Inflation and labor problems are felt throughout the industry, and Fiesta Restaurant Group, parent company of Pollo Tropical, is no exception.
The group will raise prices by 5 percent in March to offset rising cost of goods sold and labor.
Staffing issues continue to negatively impact Fiesta’s bottom line. Restaurant wages as a percentage of net sales was 27.9 percent in 2021, up 23 percent from last year.
Restaurant-level adjusted EBITDA margin was 14.3 percent in 2021 compared to 21.8 percent in 2020 and 19.2 percent in 2019. During the latest earnings call, CFO Dirk Montgomery said EBITDA margins declined “primarily due to hourly wage increases, short-term hiring incentives, and additional overtime in training ahead of planned pricing action.”
During Q4, the Florida-based brand tried to mitigate some of these costs through labor optimization initiatives, such as significantly reducing overtime. Fiesta is working with a labor consulting firm to implement best practices in 2022.
“We are on track for restaurant-level adjusted EBITDA margins to reach our targeted range of 18 percent to 20 percent on a run rate basis by the end of the first quarter of 2022, barring unforeseen changes in our cost structure and the operating environment,” Montgomery said during the company’s Q4 and 2021 earnings call.
Staffing levels improved compared to Q3, but the brand is still struggling to fill all of its units, forcing Fiesta to think outside the box. Along with wage rate increases, hiring incentives, and improved benefits, the brand is expanding recruiting resources and additional team incentives for completed schedules.
“We will continue to benchmark our total comp and benefits package against our peers and make additional changes as needed to ensure we can remain an employer of choice in all of our markets,” said CEO and President Richard Stockinger.
To help drive business, Fiesta is relying on four strategic priorities, starting with accelerating growth of off-premises. Delivery grew 27.6 percent in Q4 year-over-year and online comp sales lifted 29.9 percent compared to 2020, with average check still above average compared to other channels. Fiesta has also worked to reduce points of friction during the online ordering process.
The second priority is elevating Fiesta’s digital platform, including a drive-thru experience that entails end-to-end customer experience tracking and daypart and customer specific promotions integrated with the Pollo Tropical app and loyalty program. These improvements are geared towards improving traffic, order accuracy, speed of service, and increased check averages through upselling.
Stockinger said digital channel sales for the brand were strong, and Q4 numbers were noticeably better than previous years. Digital sales increased 28.1 percent year-over-year and tripled versus 2019.
“On the digital front, we continue to make strides in enhancing our platform by successfully completing the pilot of our much-improved digital drive-thru customer experience, reopening curbside capability that was placed on hold during staffing challenges, and launching QR kiosk in-hand technology for faster in-store ordering and payment in all units,” Stockinger said.
The third strategic priority is related to unit design and future remodels, as well as growth initiatives. As of January 2, there were 138 company-owned Pollo Tropical restaurants and 31 franchises in the U.S., Virgin Islands, Puerto Rico, Panama, Guyana, Ecuador, and the Bahamas.
Fiesta recently completed and tested a new, more efficient kitchen line that Stockinger said “significantly reduces cycle order times.” The new design will be tested in upcoming remodels to improve productivity and “unlock unmet drive-thru demand in high-volume units.” Remodels and refreshes typically average $500,000 and $290,000, respectively.
Fiesta completed three remodels and five refreshes in 2021, with plans to complete an additional 20 to 30 refreshes and remodels in 2022—the majority being refreshes.
“Customer feedback on the remodels has been very positive,” Stockinger said.
Lastly, Fiesta will invest in field talent development to improve execution, team retention, and guests experience. Fiesta is expanding the number of regional directors of operations and created the position of executive general manager.
The new role comes with a more comprehensive training program, including leadership development and talent management training.
“Our first training class was completed in the fourth quarter and every restaurant leader will complete this enhanced training in 2022,” Stockinger said. “We believe this refined role combined with investments in field talent development at all levels will improve execution, team retention, and customer satisfaction, all of which should lead to improved financial results.”
Pollo’s same-store sales increased 9 percent compared to 2020, but were flat versus two years ago. Revenue grew 1.7 percent to $89.3 million.