Say what you will about Portillo’s but the company is certainly honest about its stumbles in Texas.
“We built too many restaurants too quick,” CFO Michelle Hook told me at the ICR Conference this week. “We have low brand awareness in a market like Houston, where we have 20% awareness. We have 30% in Dallas. We flooded the market with a lot of restaurants before the demand was there.”
Portillo’s, which is based in Chicago, and which, for most of its history, expanded into areas populated by Chicago natives familiar with the brand, made a big deal about expanding into Texas. The fast-casual hot dog and beef chain opened most of its new restaurants in the state last year.
Those stumbles have cost the company more recently, as sales slowed there, forcing a rethink of the strategy and the departure of CEO Michael Osanloo. Portillo’s presented at the conference this week without the benefit of a permanent chief executive.
But the company is far from the only one to have been lured by the promise of Texas and its booming population and seemingly rich restaurant environment, only to stumble out of the gates.
Indeed, Portillo’s sales slowdown coincides with the complete pullback of the drive-thru salad chain Salad and Go from the market. That chain went whole hog into Texas, opening a commissary in the state, followed by dozens of new locations. Those locations floundered, prompting Salad and Go to sell that commissary, close locations, then pull out altogether.
It’s easy to see why restaurants are eager to open in Texas, which added more new residents in 2024 than any other state, thanks to a strong job market and heavy in-migration. More people mean more potential to sell salads and Italian beef sandwiches.
Texas also has a robust roster of chain restaurant headquarters, notably Chili’s owner Brinker International, Whataburger, Raising Cane’s and many others.
But many Texas markets, notably Houston, are more diverse and complex than people realize. The state has more than its share of homegrown restaurant chains and strong independent concepts. And many other chains see the same numbers and make their own pushes into the market, all of which makes Texas fiercely competitive, for customers and for real estate.
Companies eager to grow in the market and beat competition for those sites and customers often open locations with less regard to issues such as marketing or population dynamics. And then they stumble.
This has cost more than one industry executive their job.
Portillo’s did well in its early stores in Dallas and then Houston, and then “fast followed with too many restaurants, too quickly,” Hook said.
The good news is that companies don’t have to follow Salad and Go and abandon the market altogether.
Dutch Bros, too, struggled in its initial move into Texas. The drive-thru beverage chain rethought its new-market strategy. It started advertising on digital channels to build brand awareness, which improved traffic to those stores and helped the state quickly become a strong market for the chain.
That’s what Portillo’s hopes to do. “The good news is we put the capital in the ground, we have a fantastic brand,” Hook said. “We just got to get people aware of who we are, and we’ve got to get them to try us.”
The company is planning to change its marketing strategy to get more people to try the restaurant. Portillo’s recently appointed former Marco’s marketing chief Denise Lauer as its new CMO. Its “beef bus” is also spending time in the state to get more customers to try the products.
“We’re going to be doing the work to get those insights from customers and start informing a strategy, a marketing campaign, an advertising campaign, that we believe can be more compelling and speak to guests and give them a reason to try the brand,” Lauer said.
Noted Hook: “We’re going to wake up five years from now and those restaurants will be fine.”