Operations

Potbelly consumers are 'hanging in there,' says CEO

The Chicago-based sandwich chain reported same-store sales up 8%, driven by traffic. That momentum is expected to continue into Q4.
Potbelly restaurant
Central business districts are coming back, but Potbelly says all types of locations are growing sales. |Photo: Shutterstock.

Potbelly on Wednesday said its same-store sales rose 8% in the third quarter, driven by traffic, though menu prices increased about 1.5% late in the quarter.

“In a fast-casual segment where our data says that traffic flat to slightly negative, not only are we driving traffic but we’re doing it by taking share from the fast-casual competition,” said Potbelly’s President and CEO Bob Wright in a post-earnings interview.

Lower-income consumers may be cutting back, he said. But Potbelly’s primary consumers earning $75,000 or more are not, he said. And the company expects the traffic momentum to continue for the rest of the year.

“Our consumer appears to be hanging in there really well,” said Wright. “I just don’t think they’re ready to give up their lattes in the morning or their fast-casual lunch.”

The Chicago-based sandwich chain said consumers are returning to in-store dining, and ordering through the app, website and Perks loyalty program—and they are ordering less through third-party delivery platforms, where menu prices tend to be higher.

“Most of these delivery provider transactions are going to carry a rather significant premium,” he said. “And in general, I do think the customer is figuring that out.”

Savvy consumers are going to spend the time to pick up if they can save $6-$7, he said.

For the fourth quarter, the company projected same-store sales in the 4% to 6% range, but that will include the impact of the recent menu price hike and carryover from earlier increases, which will put menu prices up about 4% compared with a year ago. The rest will be a blend of traffic and mix shift.

With commodity inflation down about 1.5% during the third quarter, and labor costs improved, thanks in part to a labor optimization effort in restaurants and a reduction in turnover, Potbelly expects restaurant margins to hit 16% next year, up from what the company expects will be 13.4% to 13.9% for fiscal 2023.

Those margins will be boosted in part by efforts to grow catering, and units in central business districts are benefitting from the return-to-work trend.

“There is definitely a return-to-work pattern that we continue to take advantage of,” said Wright. Urban areas are also seeing travelers and tourists return, which has also helped.

But Wright said the chain has seen growth in all types of shops, not just those in central business districts.

The chain expects its average unit volume to reach $1.29 million for the year, with same-store sales up 11.5% to 12%.

Potbelly, meanwhile, ended the quarter with 150 restaurants in development.

The company has been pushing to refranchise. Wright has set the goal of reaching 2,000 units across the U.S., of which 85% is franchise-operated.

Currently, the Potbelly chain includes more than 430 domestic shops, of which about 69 are franchised. Wright said the company is willing to sell roughly 100 company locations over multiple years to “catalyze growth,” and the chain is already almost a quarter of the way there. So far, 24 have been refranchised.

This year, the chain has announced several big agreements that included the acquisition of some company-operated units.

Potbelly’s founder Bryant Keil and his son Hampden have signed on to operate 27 units in Maryland, including 15 new restaurants. Among those the Keils are taking over is 12 company-owned units.

Earlier this week, the company announced a 40-unit development deal with Royal Restaurant Group. That group will take over four corporate locations in Columbus, Ohio, as part of the deal.

 

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