After a Wraps Win, Sweetgreen Faces a Fresh Setback

Sweetgreen's new wraps were supposed to help bring customers back to the fast casual.

After a difficult first quarter, the chain introduced the lower-priced handheld option as a way to improve value perception, appeal to younger diners, and create another reason to visit more often.

That strategy showed some early promise in the second quarter. Wraps did not perform as well systemwide as they had in testing, but they quickly found an audience with Sweetgreen's existing customers. The question now is whether the chain can use that enthusiasm to bring in new ones.

Wraps have held at about a 20 percent incidence rate since launch, a level CEO Jonathan Neman said exceeded expectations. Customers who ordered them also visited more frequently, and more than half returned within 30 days. That retention rate beat the Harvest Bowl, historically Sweetgreen's strongest repeat-order item.

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The product has been particularly popular with Gen Z customers, executives said. It also helped Sweetgreen make a more credible value argument at a time when diners are increasingly selective about where they spend. The company has not raised menu prices in more than a year, and Neman said its price increases since 2019 have lagged both restaurant and grocery inflation.

But wraps came with a clear financial trade-off. They were introduced at a lower price point, which put pressure on average check and product mix. Sweetgreen said the product helped transactions, but the lower spend per order limited the boost to same-store sales.

The performance gap between testing and the national rollout highlights Sweetgreen's biggest hurdle: acquisition. While wraps were incremental in high-awareness markets like New York, the national launch has largely resonated with current and lapsed guests.

"The real opportunity for us now is to leverage wraps around driving new customer acquisitions from a top-of-funnel perspective," Neman said.

Sweetgreen said wraps are margin-neutral compared with the rest of the menu, and the company has already worked through early concerns about slower operations. Neman said Sweetgreen returned to its prior speed of service within four weeks of launch and has since improved throughput. More wrap innovation is coming, including a new addition to the lineup set to roll out this week.

The wraps helped improve the direction of the business in the second quarter, though not enough to move comps into positive territory.

Same-store sales fell 6.2 percent, including a 2 percent decline in transactions and a 4.2 percent hit from product mix. That was still a notable improvement from the first quarter, when comparable transactions were down 11.2 percent. Revenue increased about 4 percent year-over-year to $192.7 million.

The mix drag came from several places: lower-priced wraps, targeted promotions aimed at bringing back lapsed customers, and a difficult comparison against Ripple Fries, which had boosted side-item attachments last year before being discontinued. Catering remained a bright spot.

Sales trends improved as the quarter went on. Comparable transactions were down about 3 percent in April and May before reaching roughly flat in June. Executives said the company had positive comps and transactions in the first 10 days of July, giving management confidence that its "Sweet Growth" transformation plan was starting to show results.

Sweetgreen said it has not been tied to the outbreak, which is linked to iceberg lettuce. But consumer concern around the outbreak still affected demand, costing the chain an estimated 600 basis points in July comps.

The impact was enough to force Sweetgreen to lower its full-year outlook. The company expects the disruption to weigh on third-quarter comparable sales by 600 to 700 basis points. It estimates the issue will reduce full-year comps by 200 to 300 basis points, restaurant-level margin by 100 to 150 basis points, and adjusted EBITDA by $7 million to $10 million.

Sweetgreen now expects same-store sales to decline between 7 and 8 percent for the full year. The company's forecast assumes either a partial recovery in the fourth quarter or a return to pre-disruption trends by the start of the period.

Separately, Sweetgreen addressed a voluntary jalapeño recall announced the day before last week's call. The company proactively discarded jalapeños from the affected supplier in relevant areas. Jalapeños are used in only two of Sweetgreen's 15 dressings and make up a small share of sales.

Beyond the food-safety concerns, management said its priorities remain largely unchanged: improve restaurant execution, create more reasons for customers to visit, build awareness beyond Sweetgreen's core customer base, and get tighter control of costs.

"Outside of the recent events, our results are not where they need to be," Neman said. "However, we know exactly where our opportunities are."

