In a move to improve back-of-house efficiency and overall customer experience, El Pollo Loco recently rolled out a big change to its menu. About 20 percent of its offerings will be cut in order for the brand to move forward with its shifting operating strategy, first unveiled in March 2018.
The menu simplification process will phase out lower-margin items that were complicating processes in the kitchen, El Pollo Loco’s chief executive officer Bernard Acoca said during a May 2 conference call. The menu cuts coincide with the brand’s initial rollout of a new back-of-house management platform across 90 restaurants. With new streamlined systems in place, managers will have about an hour of their time freed up each day.
When Baird analyst David Tarantino asked about how the company benefited from reducing the back-of-house complexity, Acoca stressed that menu simplification was one of the best ways to improve the brand for employees and customers. It also means El Pollo Loco is cutting down on introducing limited-time offers and promotional products.
“I think the net impact of all of that has been just better execution against the products that we're serving day in and day out, only because we're not having to train so often on new LTOs and our people can focus on executing much better against a lower number of SKUs,” Acoca said. “It's still early days, of course, this coupled with a bunch of the initiatives we're working on, is really intended to improve our overall operations.”
The simplified menu piloted in Los Angeles before it expanded systemwide. In addition to specific menu items, new kitchen procedures and equipment are being tested to see how El Pollo Loco can further simplify operations.
“Everything we do in our kitchens is being reevaluated in order to make things easier for our team members and franchisees,” Acoca said. “We're convinced that improved operations can significantly enhance our employees' ability to provide better food and service to our guests, all while having the added benefit of lowering turnover and increasing retention, which is particularly important in today's tight labor environment.”
The brand will be able to better focus on its signature flame-grilled chicken and developing “Better for You LA Mex cuisine,” Acoca added.
Last month, El Pollo Loco outlined a brand refresh that it expects to complete in its 484 units by the end of the year. Those changes included a new logo, advertising, tagline (Feed the Flame), menu boards, and point-of-purchase materials, the company announced following its fourth-quarter review. In the third quarter, the company plans on unveiling a fresh mobile app and e-commerce site with new uniforms and packaging to follow by the end of the year.
While traffic dipped—3 percent for franchise locations and about 2.3 percent at company-owned locations—same-store sales remained positive at 2.4 percent, including a 1.5 percent lift at company-run units and a 3.2 percent uptick at franchised locations of the chicken chain. Check averages systemwide increased 4.6 percent.
Total revenue increased to $109 million from $105.8 million the same time last year. The company attributed the growth to a 2.7 percent increase or $97.2 million in company-operated store sales during Q1. Chief financial officer Larry Roberts noted Q1 franchise revenue had a 5.5 percent increase to $6.4 million compared to $6.1 million last year.
Another part of El Pollo Loco’s transformative agenda includes expanding into one to two new markets by 2020. Growth will continue on both the corporate and franchise side. During Q1, two franchise locations opened and two corporate locations closed in California. By the end of 2019, the company expects to open three to four corporate stores and three to five franchise locations.
Acoca believes the simplified menu and streamlined operations will help the brand as it grows in existing markets and as it breaks into new ones.
Design firm Chute Gerdeman is developing a new prototype that will include the simplified back-of-house operating platform and incorporate El Pollo Loco’s new style, Acoca said. The new prototype should be ready by this fall.
Remodels are already in the works as one company-owned store and three franchise stores were completed in the first quarter. By the end of 2019, Roberts expects 10-15 company and an additional 10-15 franchise remodels to be completed.
El Pollo Loco also kicked off a refranchising strategy during Q1. Four company-owned stores sold in the East Bay area with an additional seven company-owned stores in Phoenix slated to sell to two existing franchisees by the end of the second quarter.
“We had very strong performing franchisees that we have a long-standing relationship with that expressed an interest in those restaurants,” Acoca said. “Given that we had a much smaller presence relative to our franchisees in those markets, it made sense for us to sell them while also ensuring that we put a development agreement in place so that those markets continue to grow into the foreseeable future.”
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