Sweetgreen, Inc. (SG) Q4 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen Inc., Fourth Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. It is now my pleasure to turn today's call over to Mr. Rebecca Nounou. Please go ahead.

Thank you and good afternoon everyone. Here with me today are Jonathan Neman, Co-Founder and CEO; and Mitch Reback, CFO. Before we begin, we have a couple of reminders. We issued our earnings press release for the fiscal quarter ended December 26, 2021 after the market closed today, and we will file our Form 10-K for the fiscal year ended December 26, 2021 in the upcoming days. These documents are available and will be made available on our Investor Relations website. During this call, we will be making comments of our forward-looking nature, including statements regarding our financial outlook for the first quarter, and for the full fiscal year 2022. Our expectations regarding financial and business trends, our growth strategy and business aspirations and our expectations regarding the impact of the COVID-19 pandemic on our business each as more fully described in our earnings release. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information of these risks, please review the Company's SEC filings, including the section titled risk factors in the prospectus filed by the Company in connection with its initial public offering and our upcoming form 10-K. These forward-looking statements are based on management's current business and market expectations. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these items to the nearest U.S. GAAP measure can be found in this afternoon's press release, which is available on our Investor Relations website. With that, it's my pleasure to turn the call over to Jonathan to kick things off.

Thank you, Rebecca, and good afternoon, everyone. We're excited to be with you here today as we begin our journey as a public company. We can quick start a meeting this Sweetgreen by sharing what we call a moment of gratitude. I'd like to do that here and offer my thanks to our team members as well as our network of more than 200 sustainable farmers and suppliers, who partner with us every day to power ambition of building healthier communities by connecting people to real food. Their passion and purpose has been instrumental in helping us deliver a strong financial performance in our first quarter as a public company. 2021 was a record year for Sweetgreen with revenue of $340 million, an increase of 54% from fiscal year 2020. Our performance demonstrates the strength of our business, and we believe we are well positioned to create long-term sustainable shareholder value. Given this is our first earnings call, I'll begin with our long-term vision. By Nicolas, Nathaniel and I opened the first weekly restaurants in 2007. We were three college students who are simply looking for a healthier way to eat. We saw an opportunity to create a business for quality would never sacrifice for convenience. Throughout our journey, we remain committed to this long-term vision to redefine fast-food globally. Our goal is to be as ubiquitous as traditional fast food, but with the transparency and quality that consumers increasingly expect. We believe we are well positioned to be the category-defining food brand of our generation. We sit at the intersection of powerful consumer trends, a greater focus on health and wellness, a connection to purpose driven brands, and a rapid adoption of digital connectivity. Study show that nearly two-thirds of Americans want to eat healthier and nearly half of all Americans are planning to incorporate more plant-based foods into their diet. Sweetgreen is poised to benefit from this shift. Our food ethos is rooted in food that is delicious, nutrient and sustainable. We serve a healthy, craveable, customizable menu that features fresh vegetables, whole grain and lean proteins that can accommodate any flavor profile for dietary preference. Our food ethos gives us license to expand our offerings beyond thousand warm goals, including warmer hard replace and size to grow our day parts and basket size. Over the next few years, we will invest in executing our mission at scale through four strategic pillars. First is to expand and evolve our footprint in new and existing markets. The second is to enhance our digital experience with a focus on own digital relationships. Third is to solidify our brand as the industry leader. And the fourth is to obsess over the team member experience. Here's how we believe each of these pillars will be critical to continuing our competitive advantage. Rapidly changing and evolving our footprint will allow us to connect more communities to real food. We have a proven portable restaurant model and brand that resonates across geographies. In 2021, we successfully opened 31 new restaurants and enter two new markets, Atlanta and Dallas. We ended fiscal year 2021 with 150 Sweetgreen. While we're still in the early stages of our growth journey, we believe Sweetgreen has tremendous whitespace. Since fiscal year 2014, we have more than 5x our footprints and are on track to double in the next three to five years. We see a clear runway for 1,000 restaurants by the end of the decade. In 2022, we anticipate opening at least 35 new Sweetgreen in two to three new markets as well as new existing markets to densify our footprint. This year-to-date, we opened six restaurants in one new market, San Diego. As part of expanding our footprint, we are exploring new restaurant formats to enhance new lease. We also enable convenience through our digital ecosystem around us to add new customer channels, price frequency, and additional restaurant volume. At the center of this ecosystem is our award winning app. Early