What changed in this filing

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Item 1. Business

2023-03-07 compared with 2022-03-23 · 87 added, 52 removed, 112 unchanged (55% of the section changed)

First Watch Restaurant Group, Inc.

(collectively with its wholly-owned subsidiaries) is a Delaware holding company which was acquired by funds affiliated with or managed by Advent International Corporation (“Advent”) pursuant to a merger transaction in August 2017, (the “Advent Acquisition”).

is a Delaware holding company that was acquired by funds affiliated with or managed by Advent International Corporation (“Advent”) in August 2017 (the “Advent Acquisition”).

Unless the context otherwise requires, “we,” “us,” “our,” “First Watch,” the “Company,” “Management” and other similar references refer to First Watch Restaurant Group, Inc.

and, unless otherwise stated, all of its subsidiaries.

Since opening our doors in 1983, we have been a pioneer in the Daytime Dining restaurant segment, serving made-to-order breakfast, brunch and lunch using the freshest of ingredients.

Since opening our doors in 1983, we have been a pioneer in Daytime Dining, serving made-to-order breakfast, brunch and lunch using the freshest of ingredients.

We have built our brand on our commitment to operational excellence, our culinary mission centered around a fresh, continuously evolving menu, and our “You First” culture.

Our focus on one daytime shift enables us to optimize restaurant operations while generating average annual sales volumes of $1.8 million in 2021 per restaurant in only 7.5 hours per day.

This daytime focus also allows us to attract and retain employees who are passionate about hospitality and drawn to our “No Night Shifts Ever” approach.

First Watch was named “America’s Favorite Restaurant Brand” by Market Force in 2020, based on customer recommendations and brand satisfaction.

In both 2020 and 2021, First Watch was recognized by FSR Magazine as the fastest-growing full-service restaurant company in the United States based on unit growth.

As of December 26, 2021, we had 435 system-wide restaurants across 28 states, 341 of which were company-owned and 94 were franchise-owned.

Our focus on one daytime shift enables us to optimize restaurant operations while generating an average unit volume of $2.0 million per restaurant in 2022 in only 7.5 hours per day.

This daytime focus also provides us with a competitive advantage allowing us to attract and retain employees who are passionate about hospitality and drawn to our “No Night Shifts Ever” approach.

As of December 25, 2022, we had a total of 474 restaurants across 29 states, 366 of which were company-owned and 108 were franchise-owned.

Yeah, It’s Fresh!

At First Watch, we take a creative approach to Daytime Dining led by our commitment to freshness.

Every morning, we arrive at the crack of dawn to slice and juice vegetables and fresh fruits, bake muffins, brew our fresh coffee and whip up our French Toast batter from scratch.

Each item is made-to-order and prepared with care.

We do not use microwave ovens, heat lamps or deep fryers in our kitchens.

Every morning, we arrive at the crack of dawn to slice and juice fresh fruits and vegetables, bake muffins, brew our fresh coffee and whip up our French Toast batter from scratch.

Our award-winning chef-driven menu includes elevated executions of classic favorites for breakfast, brunch and lunch, along with First Watch-specific specialties such as our protein-packed Breakfast Quinoa, Farmstand Breakfast Tacos, Avocado Toast, Morning Meditation (juiced in-house daily), our Pomegranate Sunrise, Chickichangas and our famous Million Dollar Bacon.

While our menu constantly evolves, our promise of freshness never wavers.

Our award-winning, chef-driven menu includes crave-able items like our Avocado Toast, Smoked Salmon Eggs Benedict, Farm Stand Breakfast Tacos and Lemon Ricotta Pancakes in addition to revolving seasonal items like The Trailblazer Bowl, Carnitas Breakfast Tacos, Superseed Protein Pancakes and a rotating fresh, seasonal juice.

This commitment to freshness and a culinary philosophy of “Following The Sun,” with our rotating seasonal menu, continues to differentiate the brand and attract an on-trend health-oriented customer while also serving the long-standing customer focused on the ritual and consistency of the breakfast occasion.

For nearly four decades, we have cultivated an organizational culture built on our mission of “You First.” As a company, we put our employees first and empower them to do whatever it takes to put our customers first.

We give back to the local communities where we operate and we support national and international causes we care about, such as our Project Sunrise partnership that supports women-owned coffee farms in Colombia, which in turn empowers them to reinvest in their communities.

For four decades, we have cultivated an organizational culture built on our foundational concept of “You First,” which puts serving others above all else.

