El Pollo Loco has navigated the pandemic with a five-point strategy—grow delivery, increase family meal sales, build digital, promote value, and improve the drive-thru.
And thus far, CEO Bernard Acoca couldn’t be happier with how the brand is executing against each pillar. Quarter-to-date, comp sales are growing 2.8 percent.
In Q2, the brand implemented free delivery with Postmates. That program, combined with Grubhub, DoorDash, and Uber Eats partnerships, led to record-high delivery sales and a mix that doubled compared to pre-COVID.
In terms of digital, the channel has more than tripled since Q2 2019 and has doubled since the beginning of the year. Digital represents roughly 9 percent of sales while delivery mixes at about 6 percent.
El Pollo increased loyalty member spend by 7 percent year-to-date and by 11.9 percent year-over-year. In September, the company will relaunch the Loco Rewards Loyalty Program with new program enhancements that Acoca said will grow acquisition and increase engagement with 1.9 million loyalty members. Loco Rewards currently mixes 10 percent and is on pace to reach 12.5 percent of sales by the end of 2020.
The relaunch will include a free offer that’s available immediately after signing up and a lower threshold to redeem loyalty rewards—a $5 award being issued for every $50 spent. For the first time, El Pollo will promote the Loco Rewards Program via television, social media, digital, and in-restaurant point-of-purchase materials.
In addition, September will also see the launch of curbside pickup. Customers can order through the app with restaurants being notified of their arrival through GPS. The launch will receive television, digital, and media support.
Acoca said the digital experience will be key in how El Pollo thinks about future remodels.
“I think we're going to naturally take a very hard look as to what digital e-commerce looks like in terms of it being a seamless experience from the end-to-end customer journey,” Acoca said during El Pollo’s Q2 earnings call. “ … We’ll put more prominence behind digital pickup. Naturally, curbside will now factor into this. I think we've learned quite a bit about menu board placement in the drive-thru to get a maximum number of cars through the drive-thru. So that menu board needs to come up earlier in the stack in order to maximize drive-thru capacity.
“… I think you'll see a sharper focus on off-premise and the digitization of our business as it pertains to delivery and digital mobile order pickup.”
In Q2, same-stores sales declined 9.7 percent with consistent improvement throughout the three months. That includes an 8.5 percent slip at company-operated stores and a 10.6 percent slide at franchises. April comps decreased 26 percent, but El Pollo improved to a 6.3 percent drop in May and 0.6 percent growth in June. Q2 revenue was $99.6 million, compared to $113.7 million last year.
Currently, 192 out of 196 company-operated El Pollo units are open, while 279 of 283 franchises are operating.
Much of the growth experienced during the quarter was aided by menu innovation. While family meal deals have declined as entrée and individual chicken meals sales have improved, it’s still increasing more than 10 percent year-over-year and mixes more than 30 percent.
The brand has also relied on the relaunch of the value-based $5 Fire-Grilled Combo, which accounts for about 7 to 8 percent of sales. When the product was launched last fall, it mixed 8 to 10 percent with the benefit of a full promotional effort behind it. But Acoca actually prefers how the item is mixing now because it shows balance across the menu.
“This isn't leading to check degradation in the same way than it was, say, a year ago,” Acoca said. “So right now we're happy with where it is. We still think we can get more mileage out of it by putting a little bit more emphasis behind it, certainly in a market like L.A., where I think discretionary income is probably tightening up a bit more. …We’re very pleased with where it's coming in.”
In September, El Pollo will return with new product news with a lineup of burritos—including keto and vegan options.
Acoca said the new items are portable, which fits in perfectly with El Pollo’s growing drive-thru business. The CEO said accuracy and service times improved as the channel increased to more than 75 percent of sales.
The operations team is reevaluating the layout of equipment at the drive-thru and exploring new technology to create more efficiency. One example is holding equipment and tablets capable of taking credit cards.
“Our primary focus for the balance of the year in operations will continue to be enhancing the drive-thru experience for our customers,” Acoca said. “We’ve already made good progress, but we believe that there is even more room to improve speed and accuracy. We also continue to train restaurants on proper labor deployment and food preparation.”
Nearly all of El Pollo’s dining rooms remain closed—only the Houston market has in-restaurant dining. CFO Laurance Roberts said the company wouldn’t open anything unless at least 50 percent capacity was allowed. He added that El Pollo needs about 2 to 2.5 percent comp growth when a dining room reopens to break even.
Of course, all dining rooms are shut down in El Pollo’s home market of California. Roberts said the mandate had minimal impact on the brand’s comp sales. However, the brand did note that in the past seven to 10 days, it started to see softer sales in the L.A. area. Acoca said the brand is unsure whether it will be a trend, but he does think it’s related to a higher level of COVID cases and higher unemployment.
As unemployment benefits expire and COVID cases rise, the industry continues to face an uncertain future. But Acoca feels good about the strategies El Pollo has implemented in the past few months, so he doesn’t anticipate much internal shifting.
“I don't think you'll see us do any kind of massive wholesale changes in the short term because, quite frankly, we don't feel like we've had to do that,” Acoca said. “But the situation is so incredibly fluid. … I used to say, you could look at these things month-to-month. You got to really look at it almost week-to-week and really figure out how to optimize given the changing landscape. But we really feel good about the strategies we currently have in place. So I don't expect any massive change, if you will.”