January 12, 2024 • 33 mins
Great franchisees will make Potbelly stronger for 20, 30 or 40 years, CEO and President Bob Wright tells Bloomberg Intelligence. In this episode of the Choppin’ It Up podcast, Wright sits down with BI’s senior restaurant and foodservice analyst Michael Halen to discuss how attracting the right franchisees should enable the company to achieve 10% net unit growth this year. He also comments on the Potbelly Digital Kitchen and margin-expansion opportunities and explains what has fueled the chain’s same-store sales gains since 2019.
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Episode Transcript
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Speaker 1 (00:18):
Welcome to Chopping It Up. I'm your host, Mike Hallon,
the senior restaurant and food Service analyst at Bloomberg Intelligence.
Today we're recording from the ICR conference in Orlando, Florida.
I'm joined by Bob Wright, and CEO of Pop Belly.
It's nice to meet you.
Speaker 2 (00:33):
Bob, Nice to meet you, Mike.
Speaker 1 (00:36):
Talk to me a little bit about your previous career
stops and what attracted you to Pop Belly.
Speaker 2 (00:40):
Yeah. Sure, I've got what many would describe as a
career as an operator in the restaurant space. I started
out delivering pizzas when I was nineteen for Dominoes after
my freshman year of college, and I've been in the
chain franchise restaurant business ever since. A lot of years
with domino It was about a dozen years with Domino's,
(01:02):
sixteen years with Wendy's over two different stints. In fact,
Wendy's was the company I was with before joining Potbelly,
and my last role there was COO and I had
a lot of great responsibility, wonderful team, but I led
operations at international responsibility Development, Restaurant technology, kitchen engineering, and
(01:23):
innovation was part of my team. And also the support
for what was a brand new customer experience department that
we built there. So it's been a wonderful career. When
I left Wendy's, I actually wasn't actually looking for what
was next. I was actually going to go into the
franchising business as a franchise e after all these years.
(01:43):
I thought that what a great way to apply that
and build a family business with this last cycle. I
also wanted to augment that with some board support and leadership.
So Potbelly is a brand that I have loved for
over twenty years, and it's a brand that I thought
maybe I could add some value if I had a
chance to be a director on the board, and so
(02:03):
I started to formalize that point of view, and it
was around that time that there was an outreach to
talk to me about something a little more meaningful. And
you know, in the middle of the pandemic, there weren't
a lot of great franchise deals that were going through anyway.
And so the more I looked at the brand and
what the company had in terms of potential, and more
excited I got about the role of CEO. Came on
(02:25):
board in July of twenty twenty in the middle of
the pandemic. My CFO Steve Serlis was here when I arrived.
He joined earlier that year, and since then we've just
built a tremendous team. Really, I would say the best
management team the franchise ever had.
Speaker 1 (02:42):
No, that's great. Yes, some great career experience too, I
mean Dominos and when these are fantastic. I've been covering
those companies for a long time, so that's great. And
so the team is settled now you have everybody in
place we do.
Speaker 2 (02:54):
You know, you're always expanding, and when you're in growth mode,
you know, in fact later next month. We spend time
every year talking about our talent organization and invest about
a day and a half as a senior team looking
to the future. So there's always that, but I'm thrilled
with the team at the senior level. We've made significant
(03:15):
advancements and talent and skill and really filled out our
team at the director level and the VP level as well.
The most recent add to our senior team was Lynette McKee.
We hired her just a few months ago. She's our
senior vice president of franchising and that was really the
last big position that needed to be filled and it
(03:35):
was the right time, as we announced this morning, you know,
with the acceleration of our deal activity, I wanted somebody
of her caliber to be able to lead the franchising efforts.
Speaker 1 (03:44):
And talk to me a little bit about about that
acceleration of the deal activity.
Speaker 2 (03:48):
Yeah, we uh, you know, we had always seen I
had always seen the power of franchising and growing the brand,
but frankly, we had to invest the first couple of
years in getting our house in order with our company operations,
reaccelerating sales growth and all the work that we did
against our five pillar strategy, especially the initiatives that underpinned it,
but all the while keeping an eye on what we
(04:10):
would do to start to build more units and do
it with franchise ease that would want to help grow
the brand. The efforts towards our market planning and our
franchise recruitment and franchise selection criteria and the actual franchise
e selection work that we do. That is where Lynette
has tremendous experience, and it's where I wanted to have
(04:32):
a senior leader that was focused on that. Other companies
you'll find all of the development functions are reporting up
to one development leader. That's not the way we have
it structured today because sales are so important and that
franchise e selection is so important. I mean, gosh, I
remember I remember my days with Dominoes and with Wendy's.
(04:53):
You know, you've got founders that were making those decisions
about who they welcomed into the brand, and great franchise
e will make the brand stronger for twenty thirty forty years.
You know. I know franchises in other brands where they're
in their third generation of ownership in the same family,
and they're very important parts of that. So we see
that as really important as such. Before even hiring Lynette,
(05:16):
we took all the execution centric elements of our development responsibility,
things like franchise real estate selection and support for them
making those choices, the engineering and architectural work that's necessary,
the construction support training, all that falls to our chief
operating officer. Now, those are very execution centric responsibilities and
(05:40):
that's what he loves and that's what he's excellent at.
It means that you know, here we are in the
beginning of twenty twenty four, Lynette is focused on sales
that will deliver twenty five, twenty six and beyond units.
Adam Adam Noys, our COO, is responsible for the opening
of the units that we're sold that are going to
get built this year. So that clarity and role clarity,
(06:02):
it's it's something I learned is really important for us
as a team, and we're excited about how that breaks up.
Speaker 1 (06:09):
Okay, cool, where's the chain strong geographically and who's your
core customer?
Speaker 2 (06:17):
We are. One of the great things about Popelum it
was attractive to me when I came on board is
we're in thirty three states and we've got decent penetration
in a lot of those states. We are geographically across
the country. We're literally a nationwide brand from Seattle and
Portland all the way to New York City and from
you know, the northern Midwest, the Canadian border, practically all
(06:38):
the way south of San Antonio on your way to
South Texas. So the brand travels well. You'll find a
lot of a lot of chains are size four hundred
and twenty four hundred and fifty five hundred units are
still super regionals attempting to prove that they can grow.
Our strongest penetration is where we started in the Illinois market, Washington,
(07:00):
d C. Baltimore, Maryland, Virginia, you go into Texas, we've
got a very strong presence in Texas. But throughout the
Midwest and even throughout the bordering states of the Midwest,
we tend to do really well. We do not have
a strong penetration in the southeast or on the West
coast now, as we've shared with a lot of our
(07:23):
development deals here in the last twelve months, we've been
signing a lot of development deals in Florida, and we
think that that's really common to begin your southeast development
state of Florida and then grow from there. We don't
have any deals yet in Georgia and some of the
other Gulf Coast states. The behavior of that consumer suggests
(07:43):
that we're not worried about that at all. It's just
kind of natural. You asked about our consumer. We are
a fast casual, sandwich based restaurant concept, and I often
complete that sentence with all due respect to our competitors,
but in a sea of sub shops, so we're not
a subshop. We're a fast casual restaurant option with a
sandwich based menu. Some things make our menu very different.
