CAVA: Ted Xenohristos and Brett Schulman

25:21I'm assuming when you open, there was probably a lot of friends and family and people from the church to support you at the beginning, right? Like people were coming in and you were probably busy from day one. So we had some friends and family who came in just to kind of help us practice. And, you know, things kind of went wild. We didn't really know what we were doing. And we were trying to figure that out because we didn't have a POS system. We didn't have any way of like tracking orders. We were handwriting everything. We were using all these handwriting orders on tickets. Everything we were.

25:54So we were writing it on a ticket. And then we were going in the kitchen and transferring that order onto yellow sticky notes. and you know I remember I remember one of the early moments of of those sticky notes you know I think the common theme has been we didn't have a lot of money and we were trying to save money and everything we bought and I remember we bought the knockoff brand of the 3m sticky notes and walked into the kitchen we had a packed house I'm looking around I'm wondering where the chefs have gone I'm wondering where all the food is I look down and they're all on their hands and knees kind of looking through these tickets.

26:31It was so hot in the kitchen that the glue was melting on the back of these knockoff sticky notes, and they were all falling down on the ground. So, you know, I remember we ended up kind of giving all this food away for free, and, you know, that was a little bit later after opening. But I just, I remember funny stories like that along the way. I mean, restaurant is a very risky business, right? I mean, anyone who's been in the business knows that you're more likely to fail than succeed in the first three years. I mean, once you factor in, you know, the cost of labor, the cost of rent, the cost of food, there's very little margin left.

27:07I mean, it was just the three of you, so you didn't have, presumably you didn't have to pay employees, but were you bringing money in? Were you losing money? I think in the restaurant industry, maybe it's just, I don't know, maybe it's in our blood, but every single day you feel like the restaurant could fail. It's kind of a crazy feeling. Even that first day of opening, we had one customer come in. I remember he came in, he sat down. I was the waiter and I went up to him and I said, this is what we're doing here. We're doing this Greek concept, small plates shared. And he said, well, I want big plates.

27:45I want a dinner. I came to have a meal and, you know, I try to be as charming as I could. I love talking to people. I love making people happy. And I went into the kitchen and I think it was Ike that pointed out that we had only purchased small plates. So there were not even any big plates in the restaurant. Literally, you only had small plates. Exactly. And so I went back out there and I said, I'll figure it out. I'll make him happy. And he got up and left. And we didn't have another customer for two more days. And again, we thought we were going to fail there. And so as we kind of got busier and busier, we didn't really know what we were doing.

28:21We were bringing an octopus. And let's just say the octopus weighed 40 pounds. We would divide that by the ounces that we served. And we were like, great, we can serve octopus for six bucks. Well, we didn't take into account that once we cooked that octopus off, that 40 pounds became 18 pounds. And so all the loss in that, we didn't capture that in the pricing. So we were really giving away octopus for way less than you could buy anywhere in the world, probably. And we did the same for scallops and lamb chops. And we were kind of getting busier and busier and losing more and more money.

29:00When we come back in just a moment, how Kaba starts hitting its stride with the help of a new partner who sees the marketability of the Mediterranean diet. Stay with us. I'm Guy Raz and you're listening to How I Built This.

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31:34Hey, guy. My name's Keith. I'm from Bush Mills in Northern Ireland. I love the story of Ooni Pizza Ovens. It was great to hear how two people in the UK were able to take a concept and build and grow a business, enabling people to produce true Neapolitan quality pizza in their own home. I'm also a teacher. I live in the UK and I was captivated by this story, so much so that I'm now the proud owner of an Ooni Coda 16. I love your show. Keep up the good work. Thanks. If you want to share your favorite episode of How I Built This, record a short voice memo on your phone telling us your name, where you're from, what your favorite episode is, and why.

32:16A lot like the voice memo you just heard. And email it to us at hibt at id.wondery.com. And we'll share your favorites right here in the ad breaks in future episodes. And thanks so much. We love you guys. You're the best. And now, back to the show.

32:42Hey, welcome back to How I Built This. I'm Guy Raz. So it's around 2008, and even though Kava Meze is popular, the restaurant is losing money. Ted and his partners are paying themselves basically nothing. But then the customers start giving them an idea for how to expand the business. We had people kind of requesting to buy our dips and spreads, like our hummus and tzatziki. And they were like, oh, can I get a pint of that? Can I get a gallon of that? I'm like, what are people doing with a gallon of hummus or tzatziki? And eventually, we had a customer who came to the restaurant all the time, Kenny Mates, who said to me, why don't you guys sell it in the grocery store?

