Financing

Guest satisfaction high at Portillo’s despite menu price hikes

President and CEO Michael Osanloo said its pricing strategy of lagging behind competitors is working.
Third quarter same-store sales were up 5.8%, despite a 3.3% decline in transactions./Photography courtesy of Shutterstock.

Portillo’s menu pricing strategy is working.

So said President and CEO Michael Osanloo Thursday in reporting a 5.8% increase in same-store sale for the Sept. 25-ended third quarter, despite a 3.3% decline in transactions.

The comp increase was largely due to an 8.2% increase in certain menu prices, which boosted the average check by 6.3%. The chain also saw a 2.8% benefit from a change in recording third-party delivery pricing.

Still, Osanloo said prices hikes at the 71-unit Portillo’s have lagged compared to fast-casual peers. Menu prices were up 13% for Chipotle during the quarter, for example, though Shake Shack said menu prices were up about 6% for that chain.

“Our pricing philosophy is to slightly lag inflation and our competitors,” Osanloo said. “We do take price. We just aren’t going to be the first to do so.”

Portillo’s has rolled out price increases throughout the year. Prices went up 1.5% in the first quarter, and another 3.5% in May, followed by a 3% increase in October.

Despite the higher menu price, Portillo’s is scoring high on guest satisfaction, which includes the perception of value, he noted.

“Even in this inflationary period where consumers have undoubtedly felt pinched, we continue to score high with our guests,” he said. “Our value scores are the highest they’ve been in three years.”

Climbing menu prices at restaurants have been an ongoing pressure as restaurants struggle to offset rising food and labor costs. There is evidence that consumers are starting to push back, with both Chipotle and Shake Shack losing lower-income diners.

Commodity inflation is expected to moderate next year. Osanloo said they’re expecting inflation in the mid-single digits, compared to commodity inflation of about 15% this year. But Portillo’s plans to remain flexible about price increases—he wants to wait and see what happens next year, he said.

Portillo’s revenues were up 9.5% during the quarter to $151.1 million. Net income decreased to $3.2 million, or $0.04 per share, compared with $6.5 million, or $0.01 per share, a year ago.

 

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