00:00revenue on the revenue side did well. What drove that? Yeah, it was really what's been driving our
00:05business for the last 15 years and certainly have accelerated in this quarter is our differentiated
00:11Mediterranean cuisine, that unique cuisine where tastes and healthy unite, delivered by our team
00:15members with exceptional hospitality, and that at a great reasonable value. You know, we're not going
00:19to be the lowest price, but we need to be a reasonable price and make it as accessible as
00:23possible for people to be able to share a meal with us. And that's something we've had a strategy
00:28for a number of years now where we've underpriced inflation, underpriced CPI by over 10 percent
00:32and taken less than half the price increases of the average restaurant brand to be able to welcome
00:37more people to our table. How much longer do you think you can do that? I mean, you've taken price.
00:42I mean, you've held particularly on falafel and some of the other types of bowls, held price on that as
00:46well. But as you know, I mean, we don't necessarily know if the economy is changing, but the outlook
00:51right now by a lot of economists is that we could see greater price pressures on consumers. What does
00:56that mean for you? Well, it means that we got to continue to reinvest in our team and reinvest in
01:00our guests. So a great example of that is, you know, we drove the same restaurant sales, same
01:04restaurant sales growth helps drive leverage through our fixed costs on our P&L. But we didn't
01:09just pocket that margin expansion. We're taking that margin expansion and reinvesting in our guests,
01:13absorbing some of those potential inflationary pressures in the back half of the year.
01:16We talked about potential fuel surcharges on our transportation network and not pass those along to
01:22our guests. And we think that delivers long term sustainable traffic growth over the long term,
01:26which will deliver healthy margins over the long haul. I do want to talk about the menu itself.
01:32You introduced seafood to the menu, I believe, for the first time. We talked about this the last time
01:36you're here. It's out there. There's the was at the pomegranate salmon, if you will. Talk a little
01:42bit about a the demand that you saw for it, but more importantly, also the cost. And I know this
01:47came up
01:48on the conference call today that at least on a cost basis for Kava, there's not really any
01:53additional profit coming from that or I had that wrong. Well, it is 100 basis point margin rate
01:59headwind, but it's penny profit neutral to other items on our menu. So we tried to manage the costs
02:04that we can bring it to our guests while still preserving the penny profit neutrality across our
02:08menu. So it is it is a profitable item for us, just a margin rate headwind. Why pursue that if
02:16you
02:16don't think you can get a greater margin out of it? Because we're not just in this to just take
02:21margin and charge the highest price to our guests. We want to bring high quality, relevant Mediterranean
02:27cuisine that's going to excite our guests. It's ultimately going to drive more frequency and more
02:32long term traffic. You are also introducing shrimp as well as some other items as well. Is that going
02:38to be a similar story with regards to the cost inputs? Well, shrimp will be a lower price premium item.
02:44And, you know, that's something we've really worked to do is create different pathways for our guests
02:49to join us at our table. So we did not take any menu price increase on our base Kava bowls
02:55and
02:56pitas, our chicken, our falafel, our roasted vegetables. So the same price of entry admission
03:00to the Kava table this year as it was last year. And then the 1.4% menu price increase
03:05that we did take
03:06was distributed across premium and attachment items. So if you want to join us and you want to trade up
03:12into a premium item like our grilled steak or pomegranate laced salmon, you have the optionality
03:17to do that as well. And I think that's also been helpful in kind of bridging this K-shaped economy
03:21or split screen economy, as some have called it, to really have consistent traffic and momentum across
03:28all markets, all regions and all income strata. I mean, we noted on our earnings call that actually
03:34the lower half of the income strata was the strongest performing by median household income across our
03:39restaurants. Really? Wow. I am curious about your expansion. You've already opened, you know,
03:43more than 70 restaurants this year alone. Does that pace continue based on what you know now?