As a company, we put our employees first and empower them to do whatever it takes to put our customers first.

We also work hard to provide an opportunity for limitless growth and meaningful relationships, and we prioritize personal and professional growth so that our people can thrive.

We believe our approach and operating model have enabled us to retain and attract the best and brightest employees in the industry and are key factors in our ability to meet the growing demand we are seeing across the country.

In 2022, a five-year longitudinal study of employee surveys on Glassdoor published by William Blair ranked us #1 for work/life balance and we were in the top 10 in overall employee satisfaction, among casual dining concepts.

Also in 2022, First Watch was recognized with ADP’s Culture at Work Award and named a Top 100 Most Loved Workplace ® by Newsweek and the Best Practice Institute.

We extend our You First culture by giving to important local organizations and causes in communities where our restaurants operate.

First Watch also supports national and international causes we care about, such as our Project Sunrise partnership.

Through Project Sunrise we source our coffee beans from women-owned farms in Colombia, and we pay an annual quality incentive bonus to farmers to further support their high-quality production.

This program in turn empowers these women leaders to reinvest in their communities.

Growth Strategies

New Restaurant Openings

We have significant unmet demand and trade-area development opportunities in both existing and new markets.

In 2021, we opened 22 new company-owned restaurants generating annualized average unit volumes of $2.0 million, which is approximately 11.0% higher than our existing company-owned restaurant average unit volumes.

Our experienced restaurant development team partnered with a third-party analytics firm to conduct an in-depth study determining our potential for more than 2,200 locations in the United States.

We currently believe First Watch has the potential for more than 2,200 restaurants in the continental United States.

In 2021, First Watch was recognized by FSR Magazine as the fastest-growing full-service restaurant company in the United States based on unit growth and in 2022, we continued to realize that potential by opening 43 new company-owned and franchise-owned restaurants, which we collectively refer to as “system-wide” restaurants, across 16 states.

Our growth strategy targets an accelerating pace of new restaurant development with a long-term goal of a percentage increase of system-wide restaurants in the low double digits.

In selecting new locations, we evaluate specific market characteristics, demographics, traffic patterns, co-tenants and growth potential.

Our development approach has proven that First Watch has tremendous portability across markets, with new

restaurants boasting consistent and strong average unit volumes across geographies.

We intend to open more than 130 company-owned restaurants from 2022 through 2024.

While our existing franchisees are committed to developing restaurants in their territories, we expect company-owned restaurants will be the primary growth driver of our footprint over the long term.

Our development approach has proven that First Watch has tremendous portability across markets, with new restaurants boasting consistent and a strong average unit volume across all geographies.

In 2022, our new company-owned restaurants generated an annualized average unit volume of $2.2 million.

Our new restaurant performance continues to accelerate and we are confident in our ability to continue this growth by elevating both the quality of real estate as well as the introduction of new design features that allow our teams to serve the significant demand.

Acquisitions of Franchise-Owned Restaurants

As an element of our growth strategy, from time to time, we have acquired restaurants from our franchisees.

We believe there is potential to increase value through strategic acquisitions of our franchise-owned restaurants.

As of December 25, 2022, we had 15 franchisees operating 108 restaurants with 39 total new restaurant development obligations.

At December 25, 2022, sixty franchise-owned restaurants are subject to our option to purchase.

Drive Restaurant Traffic and Build Sales

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Excellence in restaurant-level execution, recognized by customers and reinforced by the hundreds of accolades we have received, increases the visit frequency of our customers, promotes trial by new consumers and ultimately encourages loyalty.

• Menu Innovation.

We continuously evolve our menu to keep it fresh and exciting yet operationally efficient.

Our five highly anticipated seasonal menus and the introduction of new platforms drive customer frequency and incremental spending.

Our single menu, throughout the day and across all restaurants in our system, streamlines our supply chain and restaurant operations, simplifies our employee training and provides for a consistent and superior customer dining experience.

• Continued Menu Innovation.

We continuously evolve our on-trend menu which highlights our commitment to quality and freshness and is also operationally efficient.

When it comes to sourcing, we are guided by a core philosophy:

“Follow The Sun.” This means that we welcome each season into our menu with exceptional ingredients harvested when they are most flavorful and fresh.

“Follow The Sun.” Our five highly anticipated seasonal menus and the introduction of new platforms drive customer frequency and incremental revenue opportunities.

This means that we welcome each season into our menu with exceptional ingredients harvested when they are most flavorful and fresh.

