AMDP Investment Proposal

TO:         Clark Hansen, CEO, AMDP

FROM:         Abby Sowske, R&D, AMDP

DATE:         March 10, 2023

SUBJECT: Sweetgreen: to Invest or not Invest?

As part of my role at AMDP is to identify and analyze possible investment opportunities, I spent this week conducting extensive research on a lead. Unfortunately, my findings did not support investing in it. Sweetgreen, a fast-casual restaurant chain serving custom bowls and salads, has fallen short of our standards. Thus, I am recommending that our firm does not invest in Sweetgreen. 


I will first review AMDP’s investment standards that will be used as a framework for evaluating Sweetgreen. Then, I will provide an overview of the company and how they operate. Lastly, I will weigh expert opinions to ultimately come to a final recommendation.


AMDP Investment Standards


At AMDP, we pride ourselves on investing in organizations that are committed to doing business in a socially responsible, environmentally sustainable, and profitable manner. Below are the criteria we use to evaluate possible opportunities:


Triple Bottom Line

The triple bottom line is a business theory suggesting firms should value a positive social and environmental impact just as much as positive financials. The framework measures a business’s success in three main aspects: profit, people, and the planet.

  • Profit: The profit a firm generates for shareholders

  • People: The impact a firm has on all stakeholders– customers, employees, and community members

  • Planet: The actions a firm takes to limit negative environmental impacts to the planet (Miller)


Corporate Social Responsibility

Corporate Social Responsibility (CSR) is a management concept businesses exhibit when they “integrate social and environmental concerns in their business operations and interactions with their stakeholders” (“What is CSR?”).


Social Enterprise

Social enterprises are mission-driven businesses that operate with an end-goal of addressing a specific societal need. Such firms often incorporate both nonprofit and for-profit business structures (The Annie E. Casey Foundation).


Carbon Footprint

A company’s carbon footprint is the amount of greenhouse gas emissions that are caused by their operations, either directly or indirectly. Understanding their carbon footprint is crucial to reaching carbon neutrality, as it allows businesses to identify emissions hotspots which can help them develop reduction strategies (Issel).


Overview of Sweetgreen


Background


After noticing a lack of healthy options in the fast food industry, three Georgetown University graduates founded Sweetgreen. They aimed to curate an alternative “where quality was never sacrificed for convenience” (“Our Mission.”). In 2007, Sweetgreen opened their first location in Washington D.C. and has since grown to over 150 locations and 4,000 employees across the United States. The restaurant chain currently offers customizable salads and warm bowls through several channels– in-store, pickup or delivery using their app, and food delivery platforms.


Despite being a younger player in the fast-food industry, Sweetgreen has been recognized for being highly successful in multiple areas. The company has been named to several prominent lists in recent years:

  • Fast Company's Most Innovative Companies of 2019 and 2020

  • Newsweek’s Top 100 Most Loved Workplace

  • Nation's Restaurant News NRN Power List

  • Forbes “30 Under 30” – CEO Jonathan Neman


Financials


Sweetgreen has experienced steady revenue growth over the past few years. In 2022, their revenue was $470.1M, a 38.3% increase from 2021. However, they operated at a loss of $176.1M, which was a 36.1% increase from 2021.


Although Sweetgreen has been generating negative operating income and negative cash flows, the firm has plenty of cash reserves to draw from. According to a piece from Seeking Alpha, Sweetgreen can sustain pulling from their cash reserves for 30 more quarters. The company has shrunk its cash flow loss by 57.1% year-over-year. (Verdant Peak Research).


Commitment to People


Driven by their mission of “building healthier communities by connecting people to real food,” Sweetgreen prides itself on cultivating community both inside and outside of their operations. Some of their initiatives centered around people include:

  • “Sweet Talk” – Each restaurant team has a brief meeting called the “Sweet Talk” before each shift. This “team huddle” offers a space for employees to share new ideas or express concerns, ultimately increasing their sense of belonging and purpose.

  • Sweetgreen in Schools – Because Sweetgreen’s founders recognize the importance of developing healthy habits at a young age, they have created Sweetgreen in Schools. This program has “provided $1 million in funding to support FoodCorps’ work in schools and cafeterias, where their hands-on learning gets kids to eat 3x more fruits and veggies!” (“Sweetgreen in Schools”). 


Sustainability Efforts


Sweetgreen was founded with sustainability as a top priority. The company has pledged to do their part in fighting climate change and has excelled thus far. Here are some facts about their sustainability efforts directly from their website:

  • Sweetgreen is committed to becoming carbon neutral by the end of 2027.

  • Sweetgreen emits less carbon per dollar of revenue than food industry standards.