(08:07):
Our sandwiches are handmade and toasted at five hundred degrees,
so this is this is hot food. Our soups complement
our sandwich as well because people are looking for that
more substantial meal but at a great value. So our
core consumer is the fast casual consumer. You find them
trading with Panda Express and with Panera and with Chipotle.
(08:32):
Of course, our consumers use McDonald's and Wendy's in subway,
all consumers use those. Those are quit ubiquitous brands, but
that the occasion that enters your decision making process as
a customer, as one that appeals to somebody looking for
a higher quality experience, willing to pay a fast casual
average check price, but also wanting to have an experience
(08:56):
that they enjoy. One of the great things about pop
Belly is the in shop experience. We talk often publicly
about how strong our digital business is, and you know,
it's been in the high thirty percent, approaching forty percent there. Strong, yeah,
but well over half of our customers crossed the threshold
to get their food. Some of them take it out
to go, but the dining room experience is a big
(09:18):
part of it, and we protect that. We think that's
a big difference maker when you want to meet your
friends for lunch, When you want to, you know, stop
for even if it's a quick, convenient lunch with a
loved one, family or whatever on your way to shopping
trip or something. You don't always just want to run in,
grab it and take it somewhere else. And so that balance.
Speaker 1 (09:38):
Works well for okay, cool. The recovery in the chain
sas sort of sales since you know, since twenty nineteen,
has been really impressive, particularly beginning in the fourth quarter
of twenty two. What fueled that jump?
Speaker 2 (09:54):
Yeah, right, I'll take it back to our five pillar
strategy for the top line growth. Those the first four
pillars of the five are rooted in that unifying objective
that we started with back in twenty twenty, which is
traffic driven profitability. It was my firm belief that the
business health has to be determined on some really fundamental
(10:17):
and simple things to understand. And we had been losing
traffic for years, pricing many of our customers out of position.
And so the work that we did on the menu,
where we resized the sandwiches, we introduced the skinny size,
we really put a spotlight on our picure pair. The
work that we did operationally that was early going with
(10:38):
Adam when he came on board, focused on throughput cleaning
our shops, tightening up our staffing, you know, really exciting
things to operators like me, but kind of boring to
those that aren't true restaurant folks. Putting a labor guide
in place. You know, we didn't have an hour's based
(10:58):
labor guide in place pre pandemic, and so you know,
you often think of that as a labor savings tool,
which it does have some efficiency advantages, but if you
don't guide to the proper staffing and every shift, every day,
what tends to happen is you tend to overstaff when
it's more convenient for the manager, and you might find
your understaffed on the weekends and the nights and things
(11:21):
like that. So it's the it's I think the balance
of that operations and marketing focus that started to really
generate some momentum for us, and we've enjoyed continuing it
through twenty twenty three.
Speaker 1 (11:35):
How are you looking to drive SEP store sales growth
this year?
Speaker 2 (11:37):
It's more the same. You know, we get asked a lot,
are you are you still looking at low hanging fruit.
We don't really think about it that way, but it's
early innings. Still. The work that we did on digital,
that's the fourth strategy pillar, and right after we did
the new menu, we also rebuild our tech stack completely
new app, new web, new loyalty engine, new payments systems
(12:01):
that were put in place, and we've just continued to
invest in that. Perks. Our Perks loyalty program has been
a major driver of growth for us. We know that
our Perks consumers visit us at a meaningfully higher frequency level.
We know that when we get engaged with them, they
really love the Perks engagement. There's a lot of unpolished
(12:24):
brand love for pop Belly and some of it is latent.
So bringing customers back to the brand that they at
least are familiar with or at one point where great
users of reminds them just how much it works for them.
And if you go back to my answer to one
of your earlier questions, when you begin to think about
that fast casual experience that you're looking for, pushing our
(12:45):
brand up into your top of mind awareness is where
we find the most success. Even our place digital media
is mostly awareness driving. It's not called action type of marketing.
What we've done with Perks and our ability to continue
to lean into our Perks loyalty program is a big
(13:06):
driver of that. Catering has continued to grow for us.
The way we operate the shops is a big part
of our optimism around sales driving. Something a lot of
people don't know about Potbelly is we were always built
with two lines. There's a front line that you know,
if you go through a Potbelly, you're going to go
through the line order. We call it the load station
because we're loading the oven. That's that first level of engagement.
(13:29):
There was always a backline. All popbellies were built with
a second line that was designed to be for catering.
And you know, if you think about when we started
into the digital business, so we've got this back line.
Many cases, unfortunately they'd kind of been mothball. So we've
got all that equipment operating and working. Now. All of
our digital business goes through the back line, so we're
(13:49):
not facing capacity constraints because we're overburdening what was our
production system. We've got a lot more capacity to go
using the back line for more digital and it's left
the front line open. It also gave us. In addition
to that labor guide I told you about, we also
re engineered our positioning guidelines. And I don't even know
how many people need to be in the shop, we
know which line the best put them on so that
(14:12):
those customers are getting the best experience. We've recently, in
twenty twenty three, began rolling out our pop Belly digital kitchen,
So we already have that line, but we've digitized and
started to digitize, you know, on a rollout basis, the
back line, so all of the orders that come in
from all the various channels get fed to the back
line in the right way. So there's you know, look
(14:34):
a lot of detail there. But throughput operations excellence, additional
marketing investment, perks loyalty's that's why you hear confidence in
our voice about how we can keep top line traffic
growth going. And you know, we watch it. We compare
our we subscribe to data sources like everybody does. Black
Box is the one that we use and we can Yeah,
(14:57):
so we compare our traffic growth compared to the fast
casual segment, and for the last year and a half
couple of years, fast casual has been a lot closer
to flat, not unhealthy. Like QSR. We're post pandemic. They
started to lose traffic, but we're growing traffic, so that
means we're not just growing our business, we're gaining share
(15:19):
and that's really healthy.
Speaker 1 (15:20):
Yeah, it's impressive. I'd imagine you know, the second make
line served Chipotle really well during the pandemic, right, and
that's really helped them grow their digital mix. Was that
a big driver in the strength of your digital sales.
Speaker 2 (15:35):
I think it's a big enabler to do it well. Yeah,
and I think that it allowed us to keep focus
on the front line too, so that we didn't do
ourselves harm while we were building the digital business. I'd
give the digital assets a lot of credit to the
rebuild of the app and the web, smoothing that interface,
continuing to invest in it. And all of our promotions
(15:58):
have a digital skew in a and a perks loyalty
program leaning to them. For example, the underground menu was
kind of a pop belly cultural important element for years
and years and years. But you would go into a
shop and try to order something off the underground menu,
and maybe that employee hadn't worked there when they were
(16:19):
familiar with it. So we've digitized the underground menu. It's
only available in the app, and because it's in the app,
we now train for it so we know how to execute.
