Off-premises is a familiar concept for El Pollo Loco.
Before the pandemic, off-premises mixed 78 percent—45 percent drive-thru, 30 percent takeout, and 3 percent delivery. Once the pandemic hit, the company shifted its operating model like other restaurants (including the test of curbside pickup) and the off-premises business has responded exponentially.
With its indefinite offer of free delivery, El Pollo Loco has recognized record-breaking delivery sales. The channel’s portion of sales has tripled, with check levels in excess of $25.
Drive-thru—which is at about 90 percent of units—now accounts for 70 percent of sales thanks in part to changes in labor deployment that have enhanced speed and accuracy. CEO Bernard Acoca said drive-thru will be a major focus of the brand going forward. He believes the channel could be a significant sales driver and competitive advantage in the future.
“One of the things that we've been hard at work on is our deployment maps and our restaurant where we're not only just focusing on what labor deployment looks like in the drive-thru, but what deployment looks like in every role in the restaurant,” Acoca said during the company’s Q1 earnings call. “ … I describe it as starting to look like a beautiful, well-coordinated ballet where I have to admit, two years ago sometimes they look a little bit more like organized chaos.”
El Pollo Loco almost tripled its digital business in five weeks and is witnessing record-breaking, double-digit participation in the loyalty program. The company set a goal this year to have the loyalty program mix 13 percent, and the brand is currently seeing the program account for 10 to 12 percent of sales during any given week.
“What we believe we're starting to see is that we have cast a wider net, certainly with the expansion of our loyalty channels and to our loyalty program,” Acoca said. “ … We are starting to broaden our base a bit more, get a younger skewing, more millennial, younger more millennial customer, more general market customers coming into the franchise.”
A major boon for the online channel has been the $20, 12-piece family meal (exclusive to loyalty members) that includes pieces of legs and thighs along with three tortillas or chips and salsa. Around 50 percent of digital transactions and delivery orders have been family chicken meals, according to Acoca. When the company runs the weekend-only offer, there’s a 3 to 5 percent incremental lift in same-store sales.
After seeing comp sales growth of 4.2 percent and 3.7 percent through February at company-owned stores and systemwide, respectively, El Pollo ended Q1 down 1.5 percent systemwide and down 0.7 percent at corporate units. Franchised stores dipped 2.2 percent. First-quarter revenue dropped from $109 million in 2019 to $105.2 million this year.
From March 1-25, systemwide comps decline 15.5 percent. The last two weeks of the month saw a decrease around 30 percent. To date, same-store sales are down 23 percent, but numbers have improved each week. El Pollo said comps should be around negative 10 percent over the last week.
As of now, 192 of the 195 company-owned stores are open and 279 of the 283 franchises are in operation. Franchisees closed four restaurants in Q1, and another one after the end of the quarter.
Although Texas has reopened dining rooms at 25 percent of capacity, CFO Larry Roberts said El Pollo won’t always follow the timing of whenever a state chooses to reopen.
“[Customer’s] safety is always the driving decision behind whether we choose to open or not,” Roberts said. “And, quite frankly, given the amount of business we've been driving through our drive-thrus, through delivery, through mobile pickup, through takeout, we're not as hard pressed to necessarily follow Texas' schedule. So we're going to take more of a gradual approach, look at it state-by-state, city-by-city, and not necessarily be automatically tethered to whatever a state decides.”
To assist franchisees, El Pollo deferred 50 percent of April royalties until July, which will be repaid over the remainder of 2020. It also suspended remodel and new build requirements until 2021 and formed a support team to help franchisees access funds from the Paycheck Protection Program.
Regarding health and safety measures, the company provided gloves and masks to all restaurants, installed plexiglass shields at counters, and initiated social distancing measures. Enhanced sick leave benefits have been given to workers impacted by COVID-19.
The company fully drew down its $150 million credit facility, adding $34.5 million in cash. At current sales levels, the brand expects to be at least cash flow breakeven.
Acoca said he believes his brand is well-positioned for the future.
“I know a lot of people are looking at the situation, as if it's a big doom and gloom. I'm not,” Acoca said. “I know my team is not because all the things that we were working on are starting to bear fruit. And the things that are within our control are starting to bear fruit.”