Katie Perry (00:00):
I'm Katie Perry, and this is After Earnings, the show that brings you up close and personal with the executives behind the companies you care about.
Austin Hankwitz (00:07):
And I'm Austin Hankwitz, and today we're catching up with Brett Schulman, the co-founder and CEO of the fast growing fast casual chain kava. Now, kava hit the public markets literally a year ago this week, and their stock price is up 140% since in this interview with their CEO, we were able to learn more about the IPO process, how they approached rewarding both in-store employees and their frequent customers with company stock as well as their recent Q1 earnings results.
Katie Perry (00:35):
We also have spread about his perspective on digital transformation and got some interesting insights about how they were building this digital mobile ordering capability long before the pandemic when a lot of QSRs fast casuals had to then rush to implement it. So that was really interesting to hear his take on that as well as the data that unlocks a significant share of the revenue is coming from that digital and mobile ordering. And he mentioned that they're aware of the lines and they're leaning on these technologies to help continue to improve their operations. He also talked about the passion that he and his founding team have for this business and how being first and second generation immigrants have made its way into the DNA of the company. Let's get into it.
Austin Hankwitz (01:16):
Brett, thanks so much for hanging out with us on this episode of After earnings. This is actually a full circle moment for me. I made a TikTok video last summer when you guys filed your S one, which is essentially the SEC filing that every company has to share with the public that breaks down what their financials are, everything about the business before they can begin trading on the stock market. And I made a video going into a kava location and I broke down the S one and the statistics and all the fun stuff about it went really viral on TikTok and now a year later you guys have crushed it on the stock market and I'm talking to you, so it's just this crazy full circle moment for me right now.
Brett Schulman (01:54):
Well, thanks for having me. It's great to be here. And even more importantly, thank you for creating that TikTok and spreading the good word about the new, what we believe to be that next cultural cuisine category that we're creating with Mediterranean.
Austin Hankwitz (02:07):
Oh, a hundred percent. I mean, you guys are crushing it on TikTok right now, right? I've seen a couple of crazy viral videos and what's cool is the employee, which I didn't even know this was going to happen, but I was making this video and he's like, oh, this is going to be on TikTok. I was like, yeah, he is like, dude, tag me and then I just give you the food for free. And he actually gave me a free brownie as well. I wish I remembered his name. I gave him a shout out right now, but it's just like so cool. That's stuff like that happens.
Brett Schulman (02:29):
That's awesome to hear. He hit what we call the love button, and it's something that we've had since our very first restaurant. We empower our team members every shift to give away a few meals to guests, and it could be anyone from they look at and they look like they're having a really tough day, a difficult day, or someone that comes all the time and just to say thank you for coming so frequently, or a first time guest, maybe someone like yourself who came in and wasn't sure what to order or was trying the food for the first time, or it could even be someone that forgot their wallet or their phones out of power and they're trying to mobile pay. It's just our way of delivering our Mediterranean hospitality and what we call our spirit of generosity. So it is great to see that random act of kindness and the impact it's had on our guests and the appreciation that folks have when our team members hit that love button.
Austin Hankwitz (03:18):
Definitely appreciate the brownie. Okay, so kava, right? You guys are a wildly popular company, 320 plus locations. You've done over 770 million in revenue over the last 12 months. What's the story here for the people who are like, wait, what's kava? Right? What is going on? You guys are going crazy on TikTok while also selling hummus to millennials at Whole Foods. What is this company?
Brett Schulman (03:48):
Yeah, well, you could say maybe an overnight success 14 years in the making or even go back further like 19 years in the making. So my partners, my co-founders are all sons of Greek immigrants, and the brand origins go back to a single full service restaurant that they opened in 2006 called Kava Meze with the idea of putting their modern American perspectives on their families heritage and culinary and the heritage and culinary they experienced growing up or visiting their family in Greece and the Mediterranean. And that grew to a second full service restaurant and selling the dips and spreads that were served in those restaurants in a couple local Whole Foods markets. That's when I was introduced to my partners. In fact, our chief concept officer, my partner Ted Zeno Cristos, I went to college with his cousin who made the connection to us to help with the dips and spreads business.
(04:40)
So I originally was consulting with them, we hit it off, the guy said, why don't you come be our fourth partner? And we talked about the idea of how do we bring this unique cuisine where taste and health unites and bring it to a larger audience, bring it to the world, and ultimately settled on the walk the line format, what we call kind of the fast casual format. And we opened our first in January of 2011, and here we are almost 14 years later, operating in 25 states in the district of Columbia, really bringing this cuisine to communities across the country. So it's been a really fun ride.
