What changed in this filing

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Item 1. Business

2024-03-05 compared with 2023-03-07 · 78 added, 67 removed, 132 unchanged (52% of the section changed)

First Watch Restaurant Group, Inc.

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”).

is a Delaware holding company that was acquired by funds affiliated with or managed by Advent International L.P.

(“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.

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Our focus on one daytime shift enables us to optimize restaurant operations while generating an average unit volume of $2.3 million per restaurant in 2023 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.

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, among other attractive benefits.

As of December 31, 2023, we had a total of 524 restaurants across 29 states, 425 of which were company-owned and 99 were franchise-owned.

Yeah, It’s Fresh!

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

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

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

We “Follow the Sun”

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.

Every menu item is made-to-order and prepared with care.

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

At First Watch, we are driven by a pursuit of freshness as is highlighted by our culinary and sourcing philosophy to “Follow the Sun.” With this philosophy our menu, which is inspired by the seasons, changes five times per year.

Our rotating seasonal menu is commonly cited by our customers as a core element of the First Watch experience and has included favorites such as the Sunny Seoul Hash, Strawberry Tres Leches French Toast and the Brooklyn Breakfast Sandwich.

These seasonal items are offered alongside of our award-winning chef-driven menu including elevated executions of classic favorites for breakfast, brunch and lunch, such as our protein-packed Breakfast Quinoa, Farmstand Breakfast Tacos, and Avocado Toast.

Our menu also features fresh juices, that we juice each morning, including Morning Meditation and Kale Tonic.

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.

As evidenced by our vision to “Create Amazing Opportunities for Our People,” we also work hard to provide opportunities for advancement 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.

As a result, we are proud of the many people-focused awards and accolades we have received over the past few decades, most recently including the following:

• Named the top restaurant brand in Yelp’s inaugural list of the top 50 most-loved brands in the U.S (2023)

• Named a Top 100 Most Loved Workplace® by Newsweek and the Best Practice Institute (2022 and 2023).

In 2023 First Watch was the only restaurant brand recognized.

• Recognized with ADP’s Culture at Work Award (2022)

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

We also extend our You First culture by giving back to important organizations and causes that are meaningful to our people.

Most notably, First Watch is proud of two key efforts to give back in a meaningful way:

• Project Sunrise:

Through this initiative of passion, 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.

• Pediatric Cancer Research:

Through each sale of a First Watch kid’s meal, we donate a portion of proceeds to the V Foundation in order to support and advance pediatric cancer research.

To date, we have donated $1.0 million towards these important efforts.

Growth Strategies

New Restaurant Openings

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

As supported by a third-party study, we 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 2023, we continued to realize that potential by opening 51 new company-owned and franchise-owned restaurants, which we collectively refer to as “system-wide” restaurants, across 19 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.

Our growth strategy targets an accelerating pace of new system-wide restaurant development with a long-term goal of an annual percentage growth 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 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.

First Watch’s top 10% of restaurants in terms of sales, span 10 states and 20 designated market areas.

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.

Our long-term growth strategy includes the acquisitions of First Watch restaurants operated by certain of our franchisees.

To that end, during 2023, we acquired 23 operating restaurants along with development and territory rights from four franchisees.

In addition, shortly following the end of 2023, we announced our agreement to acquire 21 restaurants from our largest franchisee.

See Note 21, Subsequent Events , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Form 10-K for additional information.

We believe the Company’s operation of the restaurants acquired from our franchisees as well as development in the reacquired territory provides substantial opportunity to realize new Company value.

At December 31, 2023, we had 11 franchisees operating 99 restaurants with 18 total new restaurant development obligations.

At December 31, 2023, 47 franchise-owned restaurants are subject to our option to purchase.

Drive Restaurant Traffic and Build Sales

Our attractive returns on invested capital in each restaurant starts with our focus on traffic and customer frequency in the building of our sales through:

Our attractive return on invested capital starts with an intention to build sales and traffic through a focus on the core elements of the First Watch experience:

serving incredible food, with memorable service, in an inviting atmosphere.

• Delivering an Excellent On-Premise Dining Experience.

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.

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.

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

• Technology and Increased Accessibility.

We believe that technology can continue to elevate the First Watch experience for both our employees and customers.

To date we have implemented technologies that have enhanced accessibility by adding the functionality for direct ordering of takeout as well as third party delivery integrations.

In 2023 and 2022, our total off-premises sales accounted for 18.3% and 20.6%, respectively, of our total restaurant sales.

While these sales channels have corrected from anomalous highs during 2020 and 2021 due to the COVID-19 pandemic, this still reflects a significant portion of our business and has remained elevated relative to 2019 when off-premises sales only reflected 6.7% of our total restaurant sales.

◦ In-restaurant dining sales continue to strengthen indicating continued customer demand for experiences and connection.

In 2022 we implemented kitchen display screens in all company-owned restaurants to simplify the employee experience and improve back-of house efficiency.

