This is an English adaptation of a FoodBud historical article originally published on September 27, 2021.
First Watch, a U.S. daytime dining chain, was preparing to go public in 2021. The company planned to issue 9.46 million shares at an expected IPO price of $17-20 per share, raising nearly $200 million. At $20 per share, its valuation would exceed $1 billion.
The company was expected to begin trading on Nasdaq on October 1 under the ticker FWRG. BofA Securities, Goldman Sachs and Jefferies were listed as IPO underwriters.
Founded in 1983 and headquartered in Florida, First Watch operates as a daytime-only restaurant concept serving breakfast, brunch and lunch. It had 8,000 full-time employees and offered made-to-order items using fresh ingredients.
Its menu included pancakes, omelets, sandwiches and salads, alongside items such as the Quinoa Power Bowl, avocado toast and Chickichanga.
As of June 27, 2021, First Watch had 423 restaurants:
For the 26 weeks ended June 27, 2021:
First Watch reported first-half 2021 net income of $1.76 million, compared with a net loss of $31.4 million in the same period of 2020. Total revenue in the first half of 2021 was $280 million.
According to SEC filings cited in the article, First Watch believed it had room for 2,200 potential restaurant sites in the United States. It planned to open 130 new restaurants from 2022 to 2024.
The company estimated that a new restaurant required about $900,000 in investment. Expected sales for new restaurants were:
Expected average operating margin for new restaurants was 19%.
A standard First Watch restaurant was 3,400-4,000 square feet, or 315.9-371 square meters, with indoor seating for 120-140 guests. Each restaurant typically employed 20-30 people.
As of June 27, 2021, First Watch had 15 franchisees operating 88 restaurants.
Typical franchise agreement terms included an initial 10-year operating right plus a 10-year renewal option. Initial franchise fees were $35,000-40,000 per restaurant. Franchised restaurants paid 4-4.5% of sales as royalty fees, plus 1-3% of sales for advertising and marketing.
First Watch highlighted several growth strategies in its IPO prospectus:
As of June 27, 2021, First Watch offered an alcohol menu in 244 restaurants and planned to expand it across the system. In the second quarter of 2021, alcoholic beverages represented 3.6% of company-owned restaurant sales.
Off-premise sales also increased sharply. In the second quarter of 2021, takeout and delivery contributed average weekly sales of $8,079 per restaurant, compared with $1,897 in the fourth quarter of 2019.
First Watch positioned its operating model as a competitive advantage. Although restaurants were open only 8.5 hours per day, the company’s average unit volume before the COVID-19 pandemic was $1.6 million, only slightly below Denny’s, which operated 24 hours a day.
The company argued that its “no night shifts” model helped recruitment and retention for staff and managers, while also supporting customer demand and operating performance.
In the five years ended December 29, 2019, before the pandemic, First Watch’s AUV increased 25.7%, from $1.3 million in fiscal 2015 to $1.6 million in fiscal 2019.
After 2020, AUV declined sharply:
In 2020, in-restaurant dining sales were $257 million, down 35.8% from $400 million in 2019.
Third-party delivery sales rose to $38.52 million in 2020, compared with $2.64 million in 2019. Take-out sales reached $41.88 million in 2020, up 59.1% from $26.316 million in 2019.
Food and beverage costs represented 22.8% of sales in 2020. Labor and related costs represented 35.7% of sales.
In the first half of 2021, the three major restaurant cost categories were:
First Watch had an agreement with a broadline distributor to supply almost all of its products across the United States. As of December 27, 2020, about 80% of food and beverage inputs, including pork and eggs, were processed through an integrated distributor and delivered to restaurants.
The network used 15 distribution centers, each holding 14-21 days of core raw material inventory.
As of June 27, 2021, First Watch had $48.03 million in cash and cash equivalents. The article reported total debt as $2.94.
In 2017, private equity firm Advent International acquired a majority stake in First Watch. The prospectus stated that after the IPO, Advent International would hold 79.2% of the company’s common shares.
Advent International was described as a global U.S. private equity firm focused on acquisitions in Western and Central Europe, North America, Latin America and Asia. As of March 31, 2021, it had invested in more than 375 private equity transactions across 42 countries and managed $74.6 billion in assets.
On September 23, 2021, Advent-controlled food company Sovos Brands had already gone public. Its shares were 13% above the $12 IPO price, below the prior market guidance range of $14-16. Sovos Brands raised $280 million, nearly $100 million below its earlier fundraising target, and had a market capitalization of $1.3 billion at the time.
Note: IPO terms, expansion targets, ownership percentages and forward-looking unit-economics figures are historical and reflect disclosures and expectations cited in 2021.