Austin Hankwitz (05:14):
Sounds like it.
Katie Perry (05:15):
Yeah. And it's interesting to hear you kind of started out at Whole Foods because it seems like starting out it was owned and operated locations and now you have some retail extensions. I know you're able to get kava dips and spreads at Whole Foods. How do you think about the retail channel strategy alongside owned and operated specifically when it comes to maintaining quality, consistency of product? How does that all work within your business?
Brett Schulman (05:44):
Yeah, it's been a really interesting organic evolution where as we just talked about, the packaged goods or consumer packaged goods, the dips and spreads that are sold in Whole Foods predated our fast casual business. But we had a commercial kitchen that we grew to a larger commissary and ultimately a production facility and leveraged it to help supply the restaurants so that we could deliver that fresh TKI with real fresh dill, cucumber, garlic, lemons, just like Chef Dmitri made at that original restaurant, but do it across many of our fast casual restaurants across the country. So we eventually built a 30,000 square foot facility in Maryland and recently built a second sister 55,000 square foot facility in southwest Virginia where we utilize what we call high pressure cold processing. So this allows us to produce large scale batches that have long shelf life but doesn't impact the flavor or the nutritional quality of the dips and spreads.
(06:49)
And then we're able to deliver that to the restaurants across the country, take that complexity out of the restaurants and deliver that quality cost effectiveness and consistency. And at the same time, it gives us now the optionality to grow our consumer packaged goods line. The production facilities had really been in support of the restaurants, given the capacity needs of the restaurants for a number of years now with this new capacity online, it gives us the optionality to grow our CPG business, which today we're in about 800 grocery stores. We're in Whole Foods markets across the country as well as some other retailers, and it's a great brand halo. I think it's a real validation of the quality of the products we're producing as well as a great awareness touchpoint. And really we're able to engage with our guests in different ways where we're not just a place you get lunch or a place you get dinner. We're also a brand that can live in your refrigerator at home and be served to your guest or your friends and family at the dinner table or at a gathering in your house.
Katie Perry (07:53):
And would you ever sell the CPG products to other restaurants? I know you have your own restaurant business, but is there a B2B sales component that's there, or do you focus strictly on the consumer experience?
Brett Schulman (08:07):
Yeah, we focus strictly on supporting our growth at Kava and having that differentiated infrastructure to be able to scale fresh food.
Austin Hankwitz (08:15):
It makes a lot of sense. And I'm not trying to put you on the spot here, Brett, but can you break down for me from a revenue generation perspective, how big is this direct to consumer business inside of Kava here? Is it tens of millions, hundreds of millions? I personally don't know the answer to that.
Brett Schulman (08:30):
Yeah, so our CPG business is still a very small piece of the overall revenue. The restaurants are the majority of the revenue, a significant portion. And again, we have this opportunity in the future, but there's been so much dynamic growth on the restaurant side and we have this massive white space opportunity in front of us to continue to bring our restaurants to more communities across the country that that's been the primary focus to date
Austin Hankwitz (08:54):
Makes a ton of sense and we'll definitely dig into those numbers here in a little bit. But I want to rewind back to sort of talking about you guys'. IPO, right? You guys IPO'ed in what I would argue a kind of tough market. I mean it was summer of 2023, all of 2022, we experienced a bear market, right? The s and p declined by 25%. The NASDAQ declined by 35%, even 2023 was a volatile year. And some of these names, I mean, no one was really going public. AI was really the only accelerant in the markets there. You guys sell hummus and salads, not exactly artificial intelligence. So how did you guys so effectively navigate this public debut? I mean, your stock is up over 140% now since you guys, and so walk me through the IPO process and so just how that entirely took place.
Brett Schulman (09:46):
Yeah, I think first off, it shows that the public markets are always open for a great growth story. That's a category defining brand, and that's got a path to profitability. I think that was important to show that balance that we had real growth ahead of us, but that we were mindful of generating profitability in the long term. We had prepared for it probably almost two years in advance. It wasn't a predetermined destination for us or predetermined conclusion that we were going to go public. But if you remember back in 2021, a lot of companies were going public and SPACs were very popular. And so the conversation came up among our board, Hey, how do you all think about that to myself, to our management team? And we said it's something that we would be interested in at some point, but that we didn't feel we were ready organizationally or frankly in the journey of our business that we were not prepared for the greater scrutiny or what the public market was looking for.