Along with many other operational initiatives, processes and procedures, we continue to see opportunity to use technology to elevate the customer experience and simplify tasks for our teams.

In February 2024, we completed the roll-out of pay-at-the-table technology at all company-owned restaurants.

Through a QR code on our receipts, customers can now seamlessly pay using Apple Pay, Google Pay or a credit or debit card, reducing bottlenecks at host stands, particularly during peak weekend hours.

• Continued Menu Innovation.

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

We constantly 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.” Our five highly anticipated seasonal menus and the introduction of new platforms drive customer frequency and incremental revenue opportunities.

“Follow the Sun.” Our five highly anticipated seasonal menus drive customer frequency.

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.

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.

In addition, successful new platform introductions such as our Fresh Juice program, our Shareables, our alcohol program and our premium iced coffees add incremental revenue opportunities and capitalize on growing trends.

◦ 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.

Our alcohol platform is unique and reflects our culinary innovation through combinations of 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 31, 2023, our alcohol menu was offered in about 90% of our system-wide restaurants.

As we have finalized the initial stage of adding alcohol to the majority of our system, our alcohol platform offers the opportunity to innovate alongside our constantly evolving culinary platforms and seasonal menus.

• Increasing Our Brand Awareness.

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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 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:

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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.

Since implementation of these systems, we have gathered customer information for over 14.6 million unique customer profiles, 6.1 million of whom have opted for direct communication from First Watch.

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

Quality and Food Safety

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Our Supply Chain department manages and negotiates directly with qualified, national suppliers and distributors with the dual goals of securing the supply of high quality, fresh products and controlling cost.

Our selected vendors undergo inspection to ensure that products purchased conform to our standards.

Our selected vendors undergo inspections to ensure that products purchased conform to our standards.

Our Quality Assurance department requires third-party supplier audits or Global Food Safety Initiative certification for all food distributors and manufacturing facilities to ensure good manufacturing practices, food safety, pest control, sanitation, training, regulatory compliance and food defense systems are in place.

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Franchisees are required to pay 4.0% of franchised restaurant sales in royalties and contribute 1.0%-3.0% of franchised restaurant sales to a system fund, which is used for advertising, marketing and public relations programs and materials on a system-wide basis.

Presently, we are not extending franchise agreements to new franchisees.

Human Capital

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

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.

We believe the Company’s culture plays a significant role in higher retention of all employees.

This culture was also a key factor in the Company’s achievement of top 50 status in Newsweek’s 2023 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

At First Watch, we are committed to making days brighter by creating a culture where our teams and customers feel valued and celebrated for who they are and the differences they bring to the table.

We also embrace the fact that diversity goes hand in hand with inclusion.

With our core belief to “Just Be Kind,” we endeavor to provide our people with the opportunity to contribute at the highest level and we empower diverse voices to ensure everyone can belong, thrive and “follow the sun” to reach their full potential.

We believe in fostering an environment where all employees feel valued and heard, and we provide employees with various channels to provide regular feedback, including surveys, meetings and direct communication.

In 2023, CEO and President, Chris Tomasso, Chief People Officer, Laura Sorensen and Chief Operations 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.

The purpose of the in-depth sessions was to learn more about the issues most meaningful to our hourly workforce.

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 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.

We believe our diverse teams reflect the wide diversity of our customers across the U.S., allowing us to better anticipate market trends and address the needs of our customers.

And while our work is ongoing, we’re dedicated to building on our “You First” commitment and unlocking amazing possibilities for each team member and the communities we serve.

First Watch works with an outside consultant to complete an annual assessment to both build and benchmark our policies, practices and representation.

This commitment to diversity, inclusion, and fair and equal representation of underrepresented or minority groups is demonstrated throughout all levels of the organization (based on self-reported information as of February 19, 2023):

• 50% of the non-employee members of our Board of Directors are women, and our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are each chaired by a woman;

• 25% of our non-employee directors are from an underrepresented group as it relates to race/ethnicity;

• 33% of the members of our executive leadership team are women;

• 53% of our workforce are women;

• 57% of our workforce belong to an underrepresented or minority group as it relates to race/ethnicity.

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

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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 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.

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

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

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

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.

The purpose of the in-depth sessions was to learn more about the issues that matter most to our hourly workforce.

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 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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As consumers increasingly seek higher quality breakfast, brunch and lunch experiences, we believe we are well-positioned to compete with a wide range of national, regional and local establishments that operate during our hours of operation.

More directly, we do not believe there is a comparable offering within our segment that operates at scale as First Watch does and we view our primary competition as a network of independent restaurants that also serve breakfast and lunch in neighborhoods across the United States.

More directly, we do not believe there is a comparable offering within our segment that operates at the scale of First Watch

and we view our primary competition as a network of independent restaurants that also serve breakfast and lunch in neighborhoods across the United States.

Our quarterly results of operations are subject to seasonal fluctuations.

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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