Operations

Potbelly outlines its big growth goals

The 443-unit fast-casual sandwich chain said it intends to grow to 2,000 locations in the next decade and become a largely franchised operation.
Potbelly
Photograph: Shutterstock

Since its birth 45 years ago, Chicago-based sandwich chain Potbelly has based its business on a portfolio of largely urban, company-owned stores.

That strategy is about to change.

Potbelly executives told investors late Wednesday the 443-unit fast casual intends to grow to 2,000 restaurants in the next eight to 10 years, while becoming an 85% franchised system.

Currently, it has just 46 franchised stores. But it said it intends to refranchise about 25% of its company-operated restaurants over the next three years to ignite that growth, particularly via deals that include new store development.

The chain also said it is focusing its future growth on suburban and drive-thru locations, not necessarily central business district stores.

“That’s where the growth potential is,” CEO Bob Wright told analysts, according to a transcript from financial services site Sentieo. “That’s where the white space is. And candidly, that’s where the customers are.”

Potbelly is targeting a 10% annual unit growth rate by 2024, with accelerated growth in subsequent years.

“In addition to expanding in our existing markets, we see great potential for new market entry as well,” Wright said.

For the quarter ended Dec. 26, Potbelly reported same-store sales 30.3% above those from the same period a year ago, but flat when compared to 2019 levels. Traffic was up 20.1% for the fourth quarter, compared to the year before.

Potbelly’s total revenues increased by 37% to $102.8 million.

By 2024, the chain said it hopes to increase average unit volumes to $1.3 million. They’re currently around $1 million, though about a quarter of Potbelly units are hitting that goal currently, the company said.

Potbelly reported store-level margins of 11.2% for the quarter. For the first quarter, given the impacts of inflation and the omicron variant, the chain said it expects margins between 3.5% and 5.5%.

As it grows, Potbelly said it is targeting margins greater than 16%.

“We’ll continue to evolve our tech stack, marketing initiatives and value-enhancing menu where we expect substantial margin benefit,” Wright said.

 

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