(10:49)
So they said the next question was, okay, well what would you need to feel prepared? And it was a really great exercise whether we were going to go public or stay private, how we would continue to elevate our operations, our organization. And so it was everything from upgrading our controller position to a chief accounting officer doing a third party audit on our internal controls. It was continuing to strengthen our restaurant level operations and making investments in the business and getting to a point where we felt like we would be in a place to be successful public as a public company. And we also did mock earnings calls, so Oh wow. Yeah, we would create an earnings script and a press release and our board would pepper us with questions and almost as if we were doing a real earnings call, and it really challenged us to think about our business in a different way and to get into that rhythm so that if and when we did go public, it wouldn't be necessarily this entirely experience, it would be more of a continuation of what we had done historically.
(11:58)
And then we engaged with public participants, whether it was industry analysts, whether it was public investors, and got feedback from them, how did they think about our business, how did they look at our business, what were they interested in, what were their concerns? And just tried to understand that as we went forward in that journey. And ultimately got to a point, it was the end of 20, it was late summer 2022 where we had a board meeting and the conversation came up again and we felt like it made sense at that time. And we actually didn't have to go public based on our balance sheet, our cap structure, we had a credit facility in place that we had not drawn on that with our five-year plan, our model, we could have gotten a free cashflow positive with outgoing public, but we felt there were some benefits to going public. And one of them was that we thought this was a great growth story for consumers to participate in, for the public to participate in, and that it would really help bring awareness to who we are as a brand and the category that we believe we're creating and defining in Mediterranean. And that's been a tremendous benefit since we've gone public. I think it's really helped bring greater awareness to who we are and what we're doing. And so just excited to see the momentum since we've been public.
Austin Hankwitz (13:21):
What an awesome breakdown of just the behind the scenes of a multi-billion dollar company's process of going public. You don't hear that a lot. I appreciate that, Brett.
Brett Schulman (13:30):
I think the other aspect that was a success for us is that, and I told the team this the night before our initial public offering day. I said, look, this isn't the destination. This is the beginning of the next chapter of our journey. And we were fortunate to have great private investors around the table who felt the same way. This wasn't a moment for everyone to cash out, and that was kind of the end of our journey. This was just the beginning of the next chapter. And so we put a plan out and put projections out that we felt we could deliver on that was really in the spirit of building a long-term sustainable business. And I think that's also helped set us up for success in the quarters. Since
Austin Hankwitz (14:12):
Speaking of quarters long-term success, things of that nature, Q1 revenue up 30% year over year, outpacing even your new store location openings, what is driving this outsized growth and how are you planning to maintain it, specifically planning to maintain those 25% store level margins?
Brett Schulman (14:34):
Yeah, I think it's a confluence of a number of factors. We see that our, in a sense, hitting a bit of an inflection point. We've seen this historically over the years. The business continues to grow. Mediterranean continues to gain greater appeal throughout the country. I mean, we're operating everywhere from Bryant Park in Manhattan to back bay in Boston, but Fayetteville and North Carolina and Fayetteville and Arkansas, and this cuisine is being so well received all across the country, not just in big cities or along the coast, and that's only grown over time. So that awareness has and acceptance has absolutely been driving the increase. And I think you've also got this dynamic where you're seeing some pretty significant shifts in the restaurant industry, kind of tectonic shifts that have been building for the last 10 or 20 years, but are hitting a bit of an inflection point.
(15:25)
And usually when you see these longer term trends, hidden inflection point, there's a catalyzing event, and I think that event was the pandemic and the post pandemic high inflationary period that we've just come out of. And what's happening is you're seeing, we sit at the nexus with our format right fast casual format. We've got very convenient digital channels and great experiential physical channels for us. It's not an either or, it's an and it's both, but above us, traditional full service chain dining models are struggling to deliver that compelling value proposition to a modern consumer and down below us. Traditional fast food QSR has had significant price increases far outpacing what we've done or even CPI. So if you think about the time period from the end of 2019 to the end of 23, we raised prices during that period, roughly about 12%. CPI increased 18% during that timeframe.
