El Pollo Loco last year had a hit with a TikTok-fueled limited-time promotion featuring birria, a taco stuffed with braised shredded beef and cheese that was served with a cup of consommé for dipping.
The LTO was so popular, the chain brought back beef this year in another LTO during the second quarter featuring birria in April, and CEO Larry Roberts even suggested at one point that beef could be added to the menu as a protein permanently.
But in an earnings call with Wall Street analysts this week, Roberts said that may have been a misstep. Systemwide same-store sales for the chain declined 3.4% in the June 28-ended quarter, driven down by a 4.5% decrease in transactions.
Tough comparisons are partly to blame. The birria LTO a year ago helped boost same-store sales by 7.5% for El Pollo Loco, indicating at the time that consumers were looking for something new.
But Roberts said on Thursday that “birria itself just didn’t resonate the second time around, and I think getting away from focusing on chicken actually hurt us.”
Macroeconomic factors may also be to blame. El Pollo Loco has seen some pullback from lower-income consumers, in terms of frequency, Roberts said. As a result, the chain is adding a value panel to new menu boards in test with menu options around $6 to $7.
El Pollo Loco already has $5 bowls on the menu, and Roberts said the brand scores highly with consumers on value metrics. But the new menu will explore value options with less potential for trade down.
And sales are trending better so far in the third quarter, he said, with systemwide comp sales of 1.8% over the past four weeks ending July 26. At company restaurants, same-store sales were up 2.1% for that period and transactions were down only 0.4%, showing improvement.
Roberts credited that momentum to the introduction of the new Double Chicken Chopped Salads in June, as well as an eight-piece family meal.
Roberts said the chain will continue to focus on developing products that drive differentiation—and the idea of adding alternative proteins is not off the table. A carnitas promotion is coming in the fourth quarter, he said.
But “we will primarily focus on what makes El Pollo Loco look unique, which is our fire-grilled, citrus-marinated chicken and freshly prepared entrees that our guests crave,” said Roberts.
Catering is also an opportunity, he said.
Catering currently accounts for about 1% of system sales, but he believes can reach 5% of the sales mix within the next two years. A new catering menu is expected to roll out later in the third quarter and Roberts said the chain is evaluating potential partnerships with third-party catering delivery services to further drive the program.
“We are very excited about the potential of catering and believe it can become a $50 million to $100 million sales layer for the El Pollo Loco system over time,” Roberts said.
In the ongoing quest to push restaurant margins to 18% (for the second quarter, restaurant margins were 16.9%, an improvement of 190 basis points year over year), El Pollo Loco is also expanding its test of kiosks, which are currently in 11 units. So far, kiosk usage has ranged from 20% to 80%, and Roberts said the chain is seeing “nice average check lifts.”
In units where kiosk use tops 50% of sales, Roberts said there is an opportunity to reduce labor hours.
El Pollo Loco is rolling out 10 more kiosks in company units in Las Vegas, Roberts said, and one may be a restaurant that has kiosk service only. That market was selected in part because consumers cannot use EBT or SNAP funds at El Pollo Loco, due to state regulations.
“In California, we think the [kiosk] usage will even go further as we integrate EBT usage into the kiosks system, because we get a lot of EBT sales here in California,” he said.
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