33:27And I said, well, I'm not really sure how we're going to do that. I don't have any experience doing that. And so we decided to do it because everything that we had done in the past, we had no experience doing and it's found a way to work itself out. So we started doing that whole business. And, you know, at that same time, we started talking about doing a second restaurant. We're like, hey, we figured out what we're doing. We must be geniuses, right? Let's go do a second restaurant and let's try to sell, you know, our dips and spreads in grocery stores at the same time. And I remember we would make these dips at night.

34:00We would hand scoop them into the packages. We would use these little scales and then we would use blow dryers to melt the ring of plastic around the top to crimp them and then eventually deliver them to the grocery stores in the early morning. Was the payoff good? I mean, you're getting into a few small local groceries, but a lot of work. You got to make all that tzatziki and you got to make all all that feta, and you got to make all that hummus and then package it. And was it worthwhile? Was it a good revenue stream? It was not a good revenue stream. It was losing money. It was giving us heartache.

34:40I remember even the first delivery I took, the grocery store refused it. I delivered it in the backseat of my car. And they said, well, you know, has this been refrigerated, you know, since you delivered it? I go, no, we pretty much made it, threw it in my car and and brought it over. So I had to throw that all away. Obviously, we're making this stuff without preservatives. And as we made it a few days later, these packages were kind of blowing up because we didn't have any preservatives in it. So we didn't really understand the business at all. And it really, really struggled. I guess this is sort of around the time when you get connected with Brett Schulman.

35:19First of all, why were you looking to reach out to somebody? You sort of felt like you guys needed help figuring this part of your business out. Yeah. I mean, at that time, we had signed a lease for our second location. We were delivering to a few Whole Foods in the Mid-Atlantic and a few smaller other grocery brands. And we were having issues. We were having logistical issues. We were having production issues. It was not profitable. And right around that time, the economy started to kind of collapse. This 2008. Yeah, it was. 2009, yeah. Yeah, we were building that restaurant. We had a loan for that restaurant, and the bank eventually pulled it because of the collapse.

36:00And so we were in a tight spot. Like, things were not going well. And I guess this is probably a good time to bring in Brett Shulman, who soon at this point become your partner. You kind of come into the picture at this point, Brett. Yeah. And you've been sitting here quietly the whole time listening. But just to kind of paint a picture here, while Ted and Dimitri and Ike were building up Kava, you were working at your wife's business, which was sort of a startup that she had called Snickety Snacks, a small snack food business, which I guess eventually got acquired. So at this point in your life, you were kind of looking for your next move, right?

36:42Yeah. I had been heads down for four years helping build that business. And the exit that we did, it was a success. I wouldn't say it was a tremendous success by any means. It was like pushing a boulder up a hill. But it was a tremendous learning experience in what it takes to build a business and build a brand. Yeah. But now here I was at a crossroads. What was I going to do next? So I did seek counsel from people around me and thinking about what I wanted to do next. And that's where I started thinking about consulting. And even before I started thinking about that is when I got connected with Ted.

37:28And from what I understand, from what I read, the two of you basically get introduced and you get together, you start talking about Kava. And I guess eventually, Brett, in exchange for your consulting help, because I don't think they could afford to pay you, Ted basically offered you some equity in that grocery business that they were doing, like the dips and spreads, right? Yeah, at first that was the idea. But why were you interested in doing that? I mean, it's a small restaurant. They're hand-packaging dips and spreads to a couple of local places. I mean, that's a tough business, right? I mean, there's big brands out there, Sabra and other big brands that are making hummus and dips and stuff.

38:08And so the question is, why would you take this opportunity? I mean, you were looking for something to do, but they couldn't pay you. They were offering you equity, but equity in something that wasn't worth anything. Well, it's interesting, Guy. At the time, I had been speaking with a former colleague from my finance days about starting up a consulting practice where we would consult with small emerging brands and potentially take equity in lieu of compensation and help create value with that equity interest. And when I met Ted, we kind of clicked right away. And then we were customers of the product.

38:49We had it in our refrigerator and really believed in the opportunity in that category. So you start to learn about what they're doing. And why was it not working based on what you were looking at? One of the things I learned in the snack food business is just how precise and how detailed you have to be. As Ted said earlier, it's a pretty low margin business. And I remember walking in and saying, you know, how much does this tub of hummus cost us to make? and it was like, oh, you know, around$2. I said, well, like to the third decimal point, you know, a hundredths of a penny, you know, including the label, including the seal, like making sure we have all of our costs down a little bit.

39:32Like Ted talked about what they learned in the, in the full service restaurant. And, and then how are we monitoring our batch production and our yields? And I remember the business was using just QuickBooks at the time And QuickBooks had a manufacturing version. And that was very relevant. So you could build what's called bill of materials for those products to have a true understanding of every production you run, what the yield is, what the usage is, what the true costs are in the business. So there was a lot of just experience I had gained through the snack food business that I was able to apply very quickly to that business to drive more profitability and efficiency.