(16:25)
Many fast food QSRs, the data shows upwards of 30%. So that relative value proposition has dramatically changed and really enhanced our value proposition. And we think of value as a combination of a number of factors, the quality of our food, the relevance of our cuisine, the convenience of it, and the experience that you have engaging with our brand like that love button we talked about. So I think all of that has come together to really drive momentum in our business is people become more aware about kava, become more aware about this unique cuisine where I can have a great flavorful, satisfying meal and oh, by the way, it's good for me, it's healthy for me. And then when you deliver, we're able to deliver it a great value for our guests that's really come together to drive this momentum.
Katie Perry (17:15):
Another piece of the pandemic seemed to be a lot of these heritage QSRs restaurants had to quickly accelerate their digital transformation efforts for mobile ordering. You guys are a newer company, assume more digital native in New York. It's common to see a line literally out the block for kava, which is a great sign and they keep people moving. But can you tell us about your mobile ordering experience and are you pushing customers to be using that more to be able to meet the increased demand as you guys become more popular?
Brett Schulman (17:49):
Yeah, those lines are a good problem, but they're a problem nonetheless. And I think one of the things that definitely tells us is we need to open more restaurants in New York City. We've got one coming down in Hudson Square soon, so we're excited about that. Our digital journey started in our very first restaurants, and I've talked about this recently where I think we're kind of exiting a decade long journey of digital transformation and we're going to continue to evolve our digital properties, but we're entering, I think a new decade of transformation, which is data transformation, but to talk about digital and to kind of put context in how we thought about it and when it's delivered for us. Back in 2011 when we first opened, we had a humble little website online ordering that about 2% of our revenue came through. We then launched our white label mobile payment loyalty app in 2013.
(18:39)
We were one of the first brands to do that in 2015. We put second dedicated production lines in every restaurant for digital order production, so it wouldn't take away from the in restaurant serving line. So we got that infrastructure in all those restaurants. In 2017, we brought the app in-house and built our own digital order ecosystem. In 18, we started building digital drive-through pickup lanes. We have 38 of those today. You order on the app, drive around to the window and can pick up your kava meal in 21. We started deploying digital menu boards, and in 22 we re-platformed our ecosystem to what we call a microservices architecture, which is very scalable. And so if you look forward to today, about 37% of our revenue comes through those channels and roughly about 300 million in revenue will come through those channels this year. So all of those things along the way that we did helped position us to meet the needs of a modern consumer.
(19:36)
And we think of our guests. What we want to do is create this multi-channel experience and kind of put the remote control in your hands or put the control in your hands where you can opt into your channel of choice depending on where you are in the world, what day of the week it is, who you're with, what your need is. Because what we find is our same guest who may want to order on the app and pick up off the shelf or in one of those pickup lanes another day of the week, they may want to have it ordered on delivery and dropped at their door or their office, and another day they may want to come in with a friend or their family and sit down in our dining rooms and eat. So we just want to create that multi-channel experience and let you choose based on your needs in that moment.
Austin Hankwitz (20:17):
Makes a lot of sense. Yeah, I totally agree, Katie. That's a great solution, Brett, and yeah, it makes a lot of sense. Kind of coming back to this idea of these long-term, 25% store level margins. Talk to me about labor costs. I I've had a lot of salads at your restaurants and the service, again, always top notch, but these were actual people versus at a McDonald's or a Burger King, they've got the digital kiosk kind of BBO being bow and you're, someone calls a number, I saw California, they just raised the minimum wage to $20. There's a bunch of restaurants that have closed down because of that. Are you guys getting squeezed by labor costs? What's your perspective on all that?
Brett Schulman (21:01):
Yeah, our mission is to bring heart health and humanity to food. I emphasize humanity, that last piece of it because we believe that's a real component of our brand essence talked about that hospitality. We also talk about technology to enhance the human experience, not necessarily replace it. Because I think as I talked about that convergence in our industry of full service and QSR and we sit kind of at the nexus and fast casual. I've seen so many articles recently on the loneliness epidemic in the country or people not sitting down and sharing a meal at home like they used to, and they're going out to eat more. And I think there's this longing in, there's this gap that and void that is an opportunity for us to fill with our brand and our Mediterranean way to deliver that humanity, that human connection, that technology is disintermediating in daily life so often.
(21:55)
And so how do you do that and still have a sustainable profitable model? I think one of the things we're fortunate in is our operating model in and of itself is the walk the line format, right? It's the old Henry Ford production line. So that's a very efficient food production model that allows us very efficient labor productivity that allows us a couple things. It allows us to reinvest in our team and pay better wages and it allows us to invest in our food and a third to invest in our guests. So how we kind of think about it philosophically is as we grow restaurant level margins like we've been able to do in the last few years, we take that expansion and we share the wealth between our guests, our team members, and our shareholders because we think that ultimately creates long-term sustainable restaurant level margin expansion and shareholder value.