You can still walk in and order Lucky seven, but
it really is kind of digital centric, and we also
(16:40):
we further enhanced the customer feedback mechanisms that we have
in place, so we're watching very closely how those digital
customers feel about their experience. We know that on order, ready,
on time and accuracy is absolutely critical for them, and
it doesn't always break the top five for the in
shop customer, so those, you know, those details of how
(17:01):
we operate are different.
Speaker 1 (17:04):
Excuse me, how much inflation do you see this year
in your commodity basket and how much price do you
intend to take.
Speaker 2 (17:14):
That's one of the things I'm really proud of on
the pricing part of the rebuild of the menu back
in twenty twenty that was implemented in the summer of
twenty twenty one put us in a great place for
you know, what we all saw in the inflation from
labor and commodities, and we did take a lot of price.
We have been very careful though to take price to
(17:34):
offset inflation, and no more. Part of that's rooted in
what we discovered when I got here anyway, was we
had such a significant value problem with our consumer. I
was determined never to create that again. So going forward,
we're going to maintain that same strategy. We will take
price to offset inflation. We think most of our inflation
(17:55):
in twenty twenty four will come from the labor line.
And while that's not quite back to our forecast anyways,
and it's not quite back to traditional levels, it's getting
mighty close, you know, And you're talking load amid single
digits and labor inflation. Food inflation, we think for us
in particular, has stabilized a great deal and probably be
(18:17):
flatish at least for the near term. We've got a
market basket that includes every protein, so we spread our
wrists that way.
Speaker 1 (18:25):
Twenty twenty four restaurant level margin guidance sixteen over thirteen
point four to thirteen point nine and twenty thirteen, So
pretty significant expansion there is that all from sales leverage,
price increases in the digital kitchen. Are there other levels
levers that you're pulling?
Speaker 2 (18:43):
It includes those things for sure, And leverage is the
healthiest way to get margin expansion. Of course, but I
mentioned that labor guide. We've done some work there to
find efficiency because we know where we were investing labor.
We continue to see that. We have an evergreen initiative
called cost If you can imagine in your mind's eye,
(19:03):
the s is actually a dollar sign just to keep
everybody on their toes, and we set a target for
ringing out efficiency in the supply chain and other purchasing
that we do, other costs that we have. We cracked
open all of our leases during the pandemic, and frankly,
we continue to work aggressively with our landlords. We've got
a leader at a senior level who's focused on our leases.
(19:27):
As the brand's gotten healthier, we see that leverage with landlords.
They like us, they like the strength of the brand
and the ability to build their portfolio real estate with that.
So it's a little bit of all fronts. I think
we've got one hundred and fifty two hundred basis points
or so to go to get to our sixteen percent
number this year, and it will come through those areas, right,
(19:50):
So a little more labor leverage, some top line just
driven overall leverage and then continued efforts in the occupancy
and some other fixed costs.
Speaker 1 (20:00):
Gret, what's the current split between company owned and franchise
locations and where do you think you know the sweet
spot is for your chain.
Speaker 2 (20:07):
We're still more than eighty percent company owned. We did
refranchise thirty three units last year, and then you know,
we grew a few new units through franchising, but our
focus is on franchise growth. That's the fifth pillars, franchise
driven growth. We've announced publicly. We think we're a two
thousand unit chain in the long term eight to ten years,
(20:28):
and almost all of the growth to get there will
come through franchise development. We're still willing to refranchise a
few more units. We originally said we'd be willing to
refranchise up to one hundred, and probably still up to
that number, but the pacing it's not important for us
to race towards that goal. Will refranchise if it catalyzes
(20:50):
a development deal that we get very excited about. So
if you finish that story all the way out in
the long term, we're eighty five percent franchise and fifteen
percent company owned.
Speaker 1 (21:00):
What do you do with the cash on the refranchising.
Speaker 2 (21:02):
Well, you know it's not candlely is not that much
cash given the units that we sold and where you know,
where they may see extra development, but any capital, our
capital allocation strategy is to deploy capital for growth. There
there's still opportunities for us to lead maybe with some
(21:23):
of the the unit level prototype development, we would build
one or two of those to prove that path. If
there's an opportunity to do some refresh and remodel work,
we would use capital for that. You know, the digital
work that we've done requires some capital to continue to
be invested in that area. But you know that's the
beauty of what happens with the you know, the the
(21:46):
capital lighte model that we do with franchising is we
simply don't need that much, not in the near term.
Speaker 1 (21:51):
Yeah. So the ten unit growth, and there's a lot
of interesting pieces to the story and it seems like
it's really moving in a good direction here, But ten
percent unit growth in twenty four does seem high considering
you haven't really grown for a few years. I'm sure
the same source sales growth is definitely motivating franchisees to
(22:11):
expand who's going to open the most restaurants this year.
Is it the company, is it current franchisease, is it
new franchise ease?
Speaker 2 (22:18):
Oh, it's franchise. I mean, there'll be some current franchisees
that build. But it's that's why we've been so transparent
about the number of deals that we've done and the
number when I say deals, franchise development deals that we've done,
and the number of units that are under commitment to
be built. And I think you are. Our desire is
to have everyone understand that those deals beget units in
(22:41):
the units, you know, build out the population of shops.
It will be somewhat backloaded in twenty twenty four because
our deal traffic was somewhat backloaded in twenty twenty three,
and it takes about ten or eleven months to get
your first one up and running. We have some really
excellent developers that we'll be building multiple units next year.
(23:03):
There probably will be you know, maybe a low single
digit number of company units that you know that we
see could be potential for us to open, but no,
it's almost exclusively franchise development. And you're right, ten percent
is you know, it's going to be a great year
for us. We've been asked a lot throughout twenty twenty three,
(23:24):
do we want to adjust that target? You're changing that
guidance and we haven't. And we have it for a
reason because we can see into that pipeline. I shared
with you structurally of a couple of minutes ago about
how Lynnett's focused on deal activity and Adam is on
the execution side of things. So we can see the
real estate activity, We see the engineering work that's being done,
and the amount of support that we're providing on all
(23:46):
of those all of those elements of development gives us
confidence that we won't stub our toe to often. Very
simple example, there's a lot of talk out there from
some developers about the permitting issues that they're having. We
require that you do a side inspection report before the
lease is signed so that you uncover things that become
permitting issues. And it's a couple thousand bucks to do
(24:08):
that every time, but it's a couple thousand dollars that provides,
you know, kind of an insurance policy against delays in
the future.
Speaker 1 (24:17):
Okay, great, are you confident in your ability to select
good sites?
Speaker 2 (24:20):
We are, yeah, I mean that one of the great
things about having so many company locations. We have all
that data and today the mapping software and the technology
available to analyze that data, and it's one of the
things we provide. Our franchisees say they love that were this,
we're this forward thinking and we're this supportive of them.