In addition, successful platform introductions over the past few years, such as our Fresh Juice program and Shareables, add incremental revenue opportunities while enhancing our culinary credibility.

We have seen the incidences from our Fresh Juice and Shareables platforms rise from 9.6% and 3.4%, respectively, in the fourth fiscal quarter ended December 30, 2018 to 15.4% and 7.1%, respectively, in 2022.

• Convenience and Increased Accessibility of Our Off-Premises Offering.

We believe our integrated technology and improvements continue to optimize our customers’ convenience when ordering directly from us as well as our third-party delivery partners.

• Expand and Leverage Innovative Alcohol Offering.

Our alcohol platform reflects our culinary philosophy by creating craft cocktails which combine fresh juices and ingredients with a variety of liquors.

As of December 26, 2021, our craft cocktails were offered in 305 restaurants, including company-owned and franchise-owned restaurants, with clear plans to continue the expansion to all restaurants where feasible.

In 2022, our total off-premises sales accounted for 20.6% of our total restaurant sales.

Even as our in-restaurant dining sales recovered from the COVID-19 pandemic, off-premises sales remained strong, indicating continued customer demand.

We see future opportunity to refine and grow this demand largely by focusing on in-restaurant infrastructure, especially in our new restaurant prototypes, which include dedicated make lines and to-go rooms, separate entrances and dedicated parking spots to enhance the experience of both our off-premises and dine-in customers.

• Offer Alcohol as Only First Watch Can.

Our alcohol platform is unique and reflects our culinary innovation in combining fresh juices and ingredients with a variety of liquors.

We have continued to expand on this strategic initiative and acquire the necessary licenses.

As of December 25, 2022, our alcohol menu was offered in about 85.0% of our system-wide restaurants.

• Increasing Our Brand Awareness.

For nearly 40 years, our awareness has grown primarily through word-of-mouth as our service, menu and environment created loyal fans.

For 40 years, our awareness has grown primarily through word-of-mouth as our service, menu and environment created loyal fans.

While we believe that organic growth of awareness contributes to our local feel, we also recognize the potential of strategically marketing in appropriate channels to accelerate our brand awareness.

We continue to build expertise in, and deploy tested strategies for, utilizing targeted digital channels to reach certain attractive customer segments and build top-of-mind awareness.

By using our first party data, we have been able to identify higher frequency customers and target similar customers with digital media vehicles.

These demand generation strategies have aided us to “balance out” our customer base in recent years by growing penetration with Millennial and Gen Z segments.

• Additional Platforms and Initiatives.

We continue to evolve the First Watch concept and offerings via the implementation of initiatives that include:

– Weekday Lunch :

With the evolution of a new optimized core menu, which includes fresh, convenient and differentiated lunch offerings, the presence of our off-premises channels and the opportunity to apply targeted marketing, we believe the weekday lunch occasion holds future opportunity to build sales and traffic.

– Weekday Occasions :

We believe that the broad appeal of our menu and the quality of our ingredients give us a competitive advantage over many alternatives that offer breakfast and lunch and provide us with the opportunity to significantly increase market share by driving incremental customer visits during the week.

As a result of an evolving consumer landscape, there has been a significant migration of people from urban to suburban areas, where a meaningful portion of our restaurants exist.

This migration, coupled with trending work-from-home flexibility, presents First Watch with an incremental customer opportunity during the weekday business hours which we believe will further propel long-term growth.

– Customer Technology & Customer Data:

Recent technology initiatives, including integrated remote waitlists, remote orders, tokenized credit card transactions and WiFi into one system, provide opportunity for the development of new advanced customer relationship management systems aimed at growing customer frequency.

– Restaurant Technology Unlocking Throughput & Capacity:

We are implementing technologies that will help us further unlock in-restaurant efficiencies, enabling greater peak hour throughput and capacity, including new tools to enable optimal seating configurations, to reduce table turn times and to orchestrate more efficient order preparation.

For example, we are installing kitchen display systems in our restaurants to automate our order routing.

We accelerated the implementation of customer data acquisition systems in order to better inform the habits and behaviors of our customers.

With the large increase in remote digital orders, we also sought to digitize in-restaurant orders for the purpose of creating an omnichannel view of the First Watch customer.

By integrating remote waitlist, remote orders, tokenized credit card transactions and WiFi into one system, we now have the ability to better understand trial and frequency.

Since the establishment of these systems, we have gathered customer information for over 10 million unique customer profiles, 4 million of which are opted into communication.

