Another major tenet of the Traffic-Driven Profitability strategy is the launch of a refreshed tech stack, which includes a new mobile app and website and integration of digital ordering and the loyalty program. Wright described the new platform as having a design that’s more aligned with Potbelly’s branding and more user-friendly for core customers.
Potbelly’s digital channels have stuck fairly well since the end of last year. In Q4 2020, digital mixed 41 percent, while in-shop represented 49 percent of sales. In July, digital dipped slightly to 39 percent while dine-in rose to 52 percent. In the second quarter, the chain’s Perks Loyalty Program added 142,000 members, good for an increase of 4 percent year-over-year. Sales from the loyalty program lifted 35 percent compared to the prior-year period, as well.
With the updated tech stack, Potbelly now has multiple platforms to effectively target and draw customers toward its new menu.
“You'll see the menu celebrated on the web and on the app. As we do that we'll also continue to do what we did in our test markets with our paid social media to bring that to life,” Wright said. “There will be some more traditional [local store marketing] elements to create some local excitement and some enthusiasm for that. And then the last lever, of course, is our Perks program, which customer facing the Perks program kind of continues to work the way that it did before the Tech Stack launch. But as we've shared, the engine that runs that Perks program, it's a completely different partner with a lot more capabilities for us to dig into that data and create those one-to-one relationships.”
Potbelly expects the sequential sales lifts, along with the new menu and tech stack, to fuel future franchise development. In May, the sandwich shop appointed Larry Strain as chief development officer to lead the upcoming growth strategy. The industry veteran has more than 25 years of experience and previously held real estate and store development roles with McDonald’s, Dunkin’ Brands, and Starbucks. Wright said Potbelly has a healthy pipeline of inquiries from potential franchisees because of brand recognition, under-penetration across much of the U.S., various industry connections, and the leadership team’s combined restaurant experience.
Talks of development come a little more than a year after Potbelly mulled the closure of up to 100 locations that weren’t profitable prior to the pandemic. However, only 28 shut down. The chain ended Q2 with 443 stores—398 company-operated and 45 franchises. Potbelly projects three to five franchise openings in 2021, with new locations already opening in Tampa, Florida, and Cary, North Carolina.
The secret to success is Potbelly's unit-level economics, according to Wright.
"We've got the top line, the margins, and the investment economics are going to be very, very attractive," the CEO noted. "We believe that we can be selective with the people that we bring on. And again, with [Strain's] experience, the rest of the team, I think we can be very intentional and planful as we think about how to develop.”
Total revenues increased by 24.9 percent to $97.5 million compared to $78.1 million. Based on the progress made during Q2, Potbelly expects positive cash flow from operations to continue through the second half of 2021. As of June 27, the company had $11.8 million of cash on hand and $23.5 million available under the revolving credit facility, for total liquidity of $35.3 million