in our history, we realized that digital connection was essential to deepening our customer relationships. We were a pioneer with the introduction of digital pickup in 2013 and outposts our B2B delivery model in 2018. We were an early mover in developing our own native delivery experience in 2020 alongside marketplace delivery. Whether our customers' visit their local Sweetgreen want a fresh meal delivered to their homes or grab lunch on output shelves at work, they can get their personalized order in a convenient frictionless way wherever they are. We consider ourselves an industry leader in the shift to digital. Digital sales representative 67% of our fiscal year 2021 total revenue. Two thirds of those digital sales came through our own manual channels, our app and website which provide us most seamless and personalized orange experience for our customers. Our high percentage of own digital revenue contribution has several strategic advantages. These include greater ordered frequency, larger average order value, and access to data to better understand consumer preferences and behavior. We have a clearly defined strategy to drive owned digital acquisition, make our app the best way to order Sweetgreen, offer the best value in app and enable exclusive experiences including our seasonal menu, personalized promotions, curated collections and chef and influencer collaborations. As an example, today, you can only find eSports gamer and Sweetgreen customer Valores custom ball on their own digital channels. Next seasoning, you can only order our delicious to maturity plate on the Sweetgreen app. The mutation is a key advantage as our healthy customizable menu offering and digitally frictionless experience offers the potential for increased occasions versus traditional fast food. We are at the start of our journey to create tailored promotions and loyalty to drive incremental customer frequency and improve customer spend. In January, we piloted Sweetpass a limited time offer subscription. We exceeded our pilot expectations across all customer cohorts, particularly with new and last customers and look forward to sharing more takeaways on our Q1 earning call. As a first mover in the industry, we are always looking for new and creative to engage with our guests and are excited to continue to test and learn how we can offer flexible options that fit their lifestyle including digital challenges, personalized offers and membership options. Our delivery business continues impressive growth as well. To enable a better delivery experience for our customers, we transitioned in November to DoorDash as our primary courier partner for delivery orders made via Sweetgreen app. It was a smooth transition that resulted in improved per delivery rates for Sweetgreen and faster delivery times for our customers, leading the higher customer satisfaction within our own delivery channel. Additionally, we are testing expanded delivery radii to reach more customers than our marketplace channel. Our brand is designed to inspire consumers to live healthier lives without compromising their values. This allows Sweetgreen to lead conversations on the importance of what we eat and the impact it has on the environment. From our music festival Sweetlife in 2011 to 2016 through our collaborations with like-minded partners such as David Chang, Malcolm Livingston, and [indiscernible] over the past 15 years. We have maintained our relevance by incorporating lifestyle, music and social impact into our mission driven brand. Our goal is to connect food and culture to help to redefine what the fast food industry will look like in the years to come. Enabling all these strategies is our ability to operate great restaurants and that starts with people. Our team members are our most important ingredient and we will continue to be a leading brand because of that. Happy team members lead to happy customers. We nurture this in several ways, including investing in our talent, continuously simplifying our operations and investing in tools to optimize execution. Our almost 5,000 team members joining Sweetgreen to be part of a fast paced, mission-driven company with significant growth opportunities. We obsess over their experience, fostering development of lifelong skills and helping advance their careers. And as few as three years, team members can become a head coach. Our version of a restaurant GM and earn six figure package, including equity in Sweetgreen. In October 2021, Sweetgreen was made number 18 on Newsweek's top 100 most level workplaces. The investments we make in our people return tangible benefits, including better customer experience and improved restaurant operations. Additionally, we have invested in technology to empower our people. Our team members bring our food ethos to life by freshly preparing our ingredients in each of our restaurants daily. To optimize for food safety, execution and efficiency, we have simplified our menu and digitized processes to help manage daily inventory to ensure freshness, guide recipe preparation, and cooking times as well as increased accuracy and speed of service. We believe that these strategic pillars fuel our flywheel for growth and profitability. Our brand resonance combined with the massive TAM, menu designed for habituation, digital channels designed to increase customer frequency and restaurant productivity with a highly passionate team makes for a very valuable and scalable model. I want to end by again thanking our team members for working tirelessly to help us to deliver our mission of building healthier communities by connecting people to real food. They're most important ingredient and our key to long-term success. Now, I hand it over to Mitch to review our Q4 financial results.