So we provide what's the franchise e signs their development
(24:44):
territory agreement. We provide them with a targeted trade area
map where those green circles are that they turn their
broker network loose to go find sites. The worst version
of that in the past was the brokers would sell
locations to the franchise and they'd get them excited about
a certain location. They usually sell off of inventory and
(25:05):
they would push things that looked good to them. We're
empowering the franchise e to not only search in the
targeted trade areas, but because we do the trade area
mapping for the entire development territory, they literally have their
broker network searching for all of the sites at the
same time. That's why I mentioned a second ago that
you know, we know we'll have franchisees build more than
(25:25):
one because you don't have to do them in sequence.
You you know, if you've got two or three that
are starting to fall. Take all the leases and you
can develop those. So yeah, we're we're providing an outsized
level of support for the development needs. And that's a
lot of where our confidence comes from.
Speaker 1 (25:43):
Great. Yeah, they say bad sites. The gift that keeps
on giving, it does.
Speaker 2 (25:48):
Yeah, in this brand's experience. That Look, we've we've talked
to a lot of franchise ees and even analysts and
investors about you know, what happened after the company went public,
and you know, you can point to real estate as
part of that.
Speaker 1 (26:01):
Yeah, you get that Wall Street money, and Wall Street
wants you to ramp up unit growth and yes, often
it doesn't go well. All right, cool, How big are
the units and how much do they cost to build?
Speaker 2 (26:14):
Average cost is still about six point fifty that's what
it was pre pandemic. We have opened franchise locations in
twenty twenty three for less than that franchise ease. That's
one of the great things about franchisees too, is they're
just as tight with their investment dollars as anybody, and
so they actually help us push that down. Now, there's
(26:35):
been a lot of talk about the inflationary pressure in
the construction world from both contractors, subcontractors, materials and so on.
Some of that I think is coming back a little bit.
But potbellies were traditionally built twenty five hundred square feet
and bigger, and we frankly think that's too big, and
so we're targeting a prototypical size more like eighteen hundred feet.
(26:58):
And we have some franchise site that have been approved
that are smaller than that that we think are going
to work really well for us. So we can offset
what would have been inflation on that investment costs and
push that maybe higher than seven hundred and keep it
under wraps and in that two to one sales tom
investment ratio, So at a million, three and six fifty,
(27:19):
we're still at two to one. Sixteen percent margins that
we've talked about this year provide some nice returns for
the franchisease. The other thing I'd emphasize is on those
margins to our margins at sixteen percent of blended average
of the company, but most of our franchise developments in
the suburbs now and so the occupancy costs are lower
(27:40):
than our blended average, so they see upside in the
margin model even beyond what we published publicly.
Speaker 1 (27:47):
Okay, good stuff. What are you seeing from the consumer
right now and what are your biggest concerns move forward?
Speaker 2 (27:56):
Well, it's you know, my biggest concerns are typically in
the consumer, and you know, what are those macro trends?
So what are we seeing? It's surprisingly resilient. And I
do think that, you know, the promised recession that never
came in twenty twenty three is always looming out there
at some point, but it's our job to grow and
(28:16):
prepare and be as valuable an option as possible. I
think there's a reason that Fast Casual continues to grow
at the fastest rate in the restaurant segments, and I
think our ability to continue to grow faster than that
rate is still within sight for us.
Speaker 1 (28:32):
So what is it? Is it? Value for dollar? Is?
What is it that's do you think driving the sub
segment in general?
Speaker 2 (28:40):
Yeah? I think I think Fast Casual in general is
still driven by quality and value, and it's not price
value necessarily, but it's tell you there's an interesting element
to the value equation for fast casual that often gets overlooked.
If you look at average check across QSR, fast Casual
and casual dining looks like sort of three natural steps
(29:01):
if you look at the average eater check. However, in
fast casual compared to QSR, the DELA between those two
categories only about two dollars. And so what I think
that the natural flow towards fast casual of consumers in
general is customers are smart and they figure this out
and they're like, I get a significantly better feel for
the food, better quality, more portions for a couple dollars.
(29:26):
And when the fast casual consumer, our core consumer is
that fast casual consumer there one hundred thousand dollars household
income range, that two dollars is totally palatable. Add to
that that that as a segment and US as a brand,
we we have lower frequency than you find in QSR
as well, so we're not nearly as vulnerable to a
(29:49):
little bit of behavioral adjustment by our core consumer that
they're simply not going to pull out a Popbelly frequent
visit out of their whatever their monthly rotation is. Like
a fifty thousand dollars a year consumer who's going to
drive through breakfast, you know, twenty times a month, they
might pull back two or three of those well, geeze,
(30:10):
two of those is ten percent decline in that business,
so we're not as vulnerable to those dips. So I
think we're in a good spot. I think our consumers
in our good spot. I'd like to see I'd like
to see this credit card thing kind of level out
a little bit after the holidays. See if people can
keep the jobs market going and use some of that
income to pay off some of that debt, they'll maintain
(30:33):
a healthier lifestyle and keep coming to pop Belly.
Speaker 1 (30:36):
Cool, Let's get to the important stuff. I have not
been to a pop Belly, I'm ashamed to say, so
I'm gonna have to get there. Maybe then next time
I'm in the city or in DC. What should I order?
What's your favorite sandwich on the regular menu and what's
what's what's the one to get on the underground menu.
Speaker 2 (30:55):
Well, listen, you've got to start with the Wreck. It's
you know, it's it's our number one selling sandwich, and
it's number one for a reason, been around for a
long time. My personal favorite is the Italian, which is
right up there in the top three as well. But
I tell you, I've been shopping the menu a lot
myself I got on a chicken salad kick here recently.
We make our chicken salad and our tunas salad every day.
(31:17):
Do not skip the cookie, even if you're trying to
be good that day, don't skip the cookie. I promise
it's the best sugar cookie on the planet. And our
oatmeal chocolate chip is our number one seller. It's it's outstanding.
People love our shakes hand dipped ice cream, milkshakes made
from scratch. So yeah, you just can't go wrong. Look
(31:39):
at the menu and see what kind of grabs your
attention and go from there. The underground you asked about
that Lucky seven takes the four meats that are on
the Italian and the four meats that are on a wreck,
and there's only one of those meats that we have
in common, which is the ham, and put them together.
So you got seven meats on one sandwich. You might
want to try skinny size in that. There's a lot
(31:59):
of meat.
Speaker 1 (32:00):
Yeah, delicious, that sounds that sounds fair. All right, you're
making me hungry. This is great. Where can the audience
go to find a nearby pop bellies? What social media
platforms is the brand big on?
Speaker 2 (32:14):
You'll find us a lot on on the big ones, Facebook, Instagram.
We've got some CTV that's that's getting out there and
some of our bigger markets, so you'll you know, if
you're a YouTube television watcher, you might start to see
some of our ads there, but those will be the
places where you find us.
Speaker 1 (32:29):
All right, great, Yeah, thanks again for doing this. This
is this is an exciting story. Hopefully you know, once
your market cap gets a little bit bigger, maybe it'll
be on my radar for for coverage, you know.
Speaker 2 (32:40):
Yeah, thanks so much. Great to spend time with you.