40:10So you were focused entirely on the dips and spreads that were being sold to grocery stores. You were not at all focused on the restaurant at all. No, I solely, when I first came on board, I was focused on the dips and spreads business. And Ted, you, sounds like you guys were happy to just like let him run with that, that that was more of a burden for you guys and you guys could go back to focusing on the restaurant. Yeah, I mean, we were super happy to have the help. And what we really saw was that business slowly start to turn around. and I saw him so complimentary of what I do. I like to be a little more creative.

40:44I like to be a little loose with the numbers. I'm like the guy with the briefcase of cash, right? And he really just brings this completely different way about thinking about the business. And I really started to think right then and there, like how he could help us in our restaurant business. So Brett, before that happened, right, Right. What was your sort of thinking around the dips business? Were you thinking, all right, this is really going to be the thing that grows this overall business. And this thing is going to be could potentially be huge. Like we should go raise money. We should turn into a brand.

41:21Like, was that how you were thinking about it? Yeah, that's exactly how I was thinking about that. We could raise capital and really grow this into, you know, a large player in the hummus and the dips and spreads category that this could be a brand we could scale. And it was around that time that, you know, I had experienced the full service restaurant and was really struck by a couple things. I was struck by A, the authenticity of what Ted, Ike, and Dimitri had started, just the soulfulness of the brand. And B, here was a way of eating that was satisfying and flavorful. And oh, by the way, it happened to be healthy.

42:01And I said to the guys, like, we need to bring this to a larger audience. Yeah. He said to us, he's like, guys, look around. You know, this kind of Mediterranean food is already healthy. And I don't think I realized that I just grew up eating that, right? The prebiotics and yogurt, the amazing qualities of olive oil, the chickpeas, just the natural healthfulness of all the different items that we had at our restaurant. Right. And so I remember saying, hey, let's talk. Let's have a coffee. and we sat down and I said to him, hey, you know, I really love what you're doing. The guys love what you're doing.

42:39I think what you bring to the table is very different than all the tools that we have. And I would love nothing more than for you to join us as our fourth partner. And I remember, you know, to his credit, he looked at me and he actually told me that that's actually a bad decision. That's bad. You know, he's trying to give me good advice as a business partner already. Like, that's not a good thing to just give away 25 % of your equity of a company, right? And I said, I really see something. I believe in what you're doing. I believe in our partnership. And you wanted him to be the CEO? Yeah. I literally was interviewing him to be my boss, right?

43:16And so, you know, outside advice that we got, we're like, oh, you're crazy. Why would you want to hire a boss? Why would you want to give this up? And I just saw a bigger picture. I knew and I could see it what he was going to bring to the three of us. And it was going to be much bigger than what the three of us were going to accomplish on our own. And at that point, were you guys profitable? So the restaurants were making profit. The dips, of course, were not. We were funding those with the restaurant profit. But, you know, we were starting to see the light at the end of the tunnel coming out of that whole economic collapse of 08, 09.

43:54and we were in a good place. Ike was running the books. Brett was actually even helping us a little with that without having any kind of consulting agreement. We were just kind of going to him for advice. And so things were going well at that time. I'm curious about the Dips business. I mean, if that business was so hard to turn a profit, why continue doing it at the time? Well, we thought that there was opportunity to continue to make it more profitable, which we were able to do. And we wanted to maintain being a culinary brand and really bring Mediterranean to consumers across the country. So having those dips and spreads, being able to be in our customer's refrigerator, in their house, being served to their friends and family, having that awareness touch point, having the validation of the quality of being sold in Whole Foods markets was just a great brand amplifier to what we were trying to do in the fast casual.

44:45I mean, when you and the other guys started to talk about, all right, what can we do next? the idea was let's open a fast casual version of Cava, right? Like let's do something more like, like were you thinking more like a Chipotle or something like that? Was that what you were thinking? Yeah, I had been a customer of the early fast casuals like Chipotle and Panera and had looked at the different business models, counter service, the walk the line, assembly line format. And one of the things that struck me that really helped us make the decision was that the walk-the-line format allowed very efficient labor costs.

45:25You know, it's the old Henry Ford production line that allowed you to invest in high-quality ingredients. And the guys were already using these great high-quality ingredients, whether in the dips and spreads or at the restaurant, and we felt like that's what was going to matter. And if we could bring those high-quality ingredients like we served in the restaurant or put in the dips and spreads to a larger audience at a more affordable price point, that, you know, that could be a great proposition. And so we ultimately settled on that format. And I remember immediately kind of getting into the kitchen with Dimitri and working on bowl ideas and calling Brett up and be like, hey, come up to Cava Emeze at the time, our original restaurant.

