The Food IPO Boom Is Already Looking A Bit Spoiled. Is Sweetgreen Next?

A trendy salad chain Sweetgreen and Sweetgreen, which describes it as being one of the “fastest-growing restaurant companies in the U.S.,” announced this week that it was planning to be listed before the end of the year. It will be the latest food-related company to make its debut on the market in public.

The growth claims aside. The expected IPO is the latest in a series of new food-related listings, many of which are disappointing. Before Beyond Meat went public in 2019, only five food companies had made it to the market. Since July of 2020, when the eggs raised on pasture at Vital Farms began trading, 15 other companies have gone public, most of them losing money. Sweetgreen is set to be 17th.

“Whether it’s a traditional IPO or a SPAC, there’s more appetite than ever before for exits,” says S2G’s chief investing executive Sanjeev K. Krishnan. “That’s not something I would have anticipated two years ago.”

The issue? Most of these exits have gone down the wrong path as a market failure, offset just by the food delivery startups DoorDash, Oregon-based Dutch Bros. Coffee, and Chicago-style hot Portillo’s burger and dog chain despite an exploding equity market that has driven the S&P 500 up by 50 percent since 2020. Looking at the financials of Sweetgreen, it is hard evidence that it’s outperforming.

The S-1 published by Sweetgreen earlier this week reveals the company has an exciting growth story to tell. However, it comes at a high price. In the year prior, Sweetgreen lost $142 million in revenue, 220 million for 2020. This was nearly double the $67 million reported in 2019. The company’s losses for the year tripled from the $33 million they reported in 2018, even though the business Informing Forbes then that the company was profitable. One of the many companies that appear to be able to Exaggerate its profits. Sweetgreen declined to comment. But, considering the current state of the overheated markets, Sweetgreen could mount a profitable offering. Dutch Bros., which has lost $62 million this year and launched its public offering in September, has seen an increase by a third to $68 per share. DoorDash is one of the companies trying to capture market share in food delivery and is working towards positive net profit, but it isn’t there yet. The company’s price has risen just 6 percent since its December 2020 IPO.

Check out the results of Portillo’s, a casual-dining chain with a long and successful history – 58 years–and counting. It has not closed a single restaurant. The 67 restaurants are individually profitable, and it has nearly doubled its annual earnings to $12 million between the years 2018 to 2020. The stock has increased 43% since the start of trading at the beginning of this month.

Sweetgreen’s most recent financials show an organization growing: The trailing 12 months’ revenue increased by 50 percent to $240 million by September 30, and restaurant profit margins increased to 12percent. Even with the absence of profit, investors could still choose to eat their way through the IPO, particularly considering that nearly half of this new growth is coming via digital media.

“The markets are still accepting IPOs of all flavors and stripes,” says Ben Axler, the founder of Spruce Point Capital, which disclosed the possibility of a short position against Oatly during July. “Valuations are still rich in my view.”

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Adam Collins
Adam writes about technology, business and economics. With master's degree in Economics, he's presented six papers in international conferences. As a solivagant in the constant state of fernweh, curiosity is the main weapon in his arsenal.

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