Speaker 1 (32:42):
Yeah, it was fantastic met you. Thanks to our friends
at I c R for putting this together, and a
big thanks to the audience for tuning in. If you
liked the episode, please share it with your colleagues. Check
back next week for a discussion with John Siwinsky, the
CEO of Modern Restaurant Concepts, which includes Too Fast, Cap
rul Chains, Modern Market, Eatery, and Qdoba.
Welcome to Chopping It Up. I'm your host, Mike Hallon,
the senior restaurant and food Service analyst at Bloomberg Intelligence.
Today we're recording from the ICR conference in Orlando, Florida.
I'm joined by Bob Wright, and CEO of Pop Belly.
It's nice to meet you.
Speaker 2 (00:33):
Bob, Nice to meet you, Mike.
Speaker 1 (00:36):
Talk to me a little bit about your previous career
stops and what attracted you to Pop Belly.
Speaker 2 (00:40):
Yeah. Sure, I've got what many would describe as a
career as an operator in the restaurant space. I started
out delivering pizzas when I was nineteen for Dominoes after
my freshman year of college, and I've been in the
chain franchise restaurant business ever since. A lot of years
with domino It was about a dozen years with Domino's,
(01:02):
sixteen years with Wendy's over two different stints. In fact,
Wendy's was the company I was with before joining Potbelly,
and my last role there was COO and I had
a lot of great responsibility, wonderful team, but I led
operations at international responsibility Development, Restaurant technology, kitchen engineering, and
(01:23):
innovation was part of my team. And also the support
for what was a brand new customer experience department that
we built there. So it's been a wonderful career. When
I left Wendy's, I actually wasn't actually looking for what
was next. I was actually going to go into the
franchising business as a franchise e after all these years.
(01:43):
I thought that what a great way to apply that
and build a family business with this last cycle. I
also wanted to augment that with some board support and leadership.
So Potbelly is a brand that I have loved for
over twenty years, and it's a brand that I thought
maybe I could add some value if I had a
chance to be a director on the board, and so
(02:03):
I started to formalize that point of view, and it
was around that time that there was an outreach to
talk to me about something a little more meaningful. And
you know, in the middle of the pandemic, there weren't
a lot of great franchise deals that were going through anyway.
And so the more I looked at the brand and
what the company had in terms of potential, and more
excited I got about the role of CEO. Came on
(02:25):
board in July of twenty twenty in the middle of
the pandemic. My CFO Steve Serlis was here when I arrived.
He joined earlier that year, and since then we've just
built a tremendous team. Really, I would say the best
management team the franchise ever had.
Speaker 1 (02:42):
No, that's great. Yes, some great career experience too, I
mean Dominos and when these are fantastic. I've been covering
those companies for a long time, so that's great. And
so the team is settled now you have everybody in
place we do.
Speaker 2 (02:54):
You know, you're always expanding, and when you're in growth mode,
you know, in fact later next month. We spend time
every year talking about our talent organization and invest about
a day and a half as a senior team looking
to the future. So there's always that, but I'm thrilled
with the team at the senior level. We've made significant
(03:15):
advancements and talent and skill and really filled out our
team at the director level and the VP level as well.
The most recent add to our senior team was Lynette McKee.
We hired her just a few months ago. She's our
senior vice president of franchising and that was really the
last big position that needed to be filled and it
(03:35):
was the right time, as we announced this morning, you know,
with the acceleration of our deal activity, I wanted somebody
of her caliber to be able to lead the franchising efforts.
Speaker 1 (03:44):
And talk to me a little bit about about that
acceleration of the deal activity.
Speaker 2 (03:48):
Yeah, we uh, you know, we had always seen I
had always seen the power of franchising and growing the brand,
but frankly, we had to invest the first couple of
years in getting our house in order with our company operations,
reaccelerating sales growth and all the work that we did
against our five pillar strategy, especially the initiatives that underpinned it,
but all the while keeping an eye on what we
(04:10):
would do to start to build more units and do
it with franchise ease that would want to help grow
the brand. The efforts towards our market planning and our
franchise recruitment and franchise selection criteria and the actual franchise
e selection work that we do. That is where Lynette
has tremendous experience, and it's where I wanted to have
(04:32):
a senior leader that was focused on that. Other companies
you'll find all of the development functions are reporting up
to one development leader. That's not the way we have
it structured today because sales are so important and that
franchise e selection is so important. I mean, gosh, I
remember I remember my days with Dominoes and with Wendy's.
(04:53):
You know, you've got founders that were making those decisions
about who they welcomed into the brand, and great franchise
e will make the brand stronger for twenty thirty forty years.
You know. I know franchises in other brands where they're
in their third generation of ownership in the same family,
and they're very important parts of that. So we see
that as really important as such. Before even hiring Lynette,
(05:16):
we took all the execution centric elements of our development responsibility,
things like franchise real estate selection and support for them
making those choices, the engineering and architectural work that's necessary,
the construction support training, all that falls to our chief
operating officer. Now, those are very execution centric responsibilities and
(05:40):
that's what he loves and that's what he's excellent at.
It means that you know, here we are in the
beginning of twenty twenty four, Lynette is focused on sales
that will deliver twenty five, twenty six and beyond units.
Adam Adam Noys, our COO, is responsible for the opening
of the units that we're sold that are going to
get built this year. So that clarity and role clarity,
(06:02):
it's it's something I learned is really important for us
as a team, and we're excited about how that breaks up.
Speaker 1 (06:09):
Okay, cool, where's the chain strong geographically and who's your
core customer?
Speaker 2 (06:17):
We are. One of the great things about Popelum it
was attractive to me when I came on board is
we're in thirty three states and we've got decent penetration
in a lot of those states. We are geographically across
the country. We're literally a nationwide brand from Seattle and
Portland all the way to New York City and from
you know, the northern Midwest, the Canadian border, practically all
(06:38):
the way south of San Antonio on your way to
South Texas. So the brand travels well. You'll find a
lot of a lot of chains are size four hundred
and twenty four hundred and fifty five hundred units are
still super regionals attempting to prove that they can grow.
Our strongest penetration is where we started in the Illinois market, Washington,
(07:00):
d C. Baltimore, Maryland, Virginia, you go into Texas, we've
got a very strong presence in Texas. But throughout the
Midwest and even throughout the bordering states of the Midwest,
we tend to do really well. We do not have
a strong penetration in the southeast or on the West
coast now, as we've shared with a lot of our
(07:23):
development deals here in the last twelve months, we've been
signing a lot of development deals in Florida, and we
think that that's really common to begin your southeast development
state of Florida and then grow from there. We don't
have any deals yet in Georgia and some of the
other Gulf Coast states. The behavior of that consumer suggests
(07:43):
that we're not worried about that at all. It's just
kind of natural. You asked about our consumer. We are
a fast casual, sandwich based restaurant concept, and I often
complete that sentence with all due respect to our competitors,
but in a sea of sub shops, so we're not
a subshop. We're a fast casual restaurant option with a
sandwich based menu. Some things make our menu very different.