The advancements in these foundational systems have allowed us to learn more about our customers and the behaviors that drive customer lifetime value.

We see this as a long-term opportunity to drive increased visit frequency as we have the ability to build new customer technology features that elevate the customer experience through reduced friction.

– Serving More Demand:

First Watch has long appreciated significant demand that regularly exceeds our capacity to serve.

Following 2020, the composition of our sales shifted with the increase in our off-premises sales.

Combined with a significant acceleration in our business, we focused on optimizing our back-of-house roles, functions and processes.

New technologies, such as the implementation of kitchen display screens in all company-owned restaurants in 2022, have increased our ability to serve more demand during peak hours.

This focus has also extended to the front-of-house, where we have implemented new practices to increase table turns, optimize seat utilization and drive improved customer satisfaction scores.

This initiative to serve more of our existing demand is highly desirable, given that these additional customers are already visiting our restaurants and do not require investment in customer acquisition.

We are confident this enduring initiative will continue to create value for First Watch.

Quality and Food Safety

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Food preparation and cleaning procedures are defined, monitored and maintained by our quality assurance department.

We contract with third-party inspectors to regularly monitor restaurant performance through unannounced non-biased food safety assessments with program standards that meet or

exceed those of local health departments.

We contract with third-party inspectors to regularly monitor restaurant performance through unannounced non-biased food safety assessments with program standards that meet or exceed those of local health departments.

These inspections are intended to achieve active managerial control in our restaurants in an effort to reduce risk factors and maintain a strong food safety culture.

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(“Culture and Food Experience”) training program in the restaurants, alongside experienced managers.

Training for all in-restaurant management positions was also enhanced to clearly define and delineate roles in order to drive both results and engagement.

New hourly employees participate in at least three days of initial onboarding training and shadowing.

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Marketing and Advertising

We use a variety of marketing channels, including email communications, affiliate partnerships, social media interactions, digital marketing, direct mailers, public relations initiatives and local community sponsorships, promotions and partnerships.

We use a variety of marketing channels, including affiliate partnerships, social media interactions, digital marketing, direct mailers, public relations initiatives and local community sponsorships, email communications, promotions and partnerships.

We focus on increasing our engagement with social media platforms in order to generate brand awareness and also to gather information we can then apply to future marketing efforts.

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“You First” Culture Elevates Employee and Customer Satisfaction

First Watch has a simple mission statement - “You First.” We have been people-focused from our inception as we have always believed our employees are our greatest asset.

First Watch has a simple mission statement based on its “You First.” culture - “Making days brighter at every opportunity.” We have been people-focused from our inception as we have always believed our employees are our greatest asset.

We believe that putting our employees first, in turn, leads them to put customers first.

The Company’s culture and “You First” mission play a role in higher retention of all employees.

During 2021, turnover of our general managers fell nearly 30% below the average of our respective segment of the restaurant industry as reported by Black Box Intelligence, a restaurant sales reporting firm (“Black Box”), and the average tenure of our general managers is approximately five years.

We believe the Company’s culture plays a significant role in higher retention of all employees, as the Company had historically experienced below industry turnover.

This culture was also a key factor in the Company’s achievement of top 50 status in Newsweek’s Top 100 Most Loved Workplaces, a designation that was a result of an assessment of First Watch’s people practices along with an independent survey of approximately 1,000 of our employees.

First Watch also introduced a new Vision, Mission and Values statement to all employees to further reinforce its award-winning culture and emphasis on both employee and customer engagement and loyalty.

Diversity and Inclusion

In September 2020, First Watch launched a new campaign, branded #beabetterhuman, which has taken our people-focused approach to a new level.

The Company turned participation in the #beabetterhuman campaign into an opportunity for employees to give back to the community.

The #beabetterhuman initiative includes a six-part live, interactive web series tackling sensitive topics such as unconscious bias, privilege and mental health.

The #beabetterhuman campaign is designed to educate our entire workforce, raise awareness and influence change.

In 2020, we developed and launched an annual campaign, branded #beabetterhuman, which has taken our people-focused approach to a new level.

We turned participation in the #beabetterhuman campaign into an opportunity for employees to give back to the community.

The #beabetterhuman initiative included a six-part live, interactive web series tackling sensitive topics such as unconscious bias, privilege and mental health.

The #beabetterhuman campaign was designed to educate our entire workforce, raise awareness and influence change.