Thank you all for joining us today. I'm excited to be here with you for our first earnings call. The IPO in November marked a major milestone for Sweetgreen as we enter our next growth phase. I want to begin by thanking the financial community and our investors for their support. We are well capitalized to execute on our long-term strategic priorities. We're happy to report strong fourth quarter results even with the continuing impact of COVID-19. Total revenue in the fourth quarter reached 96.4 million, up from 59.2 million in the fourth quarter of 2020, growing 63% year-over-year. This growth is primarily driven by same store sales growth as 36%, of which our transactions and mix was 32% at a price increase of just under 4%. For the fourth quarter, our digital mix was 65% of total revenue and our own digital revenue. That is transactions made on the Sweetgreen app or website was 43% of revenue. With every home digital purchase, we understand who our customer is, when and where they visit us. We are able to leverage data for personalized marketing resulting in higher customer frequency and higher average order value. Our digital revenue as a percentage of total revenue felt slightly given the positive growth of our frontline channel, which review is healthy for our overall business. As our industry volume has continued to recover from COVID to 2021, we are very pleased with the stickiness of our delivery business. During the fourth quarter, we opened 10 new restaurants up from four in the fourth quarter of 2020. This is our year-end call, we wanted to reflect on how the class of 2021 performed. In total, we opened 31 restaurants in 2021, 13 of these stores are urban and 18 are suburban and residential. We opened in the following new markets Atlanta with three restaurants and Dallas with one. We are currently projecting that as a group, the class of 2021 new restaurant openings will at least achieve our year-two revenue targets for new stores of between $2.8 million and $3 million. Our average unit volumes grew to 2.6 million from 2.2 million in 2020. Restaurant level margins for the fourth quarter were 13% rebounding from a negative 4% in 2020. The margin improvement was largely the result of sales leverage, the impact of our price increase and the elimination of our loyalty program. These factors lead to an improvement across all major line items food and beverage, labor, occupancy and other costs. For reconciliation of restaurant level margins to comparable GAAP figures, please refer to the earnings released. Food and beverage and packaging costs were 28% of revenue and improvement of 170 basis points from 2020. We did experience some inflationary pressure on commodities which were more than offset by improvements in packaging costs. We anticipate some inflationary pressures in 2022, particularly coming from freight expenses. At this time, we believe as a percent of sales, our food beverage and packaging costs for 2022 will be aligned with 2021. Labor related costs were 32% of revenue, an improvement of 560 basis points from 2020. This margin improvement resulted from reducing the complexity of our menu and simplifying our labor scheduling, but some of these games have been invested into higher wages. At this point in time for 2022, we believe labor and related costs as a percentage of revenue will be in line with 2021. Occupancy and related expenses are 15% of revenue and improvement of 460 basis points. This improvement is the result of sales leverage from higher volumes. Our G&A expense for the quarter was $47 million or 48% of sales compared to $27 million or 46% of sales in 2020. This $20 million increase in G&A is primarily attributable to a $21.5 million increase in stock-based compensation expense, and 300,000 of non-reoccurring Spice acquisition costs. Excluding the stock-based compensation and Spice acquisition costs, G&A for the quarter was 24 million compared to 26 million in 2020. This decrease in G&A was largely the result of lower costs associated with one-time COVID expenses offset by higher public company costs. Over the past several years, we have made significant investments in G&A excluding stock-based compensation, primarily in technology and our people. We believe that we will continue to experience meaningful sales and leverage in G&A, excluding stock-based compensation moving forward. For 2022, we anticipate stock compensation will be around 82 million. Our net loss for the quarter was $66 million up from $41 million in 2020. The increase was attributable to a $22 million increase in stock-based compensation. There was also a $17 million increase another expense of which $13 million is due to at one-time non-cash adjustment related to the changed in the fair value of our warrants issued prior to the IPO. As the warrants converted to common stock at the IPO, there will be no further adjustments related to the warrant valuation. Additionally, in the quarter, we incurred $4 million of non-cash expense related to the increase in fair value of our contingent consideration issued as part of the spice transaction. Adjusted EBITDA for the quarter was a loss of $14 million for an improvement from the 2020 loss of $29 million. This improvement as a result of higher sales, improve restaurant level margins and lower adjusted G&A. For reconciliation of adjusted EBITDA to the comparable GAAP figures, please refer to our earnings release. Now looking forward to 2022. Given Sweettgreen is a long-term focus company we plan only given the annual guidance. However, given the timing of this earnings report in relationship to the quarter round, we are issuing a onetime quarterly guidance for the first quarter of fiscal year 2022. Like most businesses during the beginning of the quarter two, we saw significant impact from Omicron. The impact was broadly felt across many areas including lower demand, reduced staffing, and in some cases leading to a limited operating hours and reduced line capacity, additionally, adverse weather on the East Coast impacting sales. By mid-February, these impacts dissipated and we return to our pre Omicron growth trajectory. Taking all this into account, we believe in the first quarter we will deliver seven new restaurant openings in the first quarter of 2022, revenue ranging from $100 million to $102 million, same-store sales growth between 30% and 33%, restaurant level margins between 10% and 11% and adjusted EBITDA loss of between $20 million and a loss of $18 million. For fiscal year 2022, we anticipate the following assuming no additional COVID-19 headwinds; at least 35 new restaurant openings, revenue ranging from $515 million to $535 million, same-store sales growth between 20% and 26%, restaurant-level margins between 16% and 17%, and adjusted EBITDA between a loss of $14 million and a loss of $33 million. In closing, we are very pleased with our 2021 results. We are confident about how Sweetgreen is positioned and our ability to scale our mission of connecting people to real food. We have built a great brand, a solid infrastructure across our people, supply chain and technology that we believe positions us to profitably grow our business and create shareholder value. I want to end by extending my gratitude to our team members in the restaurant and support center who worked tirelessly during these challenging times 2021 a successful year. With that, I'll turn the call back to the operator to start Q&A.