(08:07):
Our sandwiches are handmade and toasted at five hundred degrees,
so this is this is hot food. Our soups complement
our sandwich as well because people are looking for that
more substantial meal but at a great value. So our
core consumer is the fast casual consumer. You find them
trading with Panda Express and with Panera and with Chipotle.
(08:32):
Of course, our consumers use McDonald's and Wendy's in subway,
all consumers use those. Those are quit ubiquitous brands, but
that the occasion that enters your decision making process as
a customer, as one that appeals to somebody looking for
a higher quality experience, willing to pay a fast casual
average check price, but also wanting to have an experience
(08:56):
that they enjoy. One of the great things about pop
Belly is the in shop experience. We talk often publicly
about how strong our digital business is, and you know,
it's been in the high thirty percent, approaching forty percent there. Strong, yeah,
but well over half of our customers crossed the threshold
to get their food. Some of them take it out
to go, but the dining room experience is a big
(09:18):
part of it, and we protect that. We think that's
a big difference maker when you want to meet your
friends for lunch, When you want to, you know, stop
for even if it's a quick, convenient lunch with a
loved one, family or whatever on your way to shopping
trip or something. You don't always just want to run in,
grab it and take it somewhere else. And so that balance.
Speaker 1 (09:38):
Works well for okay, cool. The recovery in the chain
sas sort of sales since you know, since twenty nineteen,
has been really impressive, particularly beginning in the fourth quarter
of twenty two. What fueled that jump?
Speaker 2 (09:54):
Yeah, right, I'll take it back to our five pillar
strategy for the top line growth. Those the first four
pillars of the five are rooted in that unifying objective
that we started with back in twenty twenty, which is
traffic driven profitability. It was my firm belief that the
business health has to be determined on some really fundamental
(10:17):
and simple things to understand. And we had been losing
traffic for years, pricing many of our customers out of position.
And so the work that we did on the menu,
where we resized the sandwiches, we introduced the skinny size,
we really put a spotlight on our picure pair. The
work that we did operationally that was early going with
(10:38):
Adam when he came on board, focused on throughput cleaning
our shops, tightening up our staffing, you know, really exciting
things to operators like me, but kind of boring to
those that aren't true restaurant folks. Putting a labor guide
in place. You know, we didn't have an hour's based
(10:58):
labor guide in place pre pandemic, and so you know,
you often think of that as a labor savings tool,
which it does have some efficiency advantages, but if you
don't guide to the proper staffing and every shift, every day,
what tends to happen is you tend to overstaff when
it's more convenient for the manager, and you might find
your understaffed on the weekends and the nights and things
(11:21):
like that. So it's the it's I think the balance
of that operations and marketing focus that started to really
generate some momentum for us, and we've enjoyed continuing it
through twenty twenty three.
Speaker 1 (11:35):
How are you looking to drive SEP store sales growth
this year?
Speaker 2 (11:37):
It's more the same. You know, we get asked a lot,
are you are you still looking at low hanging fruit.
We don't really think about it that way, but it's
early innings. Still. The work that we did on digital,
that's the fourth strategy pillar, and right after we did
the new menu, we also rebuild our tech stack completely
new app, new web, new loyalty engine, new payments systems
(12:01):
that were put in place, and we've just continued to
invest in that. Perks. Our Perks loyalty program has been
a major driver of growth for us. We know that
our Perks consumers visit us at a meaningfully higher frequency level.
We know that when we get engaged with them, they
really love the Perks engagement. There's a lot of unpolished
(12:24):
brand love for pop Belly and some of it is latent.
So bringing customers back to the brand that they at
least are familiar with or at one point where great
users of reminds them just how much it works for them.
And if you go back to my answer to one
of your earlier questions, when you begin to think about
that fast casual experience that you're looking for, pushing our
(12:45):
brand up into your top of mind awareness is where
we find the most success. Even our place digital media
is mostly awareness driving. It's not called action type of marketing.
What we've done with Perks and our ability to continue
to lean into our Perks loyalty program is a big
(13:06):
driver of that. Catering has continued to grow for us.
The way we operate the shops is a big part
of our optimism around sales driving. Something a lot of
people don't know about Potbelly is we were always built
with two lines. There's a front line that you know,
if you go through a Potbelly, you're going to go
through the line order. We call it the load station
because we're loading the oven. That's that first level of engagement.
(13:29):
There was always a backline. All popbellies were built with
a second line that was designed to be for catering.
And you know, if you think about when we started
into the digital business, so we've got this back line.
Many cases, unfortunately they'd kind of been mothball. So we've
got all that equipment operating and working. Now. All of
our digital business goes through the back line, so we're
(13:49):
not facing capacity constraints because we're overburdening what was our
production system. We've got a lot more capacity to go
using the back line for more digital and it's left
the front line open. It also gave us. In addition
to that labor guide I told you about, we also
re engineered our positioning guidelines. And I don't even know
how many people need to be in the shop, we
know which line the best put them on so that
(14:12):
those customers are getting the best experience. We've recently, in
twenty twenty three, began rolling out our pop Belly digital kitchen,
So we already have that line, but we've digitized and
started to digitize, you know, on a rollout basis, the
back line, so all of the orders that come in
from all the various channels get fed to the back
line in the right way. So there's you know, look
(14:34):
a lot of detail there. But throughput operations excellence, additional
marketing investment, perks loyalty's that's why you hear confidence in
our voice about how we can keep top line traffic
growth going. And you know, we watch it. We compare
our we subscribe to data sources like everybody does. Black
Box is the one that we use and we can Yeah,
(14:57):
so we compare our traffic growth compared to the fast
casual segment, and for the last year and a half
couple of years, fast casual has been a lot closer
to flat, not unhealthy. Like QSR. We're post pandemic. They
started to lose traffic, but we're growing traffic, so that
means we're not just growing our business, we're gaining share
(15:19):
and that's really healthy.
Speaker 1 (15:20):
Yeah, it's impressive. I'd imagine you know, the second make
line served Chipotle really well during the pandemic, right, and
that's really helped them grow their digital mix. Was that
a big driver in the strength of your digital sales.
Speaker 2 (15:35):
I think it's a big enabler to do it well. Yeah,
and I think that it allowed us to keep focus
on the front line too, so that we didn't do
ourselves harm while we were building the digital business. I'd
give the digital assets a lot of credit to the
rebuild of the app and the web, smoothing that interface,
continuing to invest in it. And all of our promotions
(15:58):
have a digital skew in a and a perks loyalty
program leaning to them. For example, the underground menu was
kind of a pop belly cultural important element for years
and years and years. But you would go into a
shop and try to order something off the underground menu,
and maybe that employee hadn't worked there when they were
(16:19):
familiar with it. So we've digitized the underground menu. It's
only available in the app, and because it's in the app,
we now train for it so we know how to execute.
You can still walk in and order Lucky seven, but
it really is kind of digital centric, and we also
(16:40):
we further enhanced the customer feedback mechanisms that we have
in place, so we're watching very closely how those digital
customers feel about their experience. We know that on order, ready,
on time and accuracy is absolutely critical for them, and
it doesn't always break the top five for the in
shop customer, so those, you know, those details of how
(17:01):
we operate are different.