46:07And we kind of put these bowls in front of them. And it was the start of, you know, what we've kind of been doing for the last 12 years here and last, you know, 16 years overall, this partnership of kind of working through what the concept would be, what the food would be, how it would look, how it would taste. So we were super excited. I think we'd love the idea. All right. So now you have to, you've got to get the money to open this restaurant. How did you get it? Yeah, it was, you know, the guys had a lot of customers of the original Kava Meze restaurant who were some successful local business folks who would come to them and say, we want to invest in your next Kava Meze restaurant.

46:47And so we reached out to all of them. We got them all together at the original Kava Meze, closed for lunch one day. We mocked up all this food, put a presentation together. And we said, look, this isn't going to be another Kava Meze, but here's our idea. We want to take the great food of Kava Meze, put it in a fast health based format, open two or three, prove that this has the appeal we think it will, and then look to scale it from there. And that's what we were looking to raise money for. So we got everybody together at that original restaurant in Rockville. We had people who worked there in Vest, bartenders, servers, family members.

47:29I mean, we had almost anybody who wanted to, we were willing to take money to help get this thing off the ground. Yeah, it was really interesting. I remember one investor that I met with when we were trying to raise that original friends and family around, he said to me after I finished presenting the idea to him, he's like, I like this idea. He's like, how many restaurants can you name off the top 100 Washingtonian restaurant list from 10 years ago? And I'm sitting there thinking and I'm like, gosh, I don't know. He's like, exactly. He's like, full service restaurants are hard. And it's hard to build a brand around.

48:08And he said, I love what you're trying to do to take the great aspects of what you have in your full service restaurant and create a brand around it in this fast format that's much more scalable. All right. So this was not going to be a small plates restaurant. This is going to be more like a Chipotle. Like you go in and there's a line. So tell me, so you had to streamline the menu and tell me how you guys started to think about it. Like it was going to be like a chipotle, like salads or rice bowls or stuffed pita sandwiches? Well, one of the first things we thought about was we had a commissary that we were making the dips and spreads at, a central commissary.

48:50And we also felt like those handcrafted dips and spreads were the flavor centerpiece of the menu. So we started to think about building the menu around that and that grain bowls and greens and mains that were elements of the full service restaurant, whether spicy lamb meatballs or the chicken marinade that was used at the restaurant. So that's how we started to build out the menu. And then Ted and Dimitri really working on how do you take these items from a made to order format to a cook and hold format on the serving line? And so tell me about that first location. Yeah, it was really funny. I still have a picture from our friends and family night, you know, before we officially opened.

49:36And this was in Bethesda, Maryland, the first one? In Bethesda, yeah. Got it. It was January of 2011. And we had raised money from friends and family to open two to three locations. And this was the first. And it was a good market for this type of fast format. There was a lot of office workers, but there was a lot of also residential and families and high school students. So I remember standing in front of the line with Ted on the friends and family night and we're looking at the topping section. We're like, this kind of looks like a salad bar. It's just like a bunch of chopped tomatoes, a bunch of chopped cucumbers.

50:16And so we were constantly iterating and thinking about how do we elevate it? We did not have dressings at that time. We only had one type of greens. So, you know, it was a very basic version of what we have now. We've always continued to try and iterate and evolve. But yeah, we did not want it to be a salad bar. And how did it do in comparison to the sit-down restaurants? I mean, the sit-down restaurants were popular, but how did the fast casual place do? It didn't do great at first. Yeah, I mean, we had guests walking in who knew the full service, who were like, what do you mean? I have to serve myself here?

50:57I have to walk through a line? Where's my lamb chops? Where's my scallops? Where's my martini? Where's my Gregus, you know? So we had many, many moments of that. Yeah, it was a really bit of a struggle in the beginning trying to educate people on what this kava was because the full service was called kava meze, which still exists today. And then this was called kava. And so there was a little bit of confusion as they walked through the front door. Was there a clear, at this point, vision? Like you knew that you'd raise some money, I think about two and a half million dollars from friends and family to open those three locations.

51:32But were you thinking, Brett, like, OK, let's start like this and then let's go to investors and raise a lot of money and really see what we can do? I don't think we at the time were thinking about raising a lot of money. I think it was really, let's prove these out and then maybe go raise a little bit more money to keep growing it. And, I mean, it sounds like every kind of decision you made up until this point was very, you know, sort of methodical and baby steps. But I imagine that there were also some mistakes that you were making at that time. Always. You laugh. What were you doing wrong? Well, really, I think it started with the second location.

52:16An opportunity came up at Tyson's Corner Center, which is at the time one of the top malls in the country. And there was an opportunity for a location that was at a mall entrance with an interior and exterior storefront. And it was a bit of a sleepier entrance. But we opened in March of 2012, and we opened our doors expecting people to show up. And it was tumbleweeds. There were very few people that showed up. And I just remember thinking, oh, no, I've made a bad decision. I've undermined this business. This is a lot of money we just committed. We only have so much money to build so many locations and no one's coming.

