Cyclospora wiped out Sweetgreen's sales momentum
Cyclospora outbreak triggers sales decline for Sweetgreen amid ongoing food safety concerns.
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Sweetgreen's same-store sales dropped 6.2% in Q2, impacted by consumer concerns over a cyclospora outbreak and the removal of menu items. While the company has opened new units, overall sales guidance has worsened due to ongoing food safety issues affecting consumer demand for fresh prepared foods.
Why It Matters
The decline in same-store sales reflects potential risks for franchisees related to consumer perception and brand trust, which may affect territory availability and unit economics in the fast-casual sector.
Sweetgreen, the fast-casual salad chain, is experiencing a sales decline due to a cyclospora outbreak linked to fresh produce, significantly affecting consumer demand for its offerings. In the second quarter, which ended June 28, same-store sales dropped by 6.2%, despite a new product line of wraps that initially boosted sales, especially among younger customers. This decline included a 2% drop in customer traffic and a 4.2% decrease in product mix as patrons shifted towards promotions and less expensive items. Notably, the decline was an improvement from a nearly 13% drop in the first quarter, the worst performance since the company's IPO in 2021.
CEO Jonathan Neman acknowledged the struggles, stating, "Our results are not where they need to be, but the progress we saw in the second quarter reinforces our confidence that the plan is working." Despite not serving iceberg lettuce, which is believed to be tied to the cyclospora outbreak, Sweetgreen's brand has been affected by the negative publicity around fresh prepared foods. The outbreak initially caused a 600 basis-point impact on comparable sales. Additionally, a salmonella outbreak linked to fresh jalapeños — used in limited products — prompted Sweetgreen to preemptively remove these ingredients from its menu.
Given the uncertain recovery timeline, Sweetgreen has revised its annual guidance, projecting same-store sales declines of 7% to 8%, a marked downgrade from the prior forecast of 4% to 2%. In the second quarter, Sweetgreen reported a 3.8% revenue increase to $192.7 million, attributed mainly to new restaurant openings. The company opened four new locations but closed two, resulting in a total of 287 restaurants. However, the net loss increased to $26.3 million compared to previous losses.
The impact of public health concerns on consumer dining habits suggests that the fast-casual segment, particularly chains reliant on fresh ingredients, may face ongoing challenges moving forward. The pace of Sweetgreen's recovery may depend on how quickly the public's confidence in fresh prepared foods is restored and consumer preferences shift back.
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