Speaker 1 (17:04):
Excuse me, how much inflation do you see this year
in your commodity basket and how much price do you
intend to take.
Speaker 2 (17:14):
That's one of the things I'm really proud of on
the pricing part of the rebuild of the menu back
in twenty twenty that was implemented in the summer of
twenty twenty one put us in a great place for
you know, what we all saw in the inflation from
labor and commodities, and we did take a lot of price.
We have been very careful though to take price to
(17:34):
offset inflation, and no more. Part of that's rooted in
what we discovered when I got here anyway, was we
had such a significant value problem with our consumer. I
was determined never to create that again. So going forward,
we're going to maintain that same strategy. We will take
price to offset inflation. We think most of our inflation
(17:55):
in twenty twenty four will come from the labor line.
And while that's not quite back to our forecast anyways,
and it's not quite back to traditional levels, it's getting
mighty close, you know, And you're talking load amid single
digits and labor inflation. Food inflation, we think for us
in particular, has stabilized a great deal and probably be
(18:17):
flatish at least for the near term. We've got a
market basket that includes every protein, so we spread our
wrists that way.
Speaker 1 (18:25):
Twenty twenty four restaurant level margin guidance sixteen over thirteen
point four to thirteen point nine and twenty thirteen, So
pretty significant expansion there is that all from sales leverage,
price increases in the digital kitchen. Are there other levels
levers that you're pulling?
Speaker 2 (18:43):
It includes those things for sure, And leverage is the
healthiest way to get margin expansion. Of course, but I
mentioned that labor guide. We've done some work there to
find efficiency because we know where we were investing labor.
We continue to see that. We have an evergreen initiative
called cost If you can imagine in your mind's eye,
(19:03):
the s is actually a dollar sign just to keep
everybody on their toes, and we set a target for
ringing out efficiency in the supply chain and other purchasing
that we do, other costs that we have. We cracked
open all of our leases during the pandemic, and frankly,
we continue to work aggressively with our landlords. We've got
a leader at a senior level who's focused on our leases.
(19:27):
As the brand's gotten healthier, we see that leverage with landlords.
They like us, they like the strength of the brand
and the ability to build their portfolio real estate with that.
So it's a little bit of all fronts. I think
we've got one hundred and fifty two hundred basis points
or so to go to get to our sixteen percent
number this year, and it will come through those areas, right,
(19:50):
So a little more labor leverage, some top line just
driven overall leverage and then continued efforts in the occupancy
and some other fixed costs.
Speaker 1 (20:00):
Gret, what's the current split between company owned and franchise
locations and where do you think you know the sweet
spot is for your chain.
Speaker 2 (20:07):
We're still more than eighty percent company owned. We did
refranchise thirty three units last year, and then you know,
we grew a few new units through franchising, but our
focus is on franchise growth. That's the fifth pillars, franchise
driven growth. We've announced publicly. We think we're a two
thousand unit chain in the long term eight to ten years,
(20:28):
and almost all of the growth to get there will
come through franchise development. We're still willing to refranchise a
few more units. We originally said we'd be willing to
refranchise up to one hundred, and probably still up to
that number, but the pacing it's not important for us
to race towards that goal. Will refranchise if it catalyzes
(20:50):
a development deal that we get very excited about. So
if you finish that story all the way out in
the long term, we're eighty five percent franchise and fifteen
percent company owned.
Speaker 1 (21:00):
What do you do with the cash on the refranchising.
Speaker 2 (21:02):
Well, you know it's not candlely is not that much
cash given the units that we sold and where you know,
where they may see extra development, but any capital, our
capital allocation strategy is to deploy capital for growth. There
there's still opportunities for us to lead maybe with some
(21:23):
of the the unit level prototype development, we would build
one or two of those to prove that path. If
there's an opportunity to do some refresh and remodel work,
we would use capital for that. You know, the digital
work that we've done requires some capital to continue to
be invested in that area. But you know that's the
beauty of what happens with the you know, the the
(21:46):
capital lighte model that we do with franchising is we
simply don't need that much, not in the near term.
Speaker 1 (21:51):
Yeah. So the ten unit growth, and there's a lot
of interesting pieces to the story and it seems like
it's really moving in a good direction here, But ten
percent unit growth in twenty four does seem high considering
you haven't really grown for a few years. I'm sure
the same source sales growth is definitely motivating franchisees to
(22:11):
expand who's going to open the most restaurants this year.
Is it the company, is it current franchisease, is it
new franchise ease?
Speaker 2 (22:18):
Oh, it's franchise. I mean, there'll be some current franchisees
that build. But it's that's why we've been so transparent
about the number of deals that we've done and the
number when I say deals, franchise development deals that we've done,
and the number of units that are under commitment to
be built. And I think you are. Our desire is
to have everyone understand that those deals beget units in
(22:41):
the units, you know, build out the population of shops.
It will be somewhat backloaded in twenty twenty four because
our deal traffic was somewhat backloaded in twenty twenty three,
and it takes about ten or eleven months to get
your first one up and running. We have some really
excellent developers that we'll be building multiple units next year.
(23:03):
There probably will be you know, maybe a low single
digit number of company units that you know that we
see could be potential for us to open, but no,
it's almost exclusively franchise development. And you're right, ten percent
is you know, it's going to be a great year
for us. We've been asked a lot throughout twenty twenty three,
(23:24):
do we want to adjust that target? You're changing that
guidance and we haven't. And we have it for a
reason because we can see into that pipeline. I shared
with you structurally of a couple of minutes ago about
how Lynnett's focused on deal activity and Adam is on
the execution side of things. So we can see the
real estate activity, We see the engineering work that's being done,
and the amount of support that we're providing on all
(23:46):
of those all of those elements of development gives us
confidence that we won't stub our toe to often. Very
simple example, there's a lot of talk out there from
some developers about the permitting issues that they're having. We
require that you do a side inspection report before the
lease is signed so that you uncover things that become
permitting issues. And it's a couple thousand bucks to do
(24:08):
that every time, but it's a couple thousand dollars that provides,
you know, kind of an insurance policy against delays in
the future.
Speaker 1 (24:17):
Okay, great, are you confident in your ability to select
good sites?
Speaker 2 (24:20):
We are, yeah, I mean that one of the great
things about having so many company locations. We have all
that data and today the mapping software and the technology
available to analyze that data, and it's one of the
things we provide. Our franchisees say they love that were this,
we're this forward thinking and we're this supportive of them.
So we provide what's the franchise e signs their development
(24:44):
territory agreement. We provide them with a targeted trade area
map where those green circles are that they turn their
broker network loose to go find sites. The worst version
of that in the past was the brokers would sell
locations to the franchise and they'd get them excited about
a certain location. They usually sell off of inventory and
(25:05):
they would push things that looked good to them. We're
empowering the franchise e to not only search in the
targeted trade areas, but because we do the trade area
mapping for the entire development territory, they literally have their
broker network searching for all of the sites at the
same time. That's why I mentioned a second ago that
you know, we know we'll have franchisees build more than
(25:25):
one because you don't have to do them in sequence.
