In this challenging macroeconomic environment, Potbelly said it has found the sweet spot.
The Chicago-based sandwich chain in the second quarter tested a $7.99 Skinny Combo meal that is driving traffic while maintaining margins.
Offered in addition to Potbelly’s everyday meal deals and pick-your-pair categories, the $7.99 combo meal includes a turkey, ham or chicken Skinny sandwich with chips and a drink. The combo deal lifted value scores by 7 points, and return intent by 5 points, as well as driving incremental sales and profitability, said President and CEO Bob Wright.
“What customers are looking for is a meal that’s in the sweet spot of what they can afford to continue to go out for lunch and not start making decisions to trade to the refrigerator or to grocery,” said Wright. “But they don’t want to compromise on getting a whole lunch. And so, the fact that this is a full combo makes a lot of sense.”
Wright said he is among those who see more aggressive discounting as too big a risk—not only a risk to profitability, but also a risk for franchisee adoption, he said.
“The transactional break even tends to be very high,” he said, adding that the $7.99 deal “works well for our customers. It works well for us too.”
Still, traffic was down for Potbelly. Same-store sales grew 0.4% for the quarter, but that was largely the result of 4.3% in menu pricing. The lower-priced $7.99 deal also brought down the mix of sales a bit.
The same-store sales increase, however, lapped a 12.9% increase in the second quarter of 2023.
Wright said the sandwich chain has only just begun promoting the $7.99 offer, and Potbelly has already screened another 20 possible combo deals with the idea that more might be added later this year.
Potbelly also grew digital sales to 40%, a 200-basis point increase year-over-year.
Wright sees a direct path from a digital sale to a loyalty member. Once guests become Perks loyalty members, they tend to increase frequency immediately, he said.
Nine restaurants have opened so far this year, and franchisees have committed to develop 54 units. Potbelly currently has 663 units open or committed across 33 franchise groups. The company expects to see at least 30 new shops open this year.
Revenues for the June 30-ended quarter were down 5.5% to $119.7 million, but that was in part blamed on the refranchising of 26 restaurants since the beginning of 2023 as Potbelly pushes to become a more franchise-led brand.
Adjusted net income was $2.5 million, compared with $2 million a year ago.
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