03:48Yeah, we actually increased our guidance by one additional restaurant from what we had initially
03:52set out to do. We have a really healthy real estate pipeline and we're seeing record NRO new
03:57restaurant opening volumes across our fleet. So we just opened recently in Ohio and Columbus and
04:01Cincinnati, in St. Louis. And again, we're seeing consistent, really warm receptivity to our
04:08maturinian cuisine when we open in these communities. So we want to make sure that we are able to bring
04:12it to other places across the country. But we want to also make sure that we've got role ready,
04:17qualified general managers that are able to open those restaurants with operational integrity. So we
04:21feel like 75 to 77 is our current guidance that we're very confident in. And with those new locations,
04:27you're confident you could kind of maintain the overall average unit volume as well as the margins
04:33that your older restaurants have had? Yes. We we've been doing again when we we see that margin
04:39expansion from some of our traffic growth. We've been reinvesting. I talked about guests with menu
04:43pricing, but also reinvesting in our team, bringing new general managers on board earlier to have them
04:49trained longer, investing in our new assistant general manager position, which has already yielded better
04:54positive results in the restaurants that they are in to provide better management compliment across
04:58all what we call 14 day parts, seven months, seven dinners of both nights and weekends,
05:03and then having trainers at those new restaurants for longer after we open to make sure that we get those
05:09restaurants open and stable before that they depart for the next opening. Someone on one of the analysts
05:15on the conference call asked a question about catering. And I know you've done a test already,
05:20I believe in the Houston market. Is this does this have the potential to be a bigger part of your
05:25business at some point in the future? Yeah, absolutely. We see the demand. We've catered
05:29most professional sports teams, major league baseball teams, NBA teams, college sports,
05:34let alone office demand and schools. But we want to make sure that we set our operators up for success.
05:40This is a different production rhythm. It's highly concentrated volume. And we want to make sure that we
05:46don't distract from our existing channels with digital in restaurant. So we have our Houston
05:50market test. We're going to do a second market test later this year. And we're going to be patient
05:54and make sure that we have our what we call load balancing and capacity management of that demand
05:58against the production capacity we have in our restaurants appropriately. Well, that's what I'm
06:02curious about. Would a catering business rely on, I guess, the existing footprint and the existing
06:07staffing that you have in the individual stores? Well, one of the things we've been doing
06:10in recent years is building what we call hybrid kitchens or digital kitchens. So these are
06:15some of them are regular cover restaurants that have expanded back of house for centralized catering
06:20production to support the demand from the restaurants around it that may not have capacity given,
06:25you know, we just crossed $3 million in average unit volume. So those those restaurants are very
06:30busy, may not have capacity to produce catering. So we have these strategically located hubs to be able
06:35to support that demand. You mentioned digital, the word obviously AI is the big buzzword these days.
06:41And everybody wants to know how you're employing AI or whatever associated technologies,
06:47other whether to improve efficiency, better track your customers. How are you using it?
06:50Well, I talked about this in our shareholder layer last couple years, very excited about the potential
06:54of data transformation over the next decade. You know, very similar to the impact that digital
06:59transformation had on our business the last 10 to 15 years. And one of the things we spoke to this
07:03quarter was the launch of our Kava core data platform. And then building upon that foundation,
07:09kind of the foundation of the data house, we've built our Kava current commerce platform, which is
07:14ingesting all of our order flow in real time. And what all this allows us to do is in the
07:19coming
07:19quarters and years is build an intelligence later layer on top of that to leverage generative AI tools
07:25and LLMs on top of a clean source of data that is ingesting all the real time activity in our
07:31business
07:31to do a few things. One, create operational efficiencies and take a lot of complexity off
07:36of our team members played out of their mindshare like predictive cook, predictive prep, inventory
07:41management, labor scheduling to free them up to have that human connection and deliver that
07:45Mansourian hospitality. It also allows us to have very personalized engagement with our guests to
07:50really understand their behaviors and preferences and make their experiences richer and more beneficial
07:55to them and ultimately create better value for the business. And then lastly, on the business
07:58intelligence side, we're already seeing productivity gains with our enterprise LLM tool that is able to
08:05automate a lot of the analysis that used to take hours or days of work, whether using spreadsheet
08:11tools like Excel or Hyperion and automating that again, making our team members more productive,
08:17more powerful. We like to say how we think about is technology to enhance the human experience,
08:21not replace it and very excited about the early returns. And I think we're just in the early stages
08:26of this journey over the next decade.
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