You you know, if you've got two or three that
are starting to fall. Take all the leases and you
can develop those. So yeah, we're we're providing an outsized
level of support for the development needs. And that's a
lot of where our confidence comes from.
Speaker 1 (25:43):
Great. Yeah, they say bad sites. The gift that keeps
on giving, it does.
Speaker 2 (25:48):
Yeah, in this brand's experience. That Look, we've we've talked
to a lot of franchise ees and even analysts and
investors about you know, what happened after the company went public,
and you know, you can point to real estate as
part of that.
Speaker 1 (26:01):
Yeah, you get that Wall Street money, and Wall Street
wants you to ramp up unit growth and yes, often
it doesn't go well. All right, cool, How big are
the units and how much do they cost to build?
Speaker 2 (26:14):
Average cost is still about six point fifty that's what
it was pre pandemic. We have opened franchise locations in
twenty twenty three for less than that franchise ease. That's
one of the great things about franchisees too, is they're
just as tight with their investment dollars as anybody, and
so they actually help us push that down. Now, there's
(26:35):
been a lot of talk about the inflationary pressure in
the construction world from both contractors, subcontractors, materials and so on.
Some of that I think is coming back a little bit.
But potbellies were traditionally built twenty five hundred square feet
and bigger, and we frankly think that's too big, and
so we're targeting a prototypical size more like eighteen hundred feet.
(26:58):
And we have some franchise site that have been approved
that are smaller than that that we think are going
to work really well for us. So we can offset
what would have been inflation on that investment costs and
push that maybe higher than seven hundred and keep it
under wraps and in that two to one sales tom
investment ratio, So at a million, three and six fifty,
(27:19):
we're still at two to one. Sixteen percent margins that
we've talked about this year provide some nice returns for
the franchisease. The other thing I'd emphasize is on those
margins to our margins at sixteen percent of blended average
of the company, but most of our franchise developments in
the suburbs now and so the occupancy costs are lower
(27:40):
than our blended average, so they see upside in the
margin model even beyond what we published publicly.
Speaker 1 (27:47):
Okay, good stuff. What are you seeing from the consumer
right now and what are your biggest concerns move forward?
Speaker 2 (27:56):
Well, it's you know, my biggest concerns are typically in
the consumer, and you know, what are those macro trends?
So what are we seeing? It's surprisingly resilient. And I
do think that, you know, the promised recession that never
came in twenty twenty three is always looming out there
at some point, but it's our job to grow and
(28:16):
prepare and be as valuable an option as possible. I
think there's a reason that Fast Casual continues to grow
at the fastest rate in the restaurant segments, and I
think our ability to continue to grow faster than that
rate is still within sight for us.
Speaker 1 (28:32):
So what is it? Is it? Value for dollar? Is?
What is it that's do you think driving the sub
segment in general?
Speaker 2 (28:40):
Yeah? I think I think Fast Casual in general is
still driven by quality and value, and it's not price
value necessarily, but it's tell you there's an interesting element
to the value equation for fast casual that often gets overlooked.
If you look at average check across QSR, fast Casual
and casual dining looks like sort of three natural steps
(29:01):
if you look at the average eater check. However, in
fast casual compared to QSR, the DELA between those two
categories only about two dollars. And so what I think
that the natural flow towards fast casual of consumers in
general is customers are smart and they figure this out
and they're like, I get a significantly better feel for
the food, better quality, more portions for a couple dollars.
(29:26):
And when the fast casual consumer, our core consumer is
that fast casual consumer there one hundred thousand dollars household
income range, that two dollars is totally palatable. Add to
that that that as a segment and US as a brand,
we we have lower frequency than you find in QSR
as well, so we're not nearly as vulnerable to a
(29:49):
little bit of behavioral adjustment by our core consumer that
they're simply not going to pull out a Popbelly frequent
visit out of their whatever their monthly rotation is. Like
a fifty thousand dollars a year consumer who's going to
drive through breakfast, you know, twenty times a month, they
might pull back two or three of those well, geeze,
(30:10):
two of those is ten percent decline in that business,
so we're not as vulnerable to those dips. So I
think we're in a good spot. I think our consumers
in our good spot. I'd like to see I'd like
to see this credit card thing kind of level out
a little bit after the holidays. See if people can
keep the jobs market going and use some of that
income to pay off some of that debt, they'll maintain
(30:33):
a healthier lifestyle and keep coming to pop Belly.
Speaker 1 (30:36):
Cool, Let's get to the important stuff. I have not
been to a pop Belly, I'm ashamed to say, so
I'm gonna have to get there. Maybe then next time
I'm in the city or in DC. What should I order?
What's your favorite sandwich on the regular menu and what's
what's what's the one to get on the underground menu.
Speaker 2 (30:55):
Well, listen, you've got to start with the Wreck. It's
you know, it's it's our number one selling sandwich, and
it's number one for a reason, been around for a
long time. My personal favorite is the Italian, which is
right up there in the top three as well. But
I tell you, I've been shopping the menu a lot
myself I got on a chicken salad kick here recently.
We make our chicken salad and our tunas salad every day.
(31:17):
Do not skip the cookie, even if you're trying to
be good that day, don't skip the cookie. I promise
it's the best sugar cookie on the planet. And our
oatmeal chocolate chip is our number one seller. It's it's outstanding.
People love our shakes hand dipped ice cream, milkshakes made
from scratch. So yeah, you just can't go wrong. Look
(31:39):
at the menu and see what kind of grabs your
attention and go from there. The underground you asked about
that Lucky seven takes the four meats that are on
the Italian and the four meats that are on a wreck,
and there's only one of those meats that we have
in common, which is the ham, and put them together.
So you got seven meats on one sandwich. You might
want to try skinny size in that. There's a lot
(31:59):
of meat.
Speaker 1 (32:00):
Yeah, delicious, that sounds that sounds fair. All right, you're
making me hungry. This is great. Where can the audience
go to find a nearby pop bellies? What social media
platforms is the brand big on?
Speaker 2 (32:14):
You'll find us a lot on on the big ones, Facebook, Instagram.
We've got some CTV that's that's getting out there and
some of our bigger markets, so you'll you know, if
you're a YouTube television watcher, you might start to see
some of our ads there, but those will be the
places where you find us.
Speaker 1 (32:29):
All right, great, Yeah, thanks again for doing this. This
is this is an exciting story. Hopefully you know, once
your market cap gets a little bit bigger, maybe it'll
be on my radar for for coverage, you know.
Speaker 2 (32:40):
Yeah, thanks so much. Great to spend time with you.
Speaker 1 (32:42):
Yeah, it was fantastic met you. Thanks to our friends
at I c R for putting this together, and a
big thanks to the audience for tuning in. If you
liked the episode, please share it with your colleagues. Check
back next week for a discussion with John Siwinsky, the
CEO of Modern Restaurant Concepts, which includes Too Fast, Cap
rul Chains, Modern Market, Eatery, and Qdoba.
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