(22:49)
And for example, a couple examples of this, we've raised our wages across our fleet about 8% year over year because we want to be above average. We want to be an employer of choice in all the markets that we operate in. And then to the California AB 1228 law, we understand the impact of inflation that everyone's feeling and we want to work on behalf of our guests and we have always paid above average. So we didn't have as much brown to make up maybe as some of our peers. And we said, you know what? We're going to absorb that cost. We want to pay our team, but we don't want to put it on the backs of our guests. So we did not, we were one of the only, I think if not two brands that did not take price in California incremental price as a result of AB 1228. And we've seen great reaction to that. We've opened a number of new restaurants in southern California and we have a number of others in the pipeline, so we're excited to expand in that market.
Austin Hankwitz (23:45):
Now that you're a public company, I'm curious, and the reason I ask this is because I worked at a publicly traded healthcare company before I did all this podcasting stuff. It was a home health and hospice company and their stock price like 10 XD over a 10 year period, and they took pride in matching their employees 401k contributions with company stock. They want people to feel like they have a sense of ownership. Do you guys at all, have you guys thought about the idea of giving your team members, people who are doing the walk the line, I mean they're really working hard for you guys every day. Is that something you guys are at all interested in as sort of rewarding with stock now that you guys are publicly traded?
Brett Schulman (24:28):
Yeah, so all of our general managers on our IPO got a one-time stock grant, and then we also set up an employee stock purchase plan for all team members to participate in where they can purchase the stock at a discount every quarter. And one of the things we do find, and we've looked at this, we always poll our team and say, what are the most meaningful tangible benefits and compensation to you? And sometimes you'd be surprised at what is the immediacy of income is very important to our team members versus maybe some of those longer term time horizon opportunities. So we've tried to be thoughtful about it and then again lean into those opportunities when they present themselves, whether it's raising their base wages like we did this year or something like the ESPP program.
Austin Hankwitz (25:19):
Very cool.
Katie Perry (25:20):
Yeah, it definitely seems like you have a pretty engaged workforce. I just want to shout out the Flatiron crew, see them three times a week. They're awesome. Good job guys. And they absolutely get hammered every day at lunch and they're always lovely. But going back to a comment you made, I'm glad you brought up the loneliness epidemic and there was actually a tweet that went viral a couple days ago about how people are like, is anyone else not having dinner with their friends anymore or hosting dinners? And so I know you guys recently added an exciting menu item that being steak and steak feels like something you would get later in the day. At least for me, I might sleep under my desk if I had it for lunch. Can you talk about steak as part of your product strategy? Is it unlocking an entirely new day part or expanding the evening day part for you guys?
Brett Schulman (26:14):
Yeah, well we like to say after you eat kava, you don't need a snack or a nap, so hopefully you wouldn't go to sleep under your desk. We are surprisingly strong at dinner, we cook with fire, we roast, we grill, we braise, 46% of our revenue comes at the dinner occasions. So people are engaging with us at dinner, not just lunch. And we saw this as another opportunity to really enhance that dinner occasion offering. As you said, steak is a very intuitive choice for dinner and we are about 85% suburban in our portfolio. So going back to the earlier discussion around digital ordering and the lines we see in New York City, we have restaurants there that have upward of 50% digital order penetration, but in some of our suburban markets or smaller towns in different areas of the country, that might be 10 or 15% and we have 80 seats in the dining room and they're all full at lunch and dinner. So we've tried to flex our formats to the needs of our guests in that specific trade area. And many of those restaurants, people want to come in and engage with us at dinner and steak was another way to do that.
Austin Hankwitz (27:25):
Awesome. Was this at all reactionary to Sweet Green launching some steak menu items as well?
Brett Schulman (27:32):
We've been working on steak for two years and the team's been perfecting it and it was actually, we had talked about it almost a year ago that we were in test markets in Dallas and Boston for about seven months and our STAGEGATE process, we focus on going from a single restaurant test to an operations test to a market and then a two market test which was in, and then once it's validated in the two market test, it then is brought across the chain. And so it had performed to the level that we felt comfortable to roll it out.
