Financing

After strong recent openings, Portillo's hints at bigger ambitions

The hot dog chain said it is considering restaurants in airports and overseas after finding surprisingly strong demand in new markets.
Portillo's sign
Portillo's has found that its Chicago-style food translates well to other markets. / Photo: Shutterstock

Portillo’s CEO Michael Osanloo admitted he has a twinkle in his eye these days.

The 75-unit chain known for hot dogs and Italian beef sandwiches had something to prove when it went public and started expanding beyond its hometown of Chicago: Would the local favorite translate?

The answer, so far, has been a resounding yes. (Thus, the twinkle.)

A recently opened unit in Colony, Texas, for instance, has become one of the chain’s top performers and is selling more Italian beefs than the system average.

“In the back of some investors’ minds is, ‘Does the Italian beef sandwich actually travel?’” Osanloo said. “And boy is it traveling in Texas.”

Other new openings in Florida and Indiana are similarly exceeding underwriters’ expectations. And that could bolster the company’s already ambitious growth plans.

When the chain announced it was going public in 2021, it said it thought it could reach 600 locations by 2046. Osanloo hinted Thursday that the runway could be even longer than that.

“We are going through the process of looking at our total addressable market, especially now that we are getting comfortable with the new [to-go-only] format,” he said. “And so our expectation is that we’re gonna have an analyst day … in late September, and we’re gonna go through what we believe is our fully addressable market, our full potential.”

He said that will include Portillo’s traditional restaurants as well as its new takeout-only stores, plus the possibility of nontraditional venues like airports. The chain is also looking at what it can do internationally via franchising, following up on earlier expectations for global growth. Osanloo offered little in the way of specifics beyond that.

“We’ll have a very fulsome conversation about that in September,” he said. 

Portillo’s opened four restaurants last year and plans to open 13 this year. The new restaurants have done well, contributing to a 16% increase in total revenue in the first quarter. 

The "class of '22" includes Portillo’s first to-go-only unit, in Joliet, Ill. The restaurant, which has a drive-thru but no dining room, “is doing everything we wanted and then some,” Osanloo said. “But the God’s honest truth is that we probably overbuilt that restaurant a hair.”

The CEO said future to-go locations will be even smaller, with a design that makes it easier for delivery drivers and customers to pick up orders. The next one will open this year in the Chicago suburb of Rosemont, and the format will be used to fill in existing territories going forward.

“I can imagine us building a bunch more of those in Chicago and other markets as we achieve local scale,” Osanloo said.

Building and permitting delays have slowed Portillo’s development over the past year. Four restaurants slated to open last year were pushed into 2023. But Osanloo said some of those problems are starting to improve.

The supply chain is “getting a little bit more free flowing,” he said, and while costs are still high, they aren’t rising as fast as before. Permitting remains the biggest roadblock. 

“We have budgeted a heck of a lot more time for permitting than we did in the past,” Osanloo said. 

The other key to opening restaurants is getting enough experienced managers to run them. Osanloo said Portillo’s has managers lined up for all of its 2023 and 2024 openings. “That to me is a massively important unlock,” he said.

Portillo’s same-store sales rose 9.1% in the first quarter on a 7% increase in average check and 2.1% higher traffic. 

Check size was bolstered by a 9.2% price increase that was partially offset by customers purchasing fewer add-ons like drinks and sides.

Restaurant-level adjusted EBITDA margin was 22.3%, up from 20.3% a year ago, which the company attributed to pricing, efficiencies and an improved guest experience.

Osanloo noted that customer ratings on speed of service, accuracy, guest satisfaction and value hit multi-year highs in the quarter, suggesting that the growth is sustainable.

“Those are the reasons people go back to a restaurant,” he said. 

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