Those opportunities begin in restaurants. Sweetgreen is focused on being "rush-ready" during peak periods, improving awareness among potential customers, and finding greater efficiency in food, labor, and other operating costs.

Throughput is at the center of that effort. The company has reworked field leadership, staffing, deployment, training, and restaurant accountability systems around peak-hour execution. New regional general managers in New York and Seattle helped both markets return to positive transaction comps in the second quarter, according to management.

"With strong leaders, clear priorities and consistent routines, the business responds," Neman said.

In June, Sweetgreen added a more structured weekly process around throughput at its highest-volume restaurants. Frontline peak production rose from the low 50s of entrees per hour in May to the low 60s in June. On their busiest days, the best restaurants exceeded 250 entrees per hour, the company said.

Sweetgreen is also rolling out redesigned training for head coaches, kitchen leads, and team members, with a focus on hospitality, production speed, and food quality. The work is meant to reduce turnover and develop a deeper bench of restaurant leaders.

On the menu, wraps are only one part of the strategy. Sweetgreen said it is rebuilding a more consistent calendar of seasonal products, partnerships, and collaborations. The company recently announced a collaboration with Fishwife and plans to bring back seasonal Brussels sprouts in the fall, along with another chef partnership.

It is also looking to strengthen core entrées, including a revised Hot Honey Chicken Plate with golden quinoa and Napa cabbage slaw. Neman said the relaunch improved the dish's 30-day reorder rate by 30 percent. He believes protein-forward plates could help build more dinner business over time.

The company is testing a revamped Create Your Own ordering format as well. The test includes a protein in the base price and clearer disclosure around premium add-ons, an effort to make customization easier to understand and soften the price shock that can come with building a meal. The pilot began in Indianapolis before expanding to the Washington, D.C., area and Southern California. Sweetgreen expects to discuss results next quarter.

Marketing is another major piece of the turnaround. Management said the brand resonates with customers who already know it, and its pickup channel posted positive, accelerating comps during the quarter. The problem is reaching people outside that existing base.

"Our opportunity is not to reinvent the brand, but to make what is already distinctive about Sweetgreen more visible to more people," Neman said.

Sweetgreen is moving more of its marketing mix toward upper- and middle-funnel media, local activation, and partnerships. The wrap launch served as a proof point, generating the company's highest social engagement to date with the help of more than 1,000 micro-influencers.

The company wants to repeat that approach with products that have a credible food story behind them. Its summer Peach & Goat Cheese Salad, developed with Alice Waters and featuring peaches from Frog Hollow Farm, is the kind of launch Sweetgreen sees as a template: seasonal food, a recognizable partner, and a narrative that can extend beyond the restaurant.

The chain is also trying to get more from its digital customers. SG Rewards reached its one-year mark in April, and Sweetgreen updated the program in June with lower-threshold redemption options, including $3 off an entrée and a wrap reward. It has also begun testing an AI-enabled personalization engine in its CRM channel to measure whether more targeted offers and communications can lift frequency.

On the development front, Sweetgreen is continuing to dial back its ambitions. The chain opened four restaurants in the second quarter, including two Infinite Kitchen locations, but also closed two, resulting in two net openings. It finished the quarter with 287 restaurants, 35 of them equipped with the automated assembly system.

In July, Sweetgreen entered Tennessee with a location in Nashville's Gulch neighborhood. But Neman said expansion next year will be "pretty conservative" at a pace similar to or slower than this year, as the company concentrates on sites with the right return potential.

The brand's new chief development officer, Ryan Slemons, is reviewing prototype design, construction costs, market selection, and new-unit economics. Still, the company wants to rebuild average unit volumes, tighten food and labor costs, and improve restaurant cash flow before pressing the accelerator again.

"We believe Sweetgreen has significant room to grow, but we must earn the right to accelerate that growth," Neman said.

The post After a Wraps Win, Sweetgreen Faces a Fresh Setback appeared first on QSR Magazine.