Austin Hankwitz (28:04):
It sounds like Sweetgreen is copying you guys, and lemme just give a major shout out to your, whoever's running your TikTok. I'm telling you, you guys posted some video of this mysterious menu item. If You'all haven't seen this video, it's so funny, you got to go watch it, but they blurred out what it was. It's hilarious. Go watch this TikTok video. Maybe all our producers are going to put it here on screen here for you, but it is. Wow, the way you guys rolled this out social media wise too is just hilarious. Something you mentioned before this earlier in this conversation was the free cashflow, right? You said, we do not have to IPO in order to become free cashflow positive. You guys just recently increased your guidance. You're seeing a lot of strength, broad-based strength across all over the country here. Adjusted EBITDA guidance is now I think up to what, a hundred million dollars for 2024. What is driving this profitability like you guys are now free cashflow positive, of course your adjusted EBITDA growth is now through the roof. I mean, how should retail investors be thinking about this not just in 2024, but also next year in 2025?
Brett Schulman (29:10):
Yeah, it's a lot of what we talked about around the IPO is that we had invested significantly in infrastructure over the years, whether that was our digital infrastructure, our production infrastructure, supply chain or our people infrastructure. And that as we accelerated growth and put more units on top of that infrastructure, you would see the operating leverage kick in. And it was already beginning, but now it's really starting to ramp up as not only we open more units, but our same restaurant sales growth continues to accelerate. So that's all flowing through and has allowed for this pretty significant increase in EBITDA as well as now generating our first quarter, as you noted, a free cashflow.
Austin Hankwitz (29:54):
It's so exciting. I mean, there's nothing more exciting in my opinion than going from just a startup to a massive business to we are now free cashflow positive. We did it right.
Katie Perry (30:05):
You love free cash flow. Austin, I got to say, you got to
Austin Hankwitz (30:08):
Follow the cash flows, the most important free cashflow guy to a line item.
Brett Schulman (30:13):
It's a real business and it also allows us to really in a greater way, control our own destiny. We're supporting 15% plus unit growth, paying for that and putting money on the balance sheet. So really creating great value for our shareholders.
Katie Perry (30:31):
Brett, you've touched a couple times upon the digital transformation or digital nativeness that you guys brought to the table, really impressive that you had some of these things that many companies added only after the pandemic and you had those 20 16, 17, 18. I'm curious about, given the share of revenue coming from mobile orders and online orders, you must have really interesting data sets that you're able to look at. And I'm curious in terms of company-wide metrics, what data points are you tracking as you think about either opening new restaurants or perhaps it's looking to advertising channels that drive the most loyalty over time? Can you give us a sense of how you view data as an organization and what the impact of that is on the business?
Brett Schulman (31:20):
Yeah. I mentioned earlier when I was talking about the decade of digital transformation that we're on the precipice of a decade of data transformation, and I think it's the next opportunity, long-term opportunity to unlock significant value in the business. And so we think about it a number of ways because with modern data technologies and the advent of generative ai, it's bringing capabilities to market to really unlock the power of data. And whether that's operations and operational efficiency and effectiveness to deliver great guest experiences, make it easier for our restaurants to deliver on our commitments for our team members to run those restaurants. Or with leveraging data to engage with our guests in a personal way at scale and really understand and have those one-to-one channels of communication or at a corporate level, the business intelligence, business insights we can get on a real time basis to take action to improve the health of the business.
(32:17)
So there are so many ways that we currently leverage data and are looking to leverage data in the future. So one of the things we've talked about on recent earnings calls is what we call Connected kitchen. So Connected Kitchen is a multi-year journey that we've embarked upon that would leverage everything from sensors and camera vision over the line to understand how much food is being to then cross-reference our real-time digital sales data, our historical data, weather data, event data to properly project to our grill cook, how much chicken to cook every 30 minutes or our team in the back, how much food to be prepping in real time or for the next shift. And so you can think about how that can mitigate even further food waste, it can mitigate stress on the team, take all that complexity off their plate to again, free them up to focus on great food, great service, and delivering on our commitments.
(33:13)
Loyalty is something that we have had for over a decade. It's very transactional right now. We could only do so many initiatives in a year, but excited that we're getting after this initiative and relaunching a re-imagined loyalty program at the end of the year. It's currently in test in our Houston market and in the Carolinas, and it's taking the old transactional spend X get Y program and it shifted it late last year to an earn and bank points model. So bankable points program. And in the two test markets in particular, you have a menu of options that you can redeem the rewards as you bank points when you want to redeem 'em. So it's doing a couple things. It's putting the control into our guest hands on when and how they want to redeem their points that they're earning. And it's also lowered the bar and made the entry level reward much more attainable for a lower or less frequent user.
