The flood of political advertising this election cycle neutralized one of Portillo’s most effective tools for invigorating sales, according to executives of the fast-food chain. Or was it the discounting by rivals that hammered down traffic by 3.5%?
The chain officials offered a lengthy list of reasons for what they acknowledge was a tough third quarter for the varied-menu, high-volume operation. They cited such additional factors as heightened competition, difficult comparisons, having cycled through the simpler ways of boosting revenues, and extreme throughput pressures on the chain’s drive-thrus, traditionally a major strength of the brand.
They expressed confidence that the trend lines for sales and profitability will be nudged upward by newly installed kiosks, a shift to smaller restaurants and expanding the chain by 10% to 15%, primarily in Texas and other Sunbelt locations.
CEO Michael Osanloo also acknowledged that a loyalty program is in the works for the brand, but declined to divulge details or projections. Portillo’s is one of the relatively few publicly owned restaurant chains that do not yet have a program to reward guests for visiting frequently.
But, the leadership team cautioned, the correction will take some time. They projected that sales would continue to soften, lowering same-store sales from the negative 0.9% of the third quarter to 1% for the full fiscal year.
Osanloo asserted that considerable benefits will come from newly installed self-ordering kiosks, now in operation within every store. He predicted that the devices would shift the mix of products sold in the chain’s favor, while boosting throughput and efficiencies.
The other major remedy, he said, would be a shift away from developing the huge stores that brought Portillo’s a cult-like following in the Greater Chicago area, the brand’s home market. A typical unit measures about 7,800 square feet, Osanloo noted. A new prototype reduces the layout to 6,250 square feet, lowering construction costs to between $5.2 million and $5.5 million.
The reduction in floorspace comes from reducing the dine-in area, with drive-thrus remaining a key feature, Osanloo said. “I want these restaurants to still do Portillo's AUVs [average unit volumes], but I don't need it all to be in the dining room,” he continued. “More and more people want to take the food off-site.”
He noted with evident pride that Portillo’s units in the Chicago area typically generate sales of $11 million per store. Chainwide, sales average $9.1 million in sales per year, the highest of any fast-food chain, according to Technomic, a sister company of Restaurant Business.
Osanloo emphasized that the brand would continue to use view-in kitchens that allow patrons to see the back-of-house staff at work.
Financial analysts also heard about Portillo’s plans to increase its presence in Texas. The brand opened a unit in Houston last month to a reception Osanloo termed “incredible.” Five more stores are slated to open in the Lone Star state in December, which would raise the number of stores added to the chain during 2024 to 10.
What hasn’t been working for the chain, Osanloo revealed, is advertising. “Every time we've invested in advertising, we've seen a benefit to traffic,” he said. “But the noise created by the restaurant price wars and the election season reduced the overall positive impact.” He noted that the marketing didn’t have the same impact as advertising did in the fourth quarter of 2023.
The traffic-boosting tactics that Portillo’s will never employ, Osanloo vowed, is discounting. “That would be a very, very ugly path for Portillo's,” he said.
Instead, he continued, the brand will continue to provide value in the form of high-quality food served in big portions.
Overall, Portillo’s reported a 33% rise in net income for the quarter, to $8.8 million, on revenues of $178.3 million, a 6.9% increase. The quarter ended with 89 Portillo’s restaurants in operation.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.