[Operator Instructions] Your first question comes from the Jared Garber with Goldman Sachs. Your line is open.

Hi. Thanks for taking the question and congrats on a strong quarter specifically related to some of the Omicron headwinds. I wanted to get a sense, Mitch, you guided to basically in line unit growth next year in 2022. I think the fourth quarter came in just slightly ahead of where you expecting a couple months ago. Can you talks some of the headwinds that you are seeing or laps there off in terms of supply chains opening those new restaurants? We have obviously heard a lot about and labor and staffing challenges, as it relates to opening. So, just want to get a sense of your comfort and confidence in that number for '22? Thanks.

Jared, it's Jonathan. So as you noted, we've definitely seen some challenges as related to new openings from a construction and labor perspective. But having said that, we feel very confident in the guidance of at least 35 new stores. So I want to give a huge hats off to our real estate and development teams, really building a healthy pipeline of just iconic locations. And for us, it's about optionality as we've opened more and more market, we have more places where we can continue to grow the brand. And I think there's been a bit of a shift in how we've been received in new markets, not just from a customer perspective, bur from a landlord and community perspective. So we're starting to see better real estate, which creates a flywheel for us. And I'd say, despite the challenges around supply chain, on labor from a construction perspective, we feel really confident in the 30 -- at least 35 new stores for the year.

Your next question is from John Van Hout with JP Morgan. Your line is open.

