During Q2, three new franchise shops opened in the U.S. Two company-owned locations and two franchise locations closed. The company is turning focus to core markets, which means exiting international ones. Six international locations also shuttered during Q2, leaving only one shop abroad in the Middle East, which is expected to close by the end of the year. In Q1, Potbelly opened three new shops (one corporate and two franchises) and shuttered eight, including seven company-run units and one franchised.
There are now 474 locations (45 franchised). This time last year, there were 495 units (58 franchised).
Regarding the trimmed unit count, Potbelly execs identified underperforming locations and have closed a majority that are in the bottom 25, Potbelly’s chief financial officer Tom Fitzgerald said.
“More importantly the stores that are now on the bottom list, as those bigger drains have been pulled away, are really not nearly as negative as the ones that we've pulled back on,” Fitzgerald said. “I think in a couple markets where we're subscale and relatively unknown, our comps are quite a bit more negative, but they're not really pulling the average down by any means.”
The brand’s full-year goal for openings revised downward. Instead of opening 12-18 stores, the company now expects to debut 10–15. Fitzgerald said four to five company-owned restaurants will open instead of the previous expectation of six to eight restaurants.
“We remain focused on balancing the initiatives to profitably drive same-store sales and traffic with tight cost control,” Fitzgerald said.
Johnson added: “We continue to have positive conversations with accomplished and experienced franchisees who are beginning to see our turnaround initiatives take shape.”
Another attraction for getting new franchisees on board is a fresh restaurant model. A store design was recently unveiled that offers a new look and feel for Potbelly. A more comfortable and relaxed dine-in experience is center to the prototype.
The new design also addresses some of the biggest issues Potbelly is facing right now, Johnson said. The purchase process was simplified with the customer ordering and paying now in one spot. A consolidated menuboard puts all of the options in one place instead of being scattered throughout the shop.
“Customers will also be able to see their food as its being lovingly made by one of our team members,” Johnson said. “This is a big plus and allows customers to see the quality and freshness of the ingredients we use to make great sandwiches.”
The first remodels will open during Q4 in Chicago, he added.
Off-premises sets the comeback stage
Potbelly is betting on off-premises as a channel that will boost growth. Between catering, delivery, and pickup, it now makes up 20 percent of sales, up 10.1 percent from the previous quarter.
Potbelly doesn’t break down mix, but Johnson said all channels and parts of the sandwich brand’s digital business lifted year-over-year. Despite an overall decline in comps, off-premises managed to expand for seven consecutive quarters.
Potbelly has come a long way, Johnson added. Over the past 18 months, it’s made the ordering process more convenient and easy for guests.
“We have more work to do, but the changes from where we were 18 months ago are dramatic and confirmation that this part of our strategy is working,” Johnson said.
Potbelly recently launched a revamped catering site to provide a seamless experience. Catering is the largest slice of Potbelly’s off-premises business. Potbelly worked with customers to see how they could improve. “… a number of additions,” Johnson said, “including recommendations based on your party size and showing what's popular right now, to spur ideas to easily and intuitively build the order and drive check.”
In-store upgrades are also being made to aid delivery and take-out orders. Each location is outfitted with new pickup racks. Delivery drivers can easily find orders instead of having to wait for an employee to bring it to them. The same goes for guests who are picking up. The racks eliminate friction at the counter, Johnson said.
At the beginning of July, Potbelly also announced its new partnership with DoorDash across all locations. As a part of the aggregator’s vast marketplace, Potbelly shows up whenever someone searches for sandwiches, which helps build brand awareness, Johnson said. Throughout the third and fourth quarter, Potbelly will be featured on different DoorDash promotional windows to reinforce the brand’s presence. Customers can still order through the Potbelly website and app.