  • Compared to the average American diet, Sweetgreen is 30% less carbon intensive.

  • In 2018, Sweetgreen committed to the Better Chicken Commitment, a chicken welfare policy.

  • Sweetgreen only sources cage-free eggs, meaning a higher quality of life for hens.


Additional Expert Opinions


To supplement my own research, I looked for opinions from industry experts. Very few felt positively about investing in Sweetgreen, while most expressed hesitation. Below are two viewpoints I found intriguing.


Profitability Concerns


Brett Schafer of The Motley Fool voices his concerns with the company’s profitability in comparison to one of their major competitors, Chipotle. In 2021, Sweetgreen’s net margin was negative 45%. For reference, when Chipotle was at a size similar to that of Sweetgreen, their net margin was a positive 1.3%. Thus, Schafer explains that Sweetgreen’s inability to even get close to that number is alarming. He also points out that while their high revenue growth from 2021 to 2022 may seem appealing, it can be attributed to post-pandemic recovery (Schafer).


Expansion Predictions


Danny Klein, a writer for QSR Magazine, expresses optimism for Sweetgreen’s innovative plans to revolutionize the restaurant industry. Klein describes how Sweetgreen has recently acquired a startup that created an “Infinite Kitchen” technology. “Centered on a conveyor belt lined with dispensers that automatically release precise portions of ingredients,” this feature would greatly reduce the amount of time needed to prepare a bowl. Additionally, Sweetgreen has debuted an advanced drive-through system where customers can observe employees preparing their order through a window. In Klein’s words, these technologies “could change everything,” possibly giving Sweetgreen the competitive edge to thrive (“For Sweetgreen”).


Final Recommendation


In looking at Sweetgreen’s devotion to building communities and preserving the planet, the company is an exciting investment candidate for AMDP. However, their large net losses are concerning, especially in the context of the restaurant industry. While a handful of experts believe Sweetgreen’s innovation and large cash reserves may result in long-term prosperity, it seems unlikely that Sweetgreen will be profitable soon. Thus, to reserve our funds for opportunities that will satisfy all three of our criteria (socially responsible, environmentally sustainable, and profitable), I suggest we do not invest in Sweetgreen at this time.


Regards,


Abby Sowske

AMDP R&D Analyst

















Works Cited

The Annie E. Casey Foundation. “What Is a Social Enterprise?” The Annie E. Casey Foundation, 10 Dec. 2020, https://www.aecf.org/blog/what-is-a-social-enterprise. 

“For Sweetgreen, Automation Opens 'Infinite' Possibilities.” QSR Magazine, https://www.qsrmagazine.com/fast-casual/sweetgreen-automation-opens-infinite-possibilities. 

Issel, Marc. OneTrust. “The Corporate Carbon Footprint: A Quick Guide.” OneTrust, 24 Jan. 2023, https://www.onetrust.com/blog/corporate-carbon-footprint-guide/. 

“Leadership + Governance.” Sweetgreen, https://investor.sweetgreen.com/governance/leadership-team/person-details/default.aspx?ItemId=7bbaf93d-6ff1-46c8-be75-9e6523d3e49f. 

Mainwaring, Simon. “Purpose at Work: How Sweetgreen Is Building a Healthy Food Movement.” Forbes, Forbes Magazine, 13 Jan. 2021, https://www.forbes.com/sites/simonmainwaring/2021/01/13/purpose-at-work-how-sweetgreen-is-building-a-healthy-food-movement/?sh=172a8e4a136a. 

Miller, Kelsey. “The Triple Bottom Line: What It Is & Why It's Important.” Business Insights Blog, 8 Dec. 2020, https://online.hbs.edu/blog/post/what-is-the-triple-bottom-line. 

“Our Mission.” Sweetgreen, https://www.sweetgreen.com/mission. 

Schafer, Brett. “Can Sweetgreen Stock Bring You Sweet Profits?” The Motley Fool, The Motley Fool, 18 Apr. 2022, https://www.fool.com/investing/2022/04/18/can-sweetgreen-stock-bring-you-sweet-profits/. 

“Sweetgreen in Schools.” Sweetgreen In Schools, https://schools.sweetgreen.com/. 

“Sweetgreen, Inc. (SG) Stock Price, News, Quote & History.” Yahoo! Finance, Yahoo!, 10 Mar. 2023, https://finance.yahoo.com/quote/SG?p=SG. 

Verdant Peak Research. “Sweetgreen: Well-Positioned and Could Get Sweeter (NYSE:SG).” Seeking Alpha, 16 Nov. 2022, https://seekingalpha.com/article/4556626-sweetgreen-well-positioned-and-could-get-sweeter. 

“What Is CSR?” UNIDO, https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr.

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