This is an English adaptation of a FoodBud historical article originally published on October 2, 2021.
First Watch, the U.S. daytime restaurant chain, officially listed on Nasdaq on October 1, 2021, with an IPO price of $18 per share.
The company sold 9.5 million shares and raised gross proceeds of $170 million, mainly to repay debt. Shares opened at $21, up 16.7% from the offering price, and closed at $22.13, up 22.94%. Based on the closing price, First Watch had a market capitalization of $1.275 billion.
Founded in 1983 and headquartered in Florida, First Watch is a daytime-only restaurant concept serving breakfast, brunch and lunch made with fresh ingredients. Its menu includes 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 8,000 full-time employees.
For the 26 weeks ended June 27, 2021, the company reported:
According to SEC filings, First Watch believed the U.S. market had room for 2,200 potential restaurant locations. It planned to open 130 new restaurants from 2022 to 2024.
The company estimated that a new restaurant required about $900,000 of investment. Expected sales for a new restaurant were $1.8 million in year one, $1.9 million in year two and $2.0 million in year three, with an expected average operating profit margin of 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 unit was staffed by 20-30 employees.
As of June 27, 2021, First Watch had 15 franchisees operating 88 restaurants.
A typical franchise agreement gave the franchisee an initial 10-year operating term, with an additional 10-year renewal option. The franchise fee was $35,000-$40,000 per restaurant. Franchised restaurants paid 4%-4.5% of sales as royalty fees, plus 1%-3% of sales for advertising, marketing and related fees.
First Watch described several growth strategies in its prospectus:
First Watch also positioned its operating model as a competitive advantage. Although restaurants were open only 8.5 hours per day, the company generated pre-pandemic AUV of $1.6 million, only slightly below Denny's, which operates 24 hours.
The company argued that its no-night-shift model supported employee and manager recruiting. In its IPO prospectus, First Watch said this differentiation drove employee satisfaction and retention, as well as customer demand and operating performance.
First Watch returned to profitability in the first half of 2021. Net income was $1.76 million, compared with a net loss of $31.4 million in the prior-year period. First-half total revenue was $280 million.
In the five years ended December 29, 2019, before the COVID-19 pandemic, AUV increased 25.7%, from $1.3 million in fiscal 2015 to $1.6 million in fiscal 2019.
After 2020, AUV fell sharply. AUV was $1.12 million in 2020 and $830,000 in the first half of 2021; in the first half of 2020, it was only $430,000, reflecting severe pandemic disruption.
In 2020, in-restaurant dining sales were $257 million, down 35.8% from $400 million in 2019. Third-party delivery sales were $38.52 million in 2020, versus $2.64 million in 2019. Take-out sales were $41.88 million in 2020, up 59.1% from $26.316 million in 2019.
Food and beverage costs accounted for 22.8% of sales in 2020.
First Watch had an agreement with a broadline distributor to supply nearly all products nationwide. As of December 27, 2020, about 80% of food and beverage inputs, including pork and eggs, were processed through the integrated distributor and delivered to restaurants. The system used 15 distribution centers, each carrying 14-21 days of inventory for core raw materials.
Labor and related costs accounted for 35.7% of sales in 2020.
For the first half of 2021, the three major restaurant operating cost categories were food and beverage, labor-related costs and rent, which represented 21.8%, 31% and 10% of sales, respectively.
As of June 27, 2021, First Watch had $48.03 million in cash and cash equivalents and total debt of $294 million.
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 stock.
Advent International is a U.S.-based global private equity firm focused on buyouts in Western and Central Europe, North America, Latin America and Asia. It had invested in more than 375 private equity transactions across 42 countries and managed $74.6 billion in assets as of March 31, 2021.
On September 23, 2021, Sovos Brands, another food company controlled by Advent International, had also listed publicly, though its model appeared less warmly received by capital markets.
Note: IPO proceeds, market value, debt, ownership levels and 2022-2024 expansion targets are historical figures from the 2021 article.