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Cava sets its sights on bigger national presence after Zoes Kitchen acquisition

The company logo and trading information for Zoes Kitchen is displayed at the New York Stock Exchange, August 17, 2018.

Cava Group completed its $300 million acquisition of Zoes Kitchen just before Thanksgiving. Now the restaurant company is trying to make the most of its new status as a Mediterranean food powerhouse.

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Once the deal closed, Cava Group CEO Brett Schulman went from managing 75 restaurants to 330.

The company's fast-casual chain, Cava Grill, which Fishbowl Analytics named its top emerging restaurant brand this year, has been expanding rapidly since its founding in 2011. Next week, Cava will bring its Chipotle-style, assembly-line format to its 80th location as part of its plan to open 10 locations in the first half of 2019.

Schulman expects that Zoes' significantly larger national footprint should benefit Cava Grill as it enters new markets.

Cava Grill's expansion should help fuel sales for the third part of the company's business: consumer packaged goods. The Washington, D.C.-based company sells dips and spreads, like its Spicy Hummus and Harissa, at select Whole Foods stores, with plans to sell them nationwide by the end of the year. Schulman said that bringing Cava to new markets, such as New York City, usually leads to an increase in dip sales.

At the same time, Cava Group is attempting to turn around Zoes' business. The deal took Zoes private after four years of being publicly traded — and more than a few quarters of disappointing results for investors. The fast-casual chain's declining sales after a rapid expansion made the acquisition possible for Cava.

"Some of the challenges that they were facing, the changes and the tough decisions that needed to be made would be tough under the public market scrutiny," Schulman said in an interview. "I think in the private market we can have the time and the long-term perspective to make some of these changes and test these changes without being concerned about the impact on the stock price or quarterly earnings."

Schulman said that while Cava would not rule out an initial public offering down the line, its focus now is on integrating Zoes Kitchen into the company.

Despite Zoes' troubles, Cava Group remains a profitable business even after the companies merged.

Soon after the deal closed, Zoes' new owners went to seven different cities, meeting with regional Zoes operators and customers to learn more about how to turn around Zoes' business.

"I think some of the biggest feedback we got was that the speed of service and consistency of the food — sometimes in the restaurant industry, it's just back to basics," Schulman said. "Over time there had been a lot of menu additions, and not a lot of menu deletions."

This time around, Cava also has Ron Shaich, founder and former CEO of Panera Bread, as chairman after his investment fund Act III Holdings helped fund the acquisition. Shaich built the sandwich chain into a company with thousands of locations, sales numbers that pleased investors and a reputation for integrating technology ahead of the competition.

Both Cava Grill and Zoes have the opportunity to tap into the consumer appetite for different flavors and ingredients, like vegan friendly falafel and Sriracha Greek yogurt. Schulman pointed to Italian, Chinese and Mexican food as examples of restaurant concepts reaching maturity, leaving a wide opening for new ideas.

Some consumers view Mediterranean cuisine as healthier than other types of food. Cava's assembly line also allows diners to customize their food to fit their dietary needs, like skipping pita bread and adding more vegetables.

CNBC

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