53:01So and then it really spurred the idea that has become customary tradition. You know, how do we introduce ourselves to our new neighbors and the new communities? And so we started this idea of our community day where about three weeks after we had opened, I mean, the sales were really anemic. We did what's called our community day and we advertised and got out on social media and radio that we were doing this free lunch service. So anybody could come and have free lunch and we didn't require a donation. But if you donated, we would match your donation. Donated to what, by the way? A local philanthropic partner that addresses food insecurity.

53:42So you're offering free lunch for the day. Yep. Yeah. So we had a huge crowd that day. And then that was at the end of March. And then in July, something else interesting happened. It's called a derecho. I don't know if you know this weather event where we had a derecho. It's like a mini tornado. Yeah. And so we had a really severe one come through the DC area and it knocked everyone's power out. you know, tens of thousands of people were without power for like three or four days. And so people couldn't eat at home. So everyone came to the mall and everyone came and there were huge crowds. And so it drove even greater awareness.

54:21And by the end of July, early August, we had such significant lines. We had to get those movie stanchions and ropes to corral the lines so that they didn't block the concourse entrance. Wow. All right. So at what point do you remember saying, all right, let's see if we can build this out even further? I mean, you've got the three fast casual restaurants and they're all in the D.C. metro area and they're doing well. What do you remember, Brett, what was the kind of the tipping point where you're like, let's let's go big. Let's let's let's go out and raise money and make this into a much bigger concept.

54:58Well, there was an interim step where we raised another friends and family round because we felt like we had something that was starting to work, but we didn't have clarity that this was going to be a huge opportunity. And so we did another small friends and family round to open a couple more locations. And I think the tipping point really came when we opened the fifth location. So this was in February of 2013 in a new mixed-use project in Fairfax, Virginia called Mosaic. And we did our community day. We did a free lunch and a free dinner. And we had two hour-long lines. And the restaurant opened for its regular service the next day at twice the revenue run rate of the other restaurants that had opened.

55:46And the other restaurants all started to grow in concert with it. Yeah, but I mean, you know, the lure when you're successful is to really expand quickly. And that can sometimes really damage a business. That can be a death knell for certain companies, especially if they can't manage inventory. They can't, you know, manage efficiencies. So did you think methodically or not about, look, let's expand this slowly? Or I don't know, were there moments where you thought, let's just go all out? Well, when we knew we had something or we felt like we had something after Mosaic, we really wanted to expand further and we started looking at new markets.

56:27Outside of the mid-Atlantic, you mean? Outside of the mid-Atlantic. So we had committed to a couple more locations in the DMV, but we started looking at new markets. And we had the brilliant idea, or I made the brilliant decision, to have our second market be Los Angeles. 3 ,000 miles away from home, where no one knew us. Why don't we come back in just a moment Why expanding to LA feels like starting the business all over again And why the Cava founders decide to buy another restaurant chain That's three times bigger but failing Stay with us, I'm Guy Raz and you're listening to How I Built This

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1:01:53Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2015, and Ted and Brett are planning to expand Cava to L.A., 3 ,000 miles from home base. Yeah, at the time, you know, we were thinking about the dips and spreads business alongside this business. And we were thinking about a hub-and-spoke model for our commissary production. Because we didn't have the shelf life on our dips and spreads that we do now. And we wanted to open in a large market. And Southern California was a great customer profile, a really large market opportunity, which was the attraction of doing that. And so we actually opened a small commissary there, but it didn't open until after our first restaurant opened there.

1:02:37So we had to do the dips and spreads in that original Los Angeles restaurant. And the challenge of Los Angeles was so difficult already before we had even opened that restaurant that I went to Ted and I said, what do you think about moving to L.A.? So tell me why, yeah, Ted, tell me why you moved out there. What was the challenge in L.A.? So I actually moved out there in 14 to start building that commissary and to build that restaurant. And the commissary, just to be clear, would be making the dips and spreads mainly for Whole Foods. And the restaurant. And for the restaurant. Yeah, the commissary would provide the dips and spreads.

1:03:18So, you know, I moved out there. We thought the restaurant was going to open up much sooner. It ended up being delayed, and I was out there kind of doing the commissary. We had huge delays in construction out in Los Angeles. And when we finally did get it open, you know, Brett alluded that we were making our dips in the restaurant. This space was so small. I remember the door of the walk-in box opening and hitting the back of the chair to the office that I was sitting in, you know, in that tiny little space. So we were making the dips in there and what a challenge it was being 3 ,000 miles away, having no help, no one knowing what the brand was, no one knowing anything about Cava.