(34:08)
And we're seeing great engagement with that program. And what that helps do is it helps grow our first party audience and we're also working at launch to have what we call one tap enrollment so we can connect these physical and digital channels. So if you go to our Flatiron restaurant and you're not digital ordering and you're ordering down the line that you use your rewards there as well, and we can understand how you're engaging with us through multiple channels as well as what you're ordering and how that compares to similar users. And we can start to make much better recommendations to you and recommend relevant content to you, but also grow that first party audience because as we all know, the efficacy of third party data has been deteriorating with changes in privacy laws. So it's even more important to grow that first party audience and then be able to engage with our guests and create value for our guests in their interactions with us and ultimately create greater value for the business. So a lot to do on the data front. We're very excited about it. Those are just a couple examples of initiatives we have in progress to really leverage the opportunity that's out there for us.
Katie Perry (35:14):
And on the subject of loyalty programs, we've seen some consumer facing brands implement shareholder benefits or rewards to kind of create this cohort of super fans that both enjoy your products at your restaurants and also invest in the stock. Have you all considered something like that? I'm just curious how you kind of perceive investors like our listeners today overall.
Brett Schulman (35:41):
Yeah, we're always looking at unique ways we can show up and engage with our guests. You can even think about our CPG products could be a part of that, right? And really be able to help people understand between the different channels, how we show up as it relates to our stock. One of the things we did around the IPO was anyone that was a member of our loyalty pool, we gave them an opportunity to purchase on the IPO as part of being a member of our part and being a loyal fan. So we're always looking at different ways that we can engage with our guests. And that's why I think as we scale, we want to still deliver that relationship that we had at that original full service restaurant. And how do we have that connectivity with our guests even as we're operating across the country at hundreds of locations and make you feel like we opened up that day to cook you lunch or dinner.
Austin Hankwitz (36:38):
That is so cool. I didn't know that. That's actually really exciting. You've been here for a while. You've seen it go from startup to IPO, which means you've probably gotten a lot of really bad advice from VCs or other advisors. What is some of those examples? I mean, what is some crazy advice someone told you about this company that you were like, no way, dude.
Katie Perry (37:02):
Name names. Just kidding. Don't name names.
Brett Schulman (37:04):
I've actually been fortunate. We have gotten a tremendous amount of great advice. We've had a great board with board members who have really been helpful in stewarding and guiding us being sounding boards. I think it was funny, it was very early on when we were testing different things. We actually, way back in the day, we had this little Greek yogurt section for the afternoon if you want to make kind of a Greek yogurt parfait, and it didn't perform very well, but someone sent me an email that that's not where we should be focused. We should have one of those people standing on the corner with the spinning sign that that would be a better use. And I said, I appreciate the feedback. Not sure we're going to go that direction, but
Katie Perry (37:52):
Sometimes the worst device is the most specific. That's a very tactical approach.
Austin Hankwitz (38:00):
Could you imagine a cardboard cutout of a salad and some guy just spinning the salad really, really fast?
Katie Perry (38:07):
I would use that to make a decision when I'm ordering, because sometimes I'm up there and I'm just like, give me the works. What's the max?
Brett Schulman (38:15):
Spin the wheel, do your
Katie Perry (38:16):
Thing and see what comes up. Yeah, surprise me. Yeah, that's great. You also mentioned first generation immigrants around in the company. I love Greek people. I feel like you guys have such a lust for life, and I'm wondering how that immigrant sort of roots shaped how the company came about, how you guys think about building the business in the context of something like the American Dream, where increasingly there's a lot of debate around, is that real? Is it not? How does that play into the DNA of the company for you guys?
Brett Schulman (38:51):
Yeah, it's core to who we are and what we do. All of my partners had mothers that worked in the restaurant industry. I waited tables when I was a kid, saw firsthand the stereotype of how people were treated in the industry. So when they opened that first restaurant, when we started to build the fast casual business, we really did it with the idea that Kava could be a place where you could build a career and not just have employment. And that we're a people first organization and that we're, the restaurant industry is one of the few industries where anyone can create a pathway for themselves, whether they've gotten a college degree or not. And so we wanted to make sure that we created the business in a way that people had that ability to do that. And that's been, I think, a big part of the recipe to our success.