Hi. Thank you. How are you guys? In the prepared remarks, I mean, I think I heard labor being flat '22 versus '21, and I wanted to kind dive into that a little bit. I think your guidance assume some pretty significant average unit volume increases '22 versus '21. So, labor leverage might be expected in such an average unit volume increase. So, are there any significant changes that are happening beneath the surface in terms of the employee that you're attracting, what you are doing on the retention side, please comment on your turnover numbers, if you can, both at the hourly and the manager level or if you're beginning to change your human resource practices in some way that might be leading the higher labor costs, at least as a percentage of sales than what the top-line would otherwise suggest?

So, as you see across the industry, labor has definitely been challenged on both lot to due to the pandemic and a lot of the impacts we saw there as well, a lot of the wage inflation that we've seen. So, we're not immune to that and I'll let Mitch talk a little bit about those inflationary pressures, the price offset that we've had. To your point, there's definitely a lot of sales leverage there. Having said that, the recovery that we are expecting basically is not significantly more than the recovery already seen, for looking just to return really to pre-Omicron recovery levels. But we'll be doing some, a little bit more recovery to hit our numbers. From a people perspective, we've done a lot. Last year, we've made a few really important moves to set us up. One was what we call it a simplification around how we are around our store structures. So, we went from about 25 different job codes inside of our restaurant in Q4. In doing so, we cross trained all of our team members. So it's created a much more resilient labor haul, where team members have been cross-trained and can work across different positions. What this does is helps us as we flex up and down. Beyond that we've made a number of investments in our team members, whether that'd be holiday pay, taking average wages up. We introduced a retention grant at the end of last year. And we also have been investing in equity in our team members. Last year right before the IPO, we did what we call a gratitude grant, every single team member working at Sweetgreen. We have this principle leadership principle at Sweetgreen acting like an owner. It was a really proud moment to actually make every team member an owner there. And our goal is not just on the compensation side, but on the environment side and making Sweetgreen a great place to work. So, one of the things that really sets us apart from the industry is the opportunity around growth and development. We're in the very early stages around 156 restaurants, and we've developed a clear path to the head coach, which is our GM from a team member. You can join Sweetgreen and within three years, go from a team member to a head coach making $100,000 plus package. So, a lot of things going on, how we develop our team members and we really support them.

Hi, John. Let me just add a little bit of the data to answer your question. When we took the 6% price increase in the beginning of the year and in terms of wages were envisioning approximately a 7% inflation factor in 2022. And as a result of that, we held our labor as a percent of revenue with 32% of sales for 2022 in line with 2021. In short, a slightly higher wage pressure will offset any gains from the leverage we received at the higher AUVs.

I don't know if you want to do it once a year or if you are prepared to do it once a quarter. Can you talk about the turnover numbers that you have at the staff and the head coach level just kind of where that's trending in? If you got caught up in any of the kind of great resignation, if you will, that is just the overall industry has seen over the past six months?

Hi, John. I can tell you few things. So, there is definitely a spike last year do a few things, one Omicron and a lot of all the great resignation pressures that that the whole industry saw. Adding to that a lot of the vaccine mandates that we had that were in place which forced us to make some changes to our team. Having said all that, we've seen our turnover stabilized and are seeing our average tenure increase. So, we're today, our average tenure for our head coach is at 2.5 years and our average team member tenure is at one year. So we're seeing definitely some pressure in the first 90 days, but as team members make it past 90 days, we're seeing a lot of stickiness. And I think that says a lot about the growth opportunities we offer for our team members, and the environment, culture, and lifelong skills that we're providing for them. So again, I'd like to hats off to our store leaders and our field leadership team, as well as our peoples team for some really amazing work in a really challenging environment.

John, one thing I'll build on that is, as we saw pressures building into the fourth quarter, we put in place a retention bonus program, which ran through December through January to really hold the labor in place, as we saw a lot of disruption in the labor market. That program is successful and what we've seen recently is really an improvement in the flow of applicants as a labor market.

Next question comes from a line of John Glass with Morgan Stanley. Your line is open.

First, as I commenting on the recovery guide sort of urban versus suburban markets, with the comp led by recovering urban, maybe you can comment on the Manhattan units, for example, other suburban markets recovered. Just getting a sense of what's driving the sales and how those different cohorts are performing?