1:03:58We could barely hire people. We could barely keep managers there, had to have my wife come in and help me run that restaurant. But through it all, what I really noticed was how much the customers loved it. And if we were slow on some days and we couldn't keep up, whatever issues we were having because of the expansion being so far away from home, I noticed people coming back, people telling their friends and people really loving what Cava was. But how did they know what it was? I mean, how did you get the word out? You just opened up the doors and just hope that people would show up. This goes back to the community day that we first had at that Tyson's Mall, right?

1:04:35We were really slow there and we had that community day. And so we started doing that at every opening. And I'll tell you what. Free food. Yeah. Free food will bring people out. That line was, I remember going through the line and telling people, this is going to be an hour from where you're at. And then this is going to be two hours from where you're at. And the line just, I have a video of it, just went down the block and it was really, really crazy. And so slowly, slowly, the business just start to grow. And Ted, how did you like being out there? I mean, what was it like for you? Overall, I love being there.

1:05:08I wish I could have stayed. My wife and I decided after about 18 months, we felt disconnected from family. We felt disconnected from our friends and wanted to come back home. But I just kept traveling back and forth because, you know, I really believed in what we were doing out there. And, you know, we just, it was the same as building a business here. It felt like we were just starting all over again. I remember when we had the first manager had resigned and I had to go in there and start running that restaurant again and getting into the dish pit and getting into the walk-in, ordering food again, making schedules again.

1:05:44And at times was brutal, but overall it was a really awesome experience that, again, And I look back on and miss those days. Yeah, Brett, as those L.A. locations started to grow, imagine this is 2017. You're starting to think, okay, how big can we make this? Can we make this as big or bigger than Chipotle? I mean, you have to be thinking there's huge potential here. Yeah, at that point, we felt like there was real potential that this could resonate in most parts of the country, if not all. And as we built out LA, it taught us how to open a large new market. And it has become one of our most successful markets now in the Southern California region.

1:06:28So that really, again, was another validation that if we execute this right, this cuisine and our proposition is really resonating with consumers and can be something we take to communities across the country. So I'm jumping a little bit, but I want to get to 2018 because this was a very significant year, which is you guys raised more money that year from Ron Shaikh, actually, but he was part of that, who was on our show many years ago, the founder of Panera, to acquire another kind of fast, casual Greek-ish chain called Zoe's Kitchen. And I guess they were having some trouble, right, at that time?

1:07:07Yes, they were struggling as a public company. Their sales were declining. And I met with Ron, as I do, you know, a couple times a year, and we were having lunch. And he said, he talked to me about, you know, that Zoe's had approached him. And he said, you know, what do you think about if our investors put together the capital, we acquire it and give it to you, Brett, and your team? That's a big idea. That's not quite what we were thinking about. You know, we're on this straight organic growth path. We've got a lot of momentum. We're over 65 restaurants at this time. We've got New York open now, LA open.

1:07:47We're signing deals in other markets. We're just on this straight heading. And here is this left-hand turn that's being put in front of us. And Zoe's was kind of similar, I think. A little bit, right, Takava? Well, it was similar but different. It was a counter service format, but it was more founded as Southern fresh market fare with a Mediterranean flair. The brand's original menu had like chicken salad, egg salad, tuna salad sandwiches, and then Greek salad and hummus. And as time went on and it changed ownership and went public and Mediterranean diet grew in popularity, brands like us came on the scene.

1:08:28They started to add falafel and harissa and tzatziki without losing the pimento cheese off their menu. And I think what happened was their guests got a little confused and the operations got overcomplicated and really started to deteriorate service. So there was an opportunity to acquire all their locations. And they had, how many locations did they have at the time? Oh, over 240 locations. Wow. And 100 % of Zoe's portfolio was in the suburbs and the Sunbelt. So we saw this as a way to accelerate our expansion in a large part of the country, the Sunbelt, that we were already trying to get sites in.

1:09:06We had a few CAVAs that were across the street from a Zoe's, and we were doing almost twice the revenue. and that emboldened us to make that decision and take Zoe's private. So all of a sudden you've got all these stores that can convert to Kava. Did Kava's opening up in the southern areas, all of a sudden, did it resonate with people quickly or did it take a while? Well, it took us a while to convert them because we had to stabilize Zoe's first. We weren't able to get to those conversions right away. hey, Zoe's was three times our size. And it was struggling as a public company. And I'll never forget, we closed on the acquisition the day before Thanksgiving in 2018.

1:09:52And I remember when we were looking at the deal, the metaphor we used is we knew we were acquiring a melting ice cube, and we just had to stop it from melting. And I was on a plane from Denver to Jacksonville. And I get the most recent month report of Zoe's sales. And when we were negotiating the deal, the sales were declining about 3 % to 4 % same restaurant sales year over year. And I get this report just sent to my inbox, and I open it up, and it's minus 12. Wow. And I'm, uh-oh, what did we just buy? I remember landing in Jacksonville and calling my wife and said, I think I just undermined 10 years of hard work.