Austin Hankwitz (39:38):
So American dream is real? Yes.
Brett Schulman (39:43):
Yes. I mean, I think we're living proof of it.
Austin Hankwitz (39:45):
Hell yeah, let's go. And
Brett Schulman (39:47):
We have a lot of team members who have grown personally and professionally within our organization that have improved. And that's the fun of this, right? It's like we get to bring heart health and humanity to food every day. We get to make an amazing impact on our guests. We get some of the most incredible emails from some of our guests and how we change their day or change the way they eat. And at the same time, our team members get to grow and help their families. We have a general manager in Texas who was able to buy a house for the first time, move his mother from California and buy her a house to hear him talk about what he's been able to do through his career development at Kava. That's what makes this fun and that's what makes this powerful. And ultimately, we talk about this, the financial results, the quarterly results. That's a byproduct of everything I just talked about and all the things that go into it, the people, what we're doing, how we're satisfying the guests meeting their needs, the financial results are a byproduct of that. They're good when we're doing it right. They won't be good if we do it wrong.
Austin Hankwitz (40:54):
Brett, I have learned so much and just congratulations on the 14 year overnight success of Kava. We appreciate you joining us here on After Earnings. I am just blown away by how in depth you were able to go with the IPO process, the data, everything in between. So again, thanks so much for joining us and hopefully you come back very soon. Congrats, and this has just been such a cool interview. Thanks
Brett Schulman (41:21):
For having me. I really appreciate it.
Katie Perry (41:23):
Well, Austin, I am absolutely hungry, but also feeling very inspired and educated after that conversation with Brett Schulman, CEO and Co-founder of Kava. What were some of your favorite parts?
Austin Hankwitz (41:35):
Definitely hungry going to go get kava after this. I think the biggest thing that stuck out to me, and it's funny that you called out the free cashflow thing. One, it's important, but two, he mentioned. He's like, listen, we weren't forced to go public to become free cashflow positive, right? He was pretty much saying we had liquidity. We did not have a shot clock. Which means that back to his other point, all these financial sort of measures that are off the charts, all this outsized growth is a byproduct of him being able to focus on providing all these awesome, great opportunities for his employees, his customers, and everyone in between. So I think that was such a really cool thing you walked through as well as the IPO process in general, right? The mock earnings calls are really cool, but I think another interesting thing you talked about was the data, trying to double down on all of the data they're collecting, both at the store level from a customer mobile order perspective, and being able to take action from that data, even as a company with over 300 locations, right? It's so cool to see companies, they do these little pilots with the stake. They do little pilots with the rewards over here in the Carolinas, whatever it is, and then say, yeah, here's what we learned. Now we're going to roll it out countrywide, and it's going to incrementally impact our free cashflow. Who knows by A, B, C, X, Y, Z. So I just think that's so cool to see, and I'm really impressed by Brett. Katie, what about you? Obviously you're hungry. What else are you, are you excited?
Katie Perry (43:05):
Yeah, I'm glad you called out. The sort of contrast in the environment they went public in, because in my mind, I had almost grouped them in that 2021 pack. And only through researching for this podcast did I realize it was actually a year ago to the date, basically. And that's so different than a lot of other companies that went out in 2021 into all the things you said. They were clearly in a great position. Brett talked about that they were prepping for this for over two years. One of the most interesting things he cited was the fact that they started doing these mock earnings calls well before they were public. And I thought that was such a smart idea, something all companies could probably benefit from, to have that forcing function of really being clear on your narrative, really being clear on your results. So that was super interesting for me to hear. Also, we talked about a little bit about the restaurant industry and how sometimes your education level doesn't matter. It's sort of this democratized space. And they noted how well they take care of their employees and that really the financial results are a byproduct of the people. And finally, a lot of immigrants first, second generation immigrants behind the founding of this company. It was very great to hear about his perception on the American dream. He does believe it exists. He cited some proof points there and in all great interview. And yeah, I'm hungry.
Austin Hankwitz (44:32):
I love it.
Katie Perry (44:34):
And with that, this was the after earning show brought to you by Morning Brew and Stakeholder Labs.
Austin Hankwitz (44:38):
Be sure to subscribe and share this episode with a friend, especially the friend that goes to Kava. Way too much. My friend is Katie Perry. She goes four times a week. But we'll catch you next time.
