listen here)

6. Profile on ghost kitchen company Franklin Junction (read more here)

7. NY State Senate introduces bill to ban third-party reservation selling (read more here)

8. Target is revamping the grocery aisle to be more snacking-focused, with new flavors, while still focusing on affordability (read more here)

9. A look inside Wayfair’s first brick-and-mortar location (read more here)

10. Survey shows many remote workers go days without leaving the house (read more here)

11. Gym use has doubled compared to pre-pandemic levels, driven by Gen Z (read more here)

12. Squared Circles, a consumer-focused venture studio incubating CPG brands like Algae Cooking Club, announces Series A led by L Catterton (read more here)

13. Warner Brothers and Relevance International teamed up for an ultra-luxury, Batman like shopping experience (read more here)

14. Great breakdown of Sweetgreen’s infinite kitchen (read more here)

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