El Pollo Loco Keeps Focus on Labor Amid Leadership Change

    Franchises performed nearly 8 points better than company-run units because of better staffing. 

    Fast Casual | November 12, 2021 | Suzanne Blake
    El Pollo Loco building.
    El Pollo Loco
    Systemwide, same-store sales grew 11.9 percent in the third quarter compared to 2019.

    Even amid a CEO transition, El Pollo Loco’s focus hasn’t changed moving into the fourth quarter.

    Former chief executive Bernard Acoca resigned in October and was later announced as the new leader of Zaxby's. In his place, CFO Larry Roberts came on board as interim CEO. Still, staffing and retention remain the top challenges to fixing the performance gap between company and franchise stores, Roberts said during the chain's Q3 earnings call. El Pollo had to reduce operating hours and service modes in a number of corporate locations during the quarter.  

    Franchise restaurants' same-store sales increased 12.6 percent versus 2019, while company-owned stores experienced 4.8 percent growth. 

    “While there may be a number of reasons for the sales performance gap, fundamentally, we believe that our franchisees have done a better job adapting to the realities of the new labor market than we have in our company-owned restaurants,” Roberts said.

    To improve recruitment and retention, El Pollo increased resources to source more candidates and process applications faster, in addition to upping its training budget and launching an “Employee Appreciation Month” in November, which will include an engagement survey for employees to share their thoughts. Roberts said culture remains a vital element of this endeavor, and that El Pollo hopes to increase employee recognition and continue to develop “servant-led leaders.”

    The company expects labor pressure for the rest of the year based on 5 to 5.5 percent wage inflation as well as recruitment, training, and retention costs. Roberts said El Pollo is already seeing positive signs with retention, but the momentum needs to sustain it over time.

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    But Roberts wants to be clear—the labor concerns are not across all restaurants. There’s a select number of stores that have been more significantly impacted, around 15 to 20 percent, many of them toward the east.

    “We're pretty sure right now we're not seeing a consumer pushback on the brand,” Roberts said. “Number one, you're seeing the franchisees continue to drive strong transactions and strong comp sales. If you break out the restaurants from those that are having the most significant staffing challenges to those that aren't, there's a big difference.”

    Alongside these staffing priorities is a drive to simplify operations for team members so their jobs are easier to execute and more rewarding, Roberts said. Some initiatives so far include removing certain products and packaging options, but there’s more opportunity across operations.

    “I really believe that going forward, with the environment we're likely to see at least through most of next year and maybe in the future, that we have a lot more we can be doing to make it easier to execute in the restaurants so that it's easier to retain employees and potentially free up labor in the restaurants, to focus on customers rather than doing some of the things we're doing today in the restaurants,” Roberts said.

    Systemwide, El Pollo’s sales performance was strong in Q3, with comps lifting 11.9 percent compared to 2019. Average weekly sales per store once again exceeded $40,000, and nine markets achieved record sales. Growth has continued into Q3, as the chain saw same-store sales increase 8.4 percent in October.

    Roberts attributed the brand’s top line performance partly to the marketing and advertising promotion of El Pollo’s $5 Fire-Grilled Combo.

    “Instead of relying on introducing new products, this particular promotion took advantage of our consumer insights to effectively target an older Gen Z, younger millennial demographic,” Roberts said. “The tagline ‘Value Yourself’ has proven to resonate very well with this particular demographic group as they seek higher quality value-meal options.”

    El Pollo also unveiled Double Chicken Nachos in early September and has more than doubled gift card sales with a new set of holiday-themed cards. The company is also amid final discussions to partner with a third party to enhance its customer data platform capabilities.

    “We are excited about the progress we've made in our e-commerce business and believe that we've only just begun tapping into its full potential to build customer loyalty and drive sales,” Roberts said. “We also believe that e-commerce is critical to casting a wider net in order to attract younger consumers to El Pollo Loco.”

    With commodities rising, pricing moved up 5.2 percent in Q3 versus 2020. The brand will likely target specific menu items, limited time offerings, and discounts. The company’s Q4 pricing is expected to go up 6.8 percent, rolling into next year. Despite inflation, Roberts said El Pollo has effectively managed supply chain issues and won’t suffer significant disruptions to business.

    During Q3, El Pollo signed its second four-unit development agreement in Denver with an existing franchisee, and completed three other deals for an additional six restaurants in California. It also finished five company and two franchise remodels using the new L.A.-Mex design, a more modern prototype that amplifies simplicity of off-premises orders.

    Total revenues for the quarter increased 4.3 percent to $115.7 million compared to $111 million in 2020. Specifically, company store revenue increased 2.8 percent to $100 million from $97.3 million. This came with a 3.5 percent increase in average check and 1.2 percent improvement in transactions. Franchise revenue jumped to $8.9 million during Q3 compared to $7.8 million the prior year.

    As a leader, Roberts is building upon many of the values Acoca set forth during his tenure. During his leadership, El Pollo created a culture based around servant-led leadership, and that won’t change moving forward, Roberts said. They also developed the brand’s L.A.-Mex positioning and accelerated delivery, loyalty, and mobile ordering.

    Looking at the year ahead, Roberts said El Pollo will continue to focus on its acceleration agenda. The brand expects to open two to three company stores and one to three franchise restaurants this year while remodeling 10 company and 10 franchise units