In order to provide employees with a chance to make a difference, for each employee that participated in all six #beabetterhuman web sessions, First Watch made a donation to Bryan Stevenson’s Equal Justice Initiative (featured in the book and film “Just Mercy”).

We continue to build upon the success of the program with an ongoing #beabetterhuman series on Facebook, Instagram and Glassdoor highlighting diverse employees within the restaurants and their unique and inspiring stories.

(Race Inclusion and Support Exchange) Council was created to engage high performing diverse leaders in monthly dialogue on how to best advance the Company’s diversity efforts.

We continue to build upon the success of the program with training on the program for new managers and an ongoing #beabetterhuman series on Facebook, Instagram and Glassdoor highlighting diverse employees within the restaurants and their unique and inspiring stories.

(Race Inclusion and Support Exchange) Council was created to engage high performing diverse leaders in dialogue on how to best advance the Company’s diversity efforts.

As a result of ideas that the R.I.S.E.

Council surfaced, The Rising 20, a new mentor program was established in 2021 as an important step in the #beabetterhuman campaign to help accelerate the development and advancement of minorities within First Watch.

In this mentoring program, employees are partnered with an executive for a six-month guided mentorship journey targeting personal development and professional growth.

Council surfaced, The Rising 20, a new mentor program was established as an important step in the #beabetterhuman campaign to help accelerate the development and advancement of under-represented groups within First Watch.

In this mentoring program, employees are partnered with a senior leader in the organization for a six-month guided mentorship journey targeting personal development and professional growth.

In addition, the program includes a self-assessment and career goal setting workshops.

In 2021, CEO and President, Chris Tomasso, and Chief People Officer, Laura Sorensen hosted seventeen separate 90 minute calls with hourly employees across the country for their inaugural W.H.Y.

In both 2021 and 2022, First Watch also worked with an independent Diversity, Equity, and Inclusion (“DEI”) consultant to track our DEI data, complete a thorough assessment of our current state and benchmark on key metrics.

Leveraging this data, along with their analytics and strategy platform, we then identified efforts to prioritize DEI in order to drive impact and took action.

First Watch was pleased to achieve solid positioning in the benchmarking results and significant year-over-year improvement.

In 2022, CEO and President, Chris Tomasso, Chief People Officer, Laura Sorensen and Chief Operating Officer, Dan Jones, hosted nineteen separate 90 minute calls with hourly employees across the country for their second annual W.H.Y.

Tour – their “We Hear You” listening tour.

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As a result of this tour, the Company was able to take swift action on the most meaningful issues.

New employee benefits, practices and operational tools were introduced, along with a monthly recognition budget for each restaurant to devote to ongoing employee recognition.

New employee benefits, practices and operational tools have been introduced as a direct result of

feedback from each tour, reinforcing the Company’s culture of listening to its employees and taking action on the issues that matter the most to them.

Experienced, Passionate Leadership Team and Deep Bench of Talent

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Our executives and key employees average more than 15 years of industry experience and our directors of operations have an average tenure at First Watch of approximately ten years.

In addition, our restaurant staff includes dozens of fully-trained, tested, high-performing managers throughout our system who are positioned to step into the general manager role as we open new restaurants.

In addition, our restaurant staff includes hundreds of fully-trained, tested, high-performing managers throughout our system who are poised to step into the general manager role as we execute our growth strategy and open new restaurants.

Government Regulation

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Additionally, the timing of holidays, weather conditions and the number of new restaurant openings may affect sales volumes seasonally.

Furthermore, the COVID-19 pandemic may have an impact on consumer behaviors and customer traffic that may result in temporary changes in the seasonal fluctuations of our business.

See Item 1A.“ Risk Factors ” for discussion of risks related to seasonal and periodic fluctuations.

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The reference to these website addresses does not constitute incorporation by reference of the information contained on the websites and should not be considered part of this Annual Report on Form 10-K.

We announce material information to the public about us, our products and services, and other matters through a variety of means, including filings with the SEC, press releases, public conference calls, webcasts and the investor relations website (https://investors.firstwatch.com) in order to achieve broad, non-exclusionary distribution of information to the public and for complying with our disclosure obligations under Regulation FD.

We announce material information to the public about us, our products and services, and other matters through a variety of means, including filings with the SEC, press releases, public conference calls, webcasts and our investor relations website (https://investors.firstwatch.com) in order to achieve broad, non-exclusionary distribution of information to the public and for complying with our disclosure obligations under Regulation FD.

The information disclosed by the foregoing channels could be deemed to be material information.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business