El Pollo Loco is looking to bring in younger consumers and drive frequency among lower-income guests, and it’s turning to TikTok and value offerings to make it happen.
CEO Larry Roberts said the company’s Overstuffed Quesadilla promotion in Q4 garnered over 10 million views on TikTok, which helped the platform achieve a mix of nearly 7 percent. The platform attracted an influx of new and existing users and helped lift comps 4.7 percent in the quarter, including 4.7 percent at company-owned restaurants and 3.5 percent at franchise locations.
Same-store sales also benefited from ongoing efforts to improve operations. Roberts said restaurant system operations were “the best they had been all year” in the final months of fiscal 2022, and customer complaints were at their lowest levels heading into 2023. A year ago, company-owned units were at 12 complaints per 10,000 transactions. Now, that number is down to six.
“The continued improvements in our restaurant operations are reflected in our brand tracker results, in which we made significant progress against our competitive set across all five key attributes, which are food and menu quality, service environment, value, and overall brand experience,” Robert said during the company's Q4 and full-year earnings call.
Now that the worst of the staffing challenges are behind it, El Pollo Loco is expanding its operational improvement initiatives to include bench building and enhanced training. It also is increasing its focus on better managing labor and food costs by minimizing overtime and reducing food waste.
“In addition to these, we continue to work to simplify the menu, reduce the time it takes to prepare salsa, and we’re testing dishwashers and ordering kiosks,” Roberts said. “We’re excited by the progress we’re making to simplify operations and it remains a huge area of opportunity."
He said efforts to improve operations at company-owned stores offer a partial explanation for the comps gap between company and franchise locations.
“Company operations were, quite frankly, not very good back a year ago,” Roberts said. “I think consumers did start trading off company locations to go to franchise locations. So, as we’ve made a dramatic improvement in the company operations, one of the factors out there is that we’re seeing customers returning to company restaurants because now they’re getting a better experience.”
El Pollo Loco's strong value results are especially reassuring given that year-over-year pricing at company-owned restaurants was up 10.4 percent in the final months of the year. Roberts said the company is seeing the impact of inflation and broad-based economic uncertainty on consumer spending. Lower-income customers are ordering less frequently, spending less money, and buying fewer items per ticket, he said.
The company is focusing on value offerings to increase frequency among inflation-weary guests, including promoting its $24 Family Feast deal. It also is gearing up to launch a new $5 Pollo Bowl platform later this month.
“We went out and did some consumer screening around, ‘Okay, from a value perspective, what would consumers see as being the best value alternative that we could offer?’” Roberts said. “And these $5 bowls were the clear winners. The great thing about them is that we can do them at pretty good margins.”
El Pollo Loco is implementing several initiatives this year to further differentiate its offerings and grow its customer base. It hired a new creative ad agency to bring a fresh look and energy to its advertising across all media channels, starting with a current Tostada Salad promotion. In April, it will roll out a revamped app and loyalty program. The app upgrades will make it easier for consumers to order food through the chain’s own digital channel, and the loyalty program will provide more opportunities for engagement and food redemption, Roberts said.
Over time, he believes the brand can drive more sales by building on past product successes and focusing more on permanent platforms versus one-off LTOs.
“The idea is that you wouldn’t go away from LTOs, but your LTOs will be more focused around actually building these platforms,” Roberts said. “Many times in the past, we’ve done LTOs and then we just pulled them out. You get a bump in sales, but you don’t really grow what I’ll call long-term sales, because it just came in and went out.”
He pointed to the Tostada Salads as an example.
“If you went back three years ago, Tostadas were mixing about 8 percent of sales,” Roberts said. “Then, each year for the past three years, we’ve come back and talked about Tostada Salads. Before the current promotion, we had Tostada Salads up to 13 percent or 13.5 percent mix. Now, with the current promotion, can we get this up even higher to 14 percent or 14.5 percent? Can you keep growing your sales that way, versus coming out with these one-time LTOs that come in, come out, and then you’re back to where you were?”
The fast-casual chain is making progress on its remodel program, too. In Q4 it remodeled two company restaurants and eight franchise restaurants, bringing the total number of remodels for the year to six company units and 16 franchise units. Looking ahead, it plans to complete 10-15 company remodels and 20-30 franchise remodels this year. Stores are seeing a 3-5 percent sales lift on the remodel program, which has three different levels of investment. The first level includes moderate interior upgrades and full exterior remodel, with costs running around $250 million to $300 million. Mid-level remodels are costing around $350 million, and high-level remodels are clocking in between $400 million and $500 million. Roberts said most of the activity in 2023 will focus on low- and mid-level remodels.
El Pollo Loco opened a total of four new company restaurants and nine new franchise restaurants in fiscal 2022. It ended the year with 490 restaurants, including 188 company-owned stores and 302 franchise stores. It plans to open four to six new company-owned restaurants and eight to 12 new franchise locations this year.
The company in Q4 signed a development agreement with a new franchise group to open eight restaurants in the Kansas City area. That brought it to five new development agreements for a total of 25 restaurants. The company also inked development agreements in Seattle and Louisiana last year, as well as in California and Oregon.
A franchise partner recently opened a store in Denver. El Pollo Loco last year signed two separate development agreements in the city for a total of eight restaurants. It plans to open 10-15 restaurants in the Denver metro along with five units in Colorado Springs over the next several years. The expansion in Colorado is part of a broader push to open as many as 140 new locations in the Western U.S. by 2026.
“Accelerating development will depend on franchisees, both new and existing, and will require us to successfully enter new markets,” Roberts said. “To execute this strategy, we greatly enhanced our franchise recruiting efforts. These efforts have resulted in dramatic increases in inquiries and prospects to meet our investment criteria.”