Hi, John. Let me say, in terms of the suburban and urban splits of the business, we don't disclose specific numbers around them. But we found that the fourth quarter was the fastest growing piece of our business was the urban segment and it was specifically in the midtown Manhattan market, but we saw very rapid recovery. And we were very, very pleased with that. The urban stores, certainly, if you compared to 2019, we would say are fully recovered to those levels that we saw in 2019.

Yes, if I can just build on that, what gives us some confidence here is made a lot some moves during the pandemic, specifically around our digital channels and building our delivery channels. So when you take the growth of that channel and look at the actual recovery one metric closely is the castle office recovery data. Today, nationally that 36% in New York is about 30%. And so we're not expecting that from anywhere near 100%, but for us it does it need to. So, we feel really good about where we seat today, and with all of the removal of math mandates and returned to all states that are being said, it gives us a pretty good line of sight and confidence that the urban recover we need is there for us.

That's very helpful. Can you just talk about [indiscernible] in that you're most excited about '22? You mentioned subscription and you maybe want to talk about that later. But is that a key part of the '22 plan? Is many innovation in the media, what parts of many innovation is important to '22? Are you thinking about bringing beverages back online or more beverages, things that what are you doing in front of a gas to drive sales and kind of whatever rank order of things you think are most important in '22 aside from just recovery from COVID?

Yes, great question. So, there's a number of things that we're working on. You touched on loyalty suite past we ran highly in January, something we called Sweet path and it was a membership test for us. Essentially the way it works. If you spent $10 and exchange you got $3 off every day for 30 days. The results really exceeded our expectations across all cohorts, especially with new and last customers and low frequency customers. So, it gave us a lot of interesting data and things for us to consider as we look forward and test and iterate our way to what a future loyalty could be for us. Beyond that digital driving, our digital sales, there is a huge opportunity. So, in the prepared remarks, you heard us talk about delivery and move towards DoorDash. Through the optimizations around that channel, we are offering much better quality of service, faster delivery time, more on time range, cheaper -- better economic for us and our customers, and we're beginning to test into larger radius delivery radio. So, that's another channel that we are continuing to push on. Another place, where we are continuing to push is around personalized promotion. We've done some really interesting work around this idea of personalized promotion. So giving you the right at the right time, whether that be by channel, by gate part, or by menu. So we have some cool things coming out throughout the year, and it's a constant test and iterate approach. And the data that we have in the high digital penetration allows us to really flex that muscle. From a menu perspective, we're constantly optimize and innovating. So, I break that up into three categories, three buckets thing. The first being constant optimization of menu. We are constantly looking at both ours our bowls and our skews and figuring out ways to make them look better, so you'll see constant improvements throughout the year. The second is, you mentioned around attachment. We actually had a lot of success around some of our new beverage programs and some of the sides that we've been testing, so expect some more news there in the coming quarters around attachment. And then the third was around new menu innovation. Within new menu innovation, we think about it, really in two ways. One, how can we push our core menu to acquire new customers for us, that's a pretty big push towards hardier food. We've had a lot of success with our plate. Really the hot honey chicken plate has been a huge success for us. And so, we are going to continue to push on harder food specifically within plate and think that'll do well for us in broadening our consumer base, getting us a little bit, being more relevant and generous as well as creating more frequency. We also have what we call digital exclusives. So, within our menu, we have a number of menu items that you can only have or you can only offer on our own digital channel. And again, that's where we can test a number of new things and mid-season using a lot of data that we're able to collect. And what's amazing about the digital exclusives is we are able to do them without any complexity added to the restaurant. So, it's a very disciplined approach to creating newness for our guests without any additional complexity for our team members. Here is a last thing I will say and definitely not least, probably most importantly, is running great restaurants. Our people, great leadership and running a great restaurant, drives loyalty and drives AUVs. And so, we're really focused on developing great leader, retaining great talent and creating great customer experiences, and we believe some of the just execution and executing brilliantly within our restaurant is also going to be sales driver for us.

