El Pollo Loco Targets a National Footprint Again
El Pollo Loco executives made it clear during the company’s Q3 call last week that they want the brand to have a national footprint. During the company’s earnings Q3 earnings call, Chairman Bill Floyd noted that the board is strategically looking at ways to accelerate growth to become national, in fact.
“We will accelerate unit growth, expanding into new markets to realize the immense potential of the El Pollo Loco brand,” he said. “We think there’s a great untapped opportunity we intend to take advantage of.”
Interim CEO Maria Hollandsworth, who stepped into that role last week upon the news that Larry Roberts stepped down, reiterated this goal, stating, “I’m really looking forward to that opportunity of driving our growth to become a national brand.”
For context, the company currently has nearly 500 locations in seven states. According to Technomic Ignite data, the company’s footprint in 2015 was just over 430 units. It’s worth noting that this objective to go national isn’t really new, and one analyst brought up the company’s same stated goal from 2014, asking, “what at this point is holding you back?”
Indeed, a transcript from 2014 identified the brand’s initial entry into the Houston market as being a key market “as a gateaway to expanding our national footprint,” as then-CEO Steve Sather described. Floyd said the company needs a commitment of franchising resources, as well as marketing resources to “effectively” tell the brand’s story. Notably, El Pollo Loco named Jill Adams as its new chief marketing officer in early October. Adams’ industry pedigree includes Qdoba and Jack in the Box.
El Pollo Loco continues to follow its refranchising strategy, converting 17 company-owned restaurants in Q3, and has a healthy development pipeline that includes commitments in 12 states, as reported earlier this year.
“Our franchisees’ excitement to acquire these restaurants showcases our franchise partners’ belief in the significant opportunity ahead for the brand,” Hollandsworth said.
Technology and other efficiencies
In addition to refranchising and new franchise development, the company is also looking for ways to improve its four-wall economics through technology and “process optimization efforts.” On the technology side, the company continues to roll out kiosks, which were first tested in Q4 2022. That said, the rollout of the test has been slow – with about over 20 currently in play – because the company is simultaneously rolling out cash machines to support those kiosks. Restaurants with cash machines in place experience up to 80% of kiosk usage, Roberts said during the last earnings call.
“When you start getting up to 50%-plus in terms of usage, you can start looking at labor hours, so we’re pulling some labor hours out of those restaurants that have a high usage rate,” he said during the company’s Q2 earnings call. “We’re trying to push the envelope on kiosks … And I think there’s a big ability to both drive check and reduce labor hours in the restaurant.”
Last week, CFO Ira Fils said the company expects an accelerated kiosk rollout in January because cash machine equipment has been ordered. The end date for deployment is projected to be mid-2024.
“We’re very happy with our progress with the kiosks,” Fils said. “We’ve seen some very good acceptance from the guests, and we’ve been able to reduce labor in restaurants, and we’re getting a slight increase in check as well. In all cases, the kiosk has been very beneficial to us.”
On the “process optimization” side, El Pollo Loco is also testing new salsa processing equipment, which executives said is easier to use and clean. A full rollout is expected by the end of 2024. The company is also testing an automated dishwasher and enhanced holding equipment, the latter of which is expected to be complete by mid-February.
“With this equipment, we are hoping to improve both availability, especially in shoulder periods, as well as consistency of both temperature and taste,” Hollandsworth said. “New and innovative technologies and equipment provide us with substantial opportunity to become more efficient in the coming quarters and year.”
Such efficiencies, executives added, are expected to contribute to higher margins. In Q3, the restaurant contribution margin was 14.4% compared to 12.4% year-over-year. The goal is to get above 18%.
Q3 by the numbers
Highlights from Q3 include:
- Total revenue was $120.4 million, versus $119.9 million year-over-year
- Comp sales up 0.8%
- Restaurant margin contribution was 14.4% of company-operated revenue, versus 12.4% last year.
- Net income was $9.2 million, versus $5 million last year. Adjusted net income was $6.4 million, versus $5 million last year .
- Adjusted EBITDA was $15 million, compared to $11.6 million year-over-year.