Portillo's CEO Michael Osanloo is happy with the chain's first pickup-only location in Joliet, Illinois. But he isn't satisfied.
The 3,750-square-foot restaurant, which opened early last year, features three drive-thru lanes (one for mobile orders), a pickup area, and no dining room. The restaurant has performed well, but efficiencies are necessary, Osanloo explained.
"It’s doing everything that we wanted and then some," the CEO said during the brand's Q1 earnings call. "But the guide on the truth is we probably overbuilt that restaurant here. And I think we’ve discovered that we can build a smaller footprint, a little bit of a tighter kitchen, and that there is some little things that we can do well. It’s a very busy restaurant for third-party delivery, for our own delivery, for pickup. And so we want to make sure that we have that built into the restaurant better than we did in Joliet."
Portillo's will take these learnings into its next off-premises-only unit in Rosemont, Illinois, a suburb of Chicago that borders O'Hare International Airport. It's scheduled to debut later in 2023. Osanloo described it as a "fantastic location that will benefit from both airport and entertainment traffic."
To-go locations are meant to infill development gaps as opposed to being a primary growth driver. The CEO envisions Portillo's building "a bunch more" in Chicago and other markets, but the exact plan hasn't crystallized yet.
"I’m going to punt on it for a bit," he said. "We are going through the process of looking at our total addressable market, especially now that we are getting comfortable with these new formats. And so our expectation is that we’re going to have an Analyst Day, a more modest one in late September, and we’re going to go through what we believe is our fully addressable market, our full potential, including standard restaurants and Portillo’s pickups as well as targeting what we think are nontraditional venues. So think airports, other things like that. And we’re also going to try and take a look at what we think we can do with regard to international franchise. So that’s a whole process."
The fast casual's same-store sales increased 9.1 percent in Q1, including a 7 percent rise in average check and 2.1 percent growth in transactions. Prices were up 9.2 percent, partially offset by a change in menu mix.
The company plans to open nine restaurants this year, six of which have already been announced—Allen and Arlington, Texas; Queen Creek, Arizona; and three in Chicagoland. One of the Illinois-based units will come in Algonquin, where customers have to drive 20-25 minutes to their nearest Portillo's. It will be on the pad of one of the busiest Walmarts in the world, Osanloo said.
"Chicago is incredibly good to Portillo’s," the CEO said. "And so when we build a restaurant in Chicago, it comes out of the gate doing exceptionally well, very, very high levels of revenue, very attractive margins. So it is incumbent on us to thoughtfully and selectively fill in the Chicago market."
Portillo's has already opened restaurants in 2023, but those are holdovers from the previous year. Osanloo said the 2022 class is going to beat underwriting expectations, leading him to believe the chain has unlocked the formula on where to build, how to build, and why to build. Recent success gives him confidence that Portillo's has a replicable model of finding restaurants that will outperform.
The class of 22 has exceeded underwriting expectations, and that includes the brand's first restaurant in Texas. The store opened January 18 in The Colony and was averaging $48,000 in sales per day through the first month and a half. It was pacing toward a $17 million AUV. It's based in Grandscape, one of the largest mixed-use real estate developments in the U.S., with dining, hotels, apartments, offices, retail, and entertainment.
Osanloo said the restaurant is still "crushing it" and should be one of Portillo's top three or four stores systemwide.
"It’s maintaining outstanding momentum," he said. "It puts a twinkle in my eye. Colony is just, it’s doing really, really well, continues to give us a lot of confidence about what we can accomplish in Texas."
Most notably, the Texas unit is selling more beef sandwiches than usual for an out-of-state location. Osanloo didn't forget that some investors questioned whether this item would travel geographically.
"It gives me a lot of comfort because it’s truly an iconic menu item," the CEO said. "If you want an Italian beef sandwich in Texas, you pretty much come to us. And so I love the fact that it’s mixing very high. I love the fact that people are coming in for those beef sandwiches and then coming back to those beef sandwiches because again, it gives me a lot of confidence that our concept and the food will travel better than maybe some people expected."
Arguably the biggest reason behind the stellar openings has been leadership experience. Portillo's already knows who the general managers will be at its nine new stores in 2023 and for its 2024 class as well. The CEO likens the new restaurant opening team to a fire department. There's the full-time staff, but also volunteers in the market who help out as necessary. That's why Osanloo believes Portillo's debut in Arizona will be clean, quick, and seamless. He suspects the same for the chain's additional Texas stores. The general managers for Allen and Arlington are working at The Colony in preparation.
Still, development headwinds exist outside of Portillo's control.
"The supply chain is freeing up a hair. And so we are not quite as nervous about that part of it. The biggest issue is still the permitting processes," Osanloo said. "And I think we have talked about this before that we have budgeted a heck of a lot more time for permitting than we ever did in the past. We have just added a ton of time. It’s one of the reasons why the nine new restaurants that we are building this year are all back-end loaded. They are all Q3, Q4 because of permitting issues. We are not seeing a ton of improvement there. But on the supply chain, it’s getting a little bit more free-flowing. I am not going to say cost moderating, but [buildout costs] are not going up as fast as they were."
Portillo's finished Q1 with 75 outlets. Its AUV was 8.7 million, up from $8.3 million in 2022.