1:10:35I'm not quite sure this was the right decision. So we get back home from Jacksonville and we had our holiday party a few days later. And I pulled Ted and Dimitri aside at the holiday party and I said, listen, we've got this Zoe's location actually here in this area in a place called Park Potomac. I said, I need you guys to turn that into a test kitchen, figure out how we fix this menu and fix this business so it doesn't drown Cava. Yeah, so we took over that restaurant in Park Potomac and we just started to work on it. We started to figure out, you know, they were doing things like serving a full chicken and it was taking 40 minutes to serve that chicken because you had to cook it from scratch and or you pre-made them and you end up throwing them away.

1:11:22So how could we get rid of items that were being wasteful? How could we reduce the pantry size? How could we make it easier for the team to operate without having 30 people in the restaurant? We started to look at all that and break it all down. We looked at quality of the food. We looked at how we serve it, how we cook it. Dimitri was hard at work in the kitchen with the culinary team. We had some of our operations team members come in and really help with that, finance to really drive home what the numbers should be. So it took a big team effort to really try to fix that Zoe's menu that was hemorrhaging at the time.

1:11:58And basically taking out some of those things that were not, quote unquote, Mediterranean or Greek? Yeah, I mean, that's where we started. You know, we have this document called Concept Essence that talks about our food, our people, our design, you know, everything that we do. We look through the document. So something like pimento cheese, right? Tasted good, was delicious, but didn't really fit Mediterranean essence, didn't really fit our concept essence. So it was gone. chicken salad, things like that, right? And what we found out, which is a pretty funny story, on the day that we opened, reopened that restaurant after we had reworked the whole menu, and I was talking to customers, and it was really funny.

1:12:41These Zoe's customers had been coming, a lot of them for just one item. Some people were coming just for like a tub of pimento cheese or a tub of chicken salad. And I had a few customers just go nuts on me, you know, and say, what are you doing here? Nobody asked you to come here. Nobody asked you to change these recipes. Why are you changing the hummus to kava hummus? Why are you changing tzatziki to kava tzatziki? We were obviously doing it because we could run them out of our commissary to make it easier for our team members. So it was really hard to explain, you know, why we were changing these things and what we were doing them for because people just didn't want to hear it.

1:13:18And I think, you know, So a lot of this work that we were doing, it was ultimately bringing us closer to the decision to convert all these Zoe's locations to Cava locations. And ultimately, that was going to be what we were going to go forward with. And I think the turning point really came when, by January, we had the first positive comps in Zoe's business since 2017, a year before we bought it. And Cava was comping double digits. Wow. I want to kind of digress for a moment and ask you about some of the sort of broader challenges related to not to Cava, but just overall to the food business, right?

1:14:01You mentioned many times hospitality, like people love our hospitality. And I get that. I mean, like if I went to the original Cava restaurant, I could feel that. But, you know, yesterday I went to a Starbucks and I just happened to, you know, get a coffee from somebody who just was maybe having a bad day or maybe they just weren't happy to be there. And like it's very hard when you've got 300 locations or thousands of locations of a store to make sure that everybody is on board. You know, everybody's got that Mediterranean hospitality ethos. And so tell me how you guys sort of think about employees and labor and why would somebody work at a Cava versus a Sweetgreen or Chipotle?

1:14:44It ultimately comes down to whether the team members believe or not, whether we care about them. And it's other things like hearing where they're struggling. You know, we had this thing, we go out and we visit the restaurants. And at the end of my visit, I say to the team, okay, I have a magic wand and I'm going to grant you three wishes. What are the three things that I can grant you that's going to make your day completely better? What is like the bane of your existence when you wake up every day that you think about that's getting in your way here? And I remember like, I would go, I have like five restaurants in a row.

1:15:17They're like, Brett, people love our pickled onions. But man, my arm is so tired from chopping and slicing onions. I'm like, I hear you. And I got with Ted and worked on Ted because we had been looking at pre-sliced onions, but they were dehydrating too much. And so Ted worked with our produce suppliers and got a vacuum sealed pre-sliced onion for them to pickle in-house that they no longer have to do that. And so it's very powerful. We're trying to set them up for success. And if they feel that support, it goes a long way. You know, I think for me being a founder, I really genuinely care about how they're going to grow their careers here.

1:15:54My mom was beat down in this industry. I don't want that for people. I started this restaurant business to change that. And look, are we perfect? Are we where we want to be? We're at almost 300 restaurants. Chipotle has over 3 ,000, right? Panera has 1 ,000. And so as we grow, we have to continue to offer more to those team members to keep them, to bring them in. And those are things that we're working on. So I really honestly think, you know, to Brett's point, that we care about our employees and that we give them the opportunity for growth. Ted, as you guys were, you know, growing, tell me about how you saw you and Dimitri and Ike saw your roles.