Your next question is from the line of Andrew Charles with Cowen. Your line is open.

Great. Thanks. John, that was a great segue in my question. You guys caught out the stickiness of digital sales, the frontline reopened. I know it kicked down a bit, but you know, really was sticky. Where do you envision the long-term digital mix settling out? You want to imagine that you'd love to get it as high as you possibly could. But I mean, what do you think is a realistic level? Just even proactive efforts do you have in place to build this via digital only innovation and initiatives like Sweetpass that someday we're going to see more to come on that?

Yes. So maybe what I would say, Andrew, and good to hear from you is, for us, the frontline coming back at our digital world, digital revenue going down is actually a very good thing for us. What I'd say is our restaurants are one of our best customer acquisition vehicles. And then we have very clear ways and strategies and tactics of moving frontline customers and moving them on for digital channels. And we really that we understand what happens when you do that, once we take frontline customer and move to digital, they're coming at least 1.5 times more frequently, and they're spending 20% more per transaction. Once we move them to a two channel customer, they're coming 2.5 times more. So for us, it's a healthy ecosystem of having of that customer kind of discover us on the front line and then being moved to a digital customer. Over time, we're going to continue to lean into a lot of strengths we have from a digital perspective. So today, we do things like digital exclusives, our menu and our deliveries cheaper on hour. It's more affordable for our customers, our native apps and in different marketplaces. And we're going to continue to invest in better experiences to make the Sweetgreen have the best place to order Sweetgreen. In many ways, we're going to have reasons for you to use our digital experience beyond that you can't get in the restaurant stuff and we already have some of those. So, we're pretty confident in continuing to hold that number, but we're not really stuck. We're not too worried and hung up on that number slightly going down, because a lot of you see that is a good thing for the business.

Mitch, I appreciate the detail on labor inflation that's expected to be 7% in 2022. You called out just one terms of COGS and you called out a recent bugs in COGS and got in 2020 COGS in line with 2021 levels. What's the underlying level of COGS inflation embedded in 2022 guidance? And your comments specifically on avocados and just recent events there have led to heightened relations versus your prior expectations?

So, switching back in 2021, we have approximately 3% inflation in food and beverage. And we often to get provide again some movements in many source. When look out to 2022, we see approximately a 6% inflation rates, which has been offset with the price increase. There were fortunate that we don't source and other items that have had a lot of rapid inflation. And most of our source is this local and organic, which is providing some degree of insulation for some of the recent cost pressures. You specifically mentioned avocados, we do see some pressure in avocados beginning of this year, but a great supply group we actually see reversing towards the back half of the year.

If I can just add one note on that, I think the fact that we do not serve this in our restaurant is a huge advantage for us. For us, we do it more from a food ethos perspective and a sustainability perspective, but there's been a lot of pressure on these prices and there is one thing that we're insulated from.

Your next question comes from the line of Brian Bittner with Oppenheimer.

I wanted to also stay on margins. The margin outlook for 2022 is very impressive, particularly given these inflationary pressures, but as you think about catalysts to improve margins and longer term past 2022, what are the top drivers there? I know sales leverage is a big driver but outside of that, what are the top drivers? And how impactful could automation be to your margin path as you eventually integrate the Spice acquisition?

So let me start off at that, Brain. Thank you for your comments. We see the business continuing to have margin expansion over the next few years. We have carried approximately 16% margin at the restaurant level this year. Part of the improvements in margins, you mentioned, are largely coming on sales leverage. So you know we operate in five channels in our stores, in-store kick off, native delivery, marketplace delivery and outpost. And we really have never operated in all five channels in a non-pandemic environment. So we're starting to see some sales from that we think that will propel us forward for several more years to come. And we think that, that's just going to be to accelerate on our margins. In addition to which John talked about revamping our loyalty program and move into personalization, so we see a major lift in volume coming from the train promotional programs. In addition to that, at the restaurant level, we've got a lot of work about what we call our operation simplification initiative to really streamline the way we operate our actual restaurants but that comes from a simplification and labor classifications that's given us more flexibility and labor scheduling and in addition to which some sourcing changes that we think can be margin accretive over time. We're very confident on the long run margin. As you know, we did make the Spice acquisition, Spice acquisition is a major acquisition in terms of changing the labor model. And at this point, we really don't have a lot to add to that, except to say we're very pleased with the progress we've seen with our Spice acquisition. And at this point in time, it is certainly on time.

