Financing

Chicago brand Portillo’s gets a warm welcome in the South

The hot dog and Italian beef chain is opening most of its new locations in Southern states like Florida, Arizona and Texas, where its restaurants have performed well.
Portillo's South expansion
Portillo's plans to build a lot more locations in the South for a simple reason. They open to stronger sales. / Photograph: Shutterstock.

Portillo’s recently did a soft open for one location in The Colony, Tex., a suburb of Dallas. The company did not say a word about the opening, not even on social media, and it still had a line of customers waiting when the doors were unlocked.

“We did $20,000 the first four hours,” CEO Michael Osanloo told investors at the ICR Conference on Tuesday. “Once they saw people coming to the restaurant, they lined up. I’ve never experienced that in a restaurant. It’s insane.”

But it also confirms the company’s current growth strategy, which is focused mostly on the South. While Portillo’s is a Chicago brand, featuring Chicago dogs and Italian beef, 70% of its new unit openings this year are planned for Southern states and the company seems intent on keeping it that way.

There is a simple reason for this. “It’s easy,” Osanloo said in an interview. “Our restaurants take off right out of the gate. And I’ll take every advantage I can get.”

The population is growing rapidly throughout the South. Florida, Texas and Arizona are three of the fastest-growing states in the country. Texas, for instance, is expected to add another 5 million people between 2020 and 2030. Put another way, Texas will add the population of Alabama over that period.

Restaurants as a rule need people and the best way to find them is to add locations where said people live. And those people increasingly live in the South—easily the hottest area for restaurant development.

The result: Its stores do better in the South than they do in the Midwest, outside of Chicago, that is. “The restaurants outside the Midwest generally perform better than in the Midwest,” CFO Michelle Hook told investors.

Portillo’s has generated steady growth with its large, high-volume locations—its locations average $8.4 million in revenue per year. The company operates 74 locations, up from 46 units in 2016.

More than half of its locations are in Illinois. And the company continues to add locations in its core Chicago market. “We are definitely Chicago street food,” Osanloo said.

“Our goal is to eventually become a national brand,” he added. “But we will always have roots in Chicago. We plan to keep building in Chicago.”

Its growth in recent years has concentrated in two categories—contiguous states near its home market, and warm-weather states where Chicago residents move to get better weather. The company has 17 locations in the Midwest outside of Illinois, and 13 in California, Arizona, Texas and Florida.

Portillo’s has traditionally used orders of its Italian beef and hot dogs online to determine demand for its products and help guide its growth strategy. “Texas, Florida and Arizona are three of the fastest growing states in the U.S.,” Osanloo said. “We have strong aided and unaided awareness there.”

The restaurants are opening so strong, in fact, that the company actually worries about providing proper service. “Our restaurants come out of the gate hot,” Osanloo said. “It comes out so hot that it’s hard to execute.”

And, well, if the restaurants do well, it makes sense to open more of them. So the company plans to open three to five locations in both Florida and Texas this year and another one or two in Arizona. Portillo’s is planning to open one or two each in Michigan and the Chicago area.

But just watch out for those “soft” opens.

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