1:16:34I mean, did you all kind of sort of feel comfortable in where you were in the company or did every decision still have to be made by the four of you in consensus? Or did the three of you say, look, we can't operate a business like this. We've got to let Brett make decisions without asking us for our opinion every time. Look, I think when we decided to bring Brett on and, you know, we gave him the keys of the kingdom, as I say, we believed in him. And I definitely believed in him, you know, no matter what happened, you know, when he felt like he chose that wrong location at the mall. I felt like we just had to work harder because there was a reason he chose it.

1:17:16And we had to work harder to prove that out, you know, where he felt like he had made a mistake with Zoe's he had mentioned. Again, I felt like it was our job to deliver on what he envisioned by buying that Zoe. So, you know, originally we had in one of those investment deals early on, one of these big VCs wanted to kind of buy the whole company. Wow. And then you guys would be left with a nice chunk of cash. I'm sure that was attractive. Yeah, we would have gotten some cash and, you know, whether or not it was a lot or a little depends on how you look at things. But we didn't start it for that, right?

1:17:56And I don't think we started the first restaurant for that. And I don't think Cash has ever been the number one driver. I think I remember back to my mom working in this restaurant industry and how hard she worked. And, you know, at the end, there was nothing really left for her. And I wanted to create something bigger and better. And there were so many moments along the way of believing in Brett and believing in this business. He told a story of, you know, what I think you asked the question, what did we learn from our first restaurant? And there were so many things within that restaurant that we learned right about operationally and how we can make it better.

1:18:30But what he what he left out was we ran out of money after two restaurants and our investors didn't want to give us any more money. And so we went and took a loan out against everything that we had worked for. We took a loan against our full-service restaurants, against these fast casuals, really because I believed in Brett and what he could take Kava to and what he could ultimately help me become in the end, right, and along the way. Yeah. You guys went public in 2023, actually. This is the year we're doing this interview and have had an amazing market debut. But tell me about the ambition. I mean, now you're a public-traded company.

1:19:12So where do you see the future of Cava? We see Mediterranean as the next big, large-scale cultural cuisine category, and we want Cava to be synonymous as the defining brand of that category. And so we're just excited to have that opportunity to bring it to people across the country. Brett, you joined this group as a consultant in 2009, and then you were asked to become CEO and ran this dips business for a while. And then you guys started to expand this thing. And here we are in 2023, multi-billion dollar market capitalization for Kava approaching 300 locations. How much of where you are today do you attribute to the work you put in, your intelligence, your strategic thinking?

1:19:58And how much do you think has to do with getting lucky? Well, I like the term. I saw the term that luck is the intersection of preparation and opportunity. And I really believe that. I mean, you can have all the talent in the world, but if you don't work hard, it will all go to waste. And I think we've had a lot of counterintuitive decisions along the way, going to LA as our second market, buying a company three times our size that was struggling and converting it. People used to ask me like, you know, the baseball analogy, what inning are you in? And you say, well, we're in the early innings, but I still think we're coming out of the dugout.

1:20:35How about you, Ted? Look, I think that anytime you're successful in life, you got to get lucky. I mean, I was lucky that that banker walked through my door, but he saw the hard work that we put into that restaurant, and that's why he gave us that loan. I was lucky enough to meet Brett, but all along the way, we've had so much help. I in no way take credit for anything that has happened the last 16 years. We have had people have busted their ass in the kitchens for us. People have busted their ass growing these restaurants, building these restaurants, doing a lot of the heavy lifting. I get a lot of the credit.

1:21:12People come and thank me all the time and say, your restaurant's amazing. What you do is amazing. But the people that work every single day in those restaurants, they are doing a lot of the hard work. And they have really helped us build this brand and make this what it is today. That's Ted Sanokristos and Brett Schulman, co-founders of Cava. By the way, their other co-founders, Ike and Dimitri, are still with the business today. And that original Cava Meza restaurant, the very first one that they opened in 2006, it's still right where it started, an outdoor shopping mall in Rockville, Maryland.

1:21:50I tell people to visit that restaurant today, and you can still see a lot of the heel and shoe marks on the bar from all the dancing on it. So there were just crazy, crazy things always happening. But the craziness of the restaurant business is something that I've always been attracted to. So I kind of actually miss those moments. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And as always, it's free. This episode was produced by Sam Paulson with music composed by Ramtin Ereblui and Sam Paulson.

1:22:26It was edited by Neva Grant with research help from Ramell Wood. Our audio engineers were Gilly Moon and Patrick Murray. Our production staff also includes Casey Herman, Carrie Thompson, JC Howard, Alex Chung, Malia Agudelo, John Isabella, Chris Messini, Carla Estevez, and Catherine Seifer. I'm Guy Raz, and you've been listening to How I Built This.

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