Your next question is from Chris Carroll with RBC Capital Markets. Your line is open.

Mitch, I think you mentioned additional pricing actions at the beginning of the year. I was hoping if you could provide an update just kind of philosophically how you're thinking about pricing today, perhaps how customers have responded to pricing actions? And to what extent do you think you have further pricing power should cost headwinds last longer or greater than anticipated?

Thanks, Chris, for the question with the air for you. Let me kind of first answer that a little bit of a historical perspective. We believe as a company that we have a lot of pricing power with our customer. We think that comes from the fact that we have a very cold like following with a lot of customer love that we built to marketing over many, many years. Our customers can taste the difference in our product and the freshness of product. And they also highly value the convenience we offer them to our technology, with our ordering and really seamless pickup. So we do believe we have a lot of pricing power. We also are recognizant that our mission is to connect more people to real food and how subs would like our price points to be accessible. So when we look at our pricing architecture, what we've done in the past few years is spread out our price points to be sure we always maintain high-value entry price points to bring new customers in. So we think that we are kind of having the correct pricing architecture in place, we do have a lot of price power. We will, in our view, use that judiciously because we certainly want to continue to connect with our customers. But if need be, we are certainly prepared to use some nominal price increase towards the middle, back half of the year to protect margins in the event we see inflation run away.

And your final question comes from the line of Sharon Zackfia with William Blair. Your line is open.

Hi. Good afternoon. I appreciate the commentary on the class of '21. I was also curious on how the digital spend is ramping in that class maybe relative to prior classes? And then on the outpost, I think you ended the third quarter with around $350 million reopened. Where are you at now for ourpost? And how do you expect that to ramp in '22?

Sharon, thanks for the question. So I'll start with the output part and then I get to the digital and the new stores. So we've actually been pleasantly pleased with output for us. What's interesting about Outpost is it's a bit of a leading indicator on return to office. And so it's been ahead of our expectations. We're today at over 500 households and are seeing some really nice kind of like record revenue and outflow above and beyond where we expected to be at this point in the recovery. So for us, it's still very early in the world in office coming back, which is the primary use case for output. But overall, it's been a nice leading indicator for us and pleasantly surprised with over 500 outflows today and more and more launches kind of the sign-ups are accelerating. We have, I think, 17 launching next week alone. Go ahead.

So, let me take the second part of your question, which is how do we see the digital ramp in our new stores. It's very interesting. We see our new stores adopting our digital ordering and app at a much faster rate than the historical stores have gone. As a result, when you look at it as a percent of revenue new stores are roughly in line with the fleet average, and that happens really within approximately a 60- to 90-day period of our opening. So we're very pleased with the progress we see.

There are further questions at this time. And it is my pleasure to turn the call back over to Mr. Jonathan Neman, CEO and Co-Founder.

Thank you. I just want to take a moment to thank you all for joining us on our inaugural earnings call. We really believe we have the winning recipe for long-term growth and shareholder value creation. I can leave you with one major takeaway about Sweet Green is that 2021 and in particular Q4, which, to be honest, is typically our most challenging quarter because of the seasonality in our business, shows the strength of our product, our brand and our mission. As the country started to emerge from the pandemic in the second half of '21, we saw significant improvement in our revenue, same-store sales and restaurant level profit and we firmly believe that this is just the beginning of the recovery. As we look out in 2022, we are optimistic. While we experienced some choppiness with Omicron in the first four weeks of the quarter and their larger global macroeconomic courses of play, we are confident that the remainder of 2022, combined with our focus on execution as we scale provides a strong indication of what we can expect in '22 and beyond. So thank you all for joining us on today's call and on this journey. It's only the beginning as we redefine fast food.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.