Roughly three-and-a-half years ago, El Pollo Loco unveiled a new “acceleration agenda” intended to spark franchise growth across the country, become more asset-light, and further digitize the business. Since, the chicken chain has grown by a net of 13 restaurants to 492 stores, moved its franchise ownership percentage from 59 to 65 percent, and overhauled its rewards program.
There have been some wins during this initiative, but not enough for El Pollo to stay the course—at least when it comes to leadership. As the company looks toward next year, the board of directors has been determining the best way to “support the execution and acceleration of El Pollo Loco’s long-term growth strategy,” chairman Bill Floyd told investors earlier this month. The brainstorming resulted in COO Maria Hollandsworth being named interim CEO, replacing Larry Roberts, who served as CFO for almost nine years and then as chief executive for the past two.
“We have been a company for quite a while that has been essentially a regionally-based company primarily in Southern California. And that is a strong area for us and will continue to be. But the board strategically is looking at real growth and becoming a national brand,” Floyd said during El Pollo’s Q3 earnings call. “We think there is a huge unlock potential with El Pollo Loco, and we intend to grow, accelerate our growth, as I said. And that is really, I guess, if you want to call it a change, we are just looking at how do we take this brand, whether it’s in where we currently reside or in other new markets, how do we accelerate our growth? We think there’s just a great untapped opportunity that we intend to take advantage of.”
The board engaged an executive search firm to identify its next CEO and will consider internal and external candidates. In the meantime, the brand will be led by Hollandsworth, an industry veteran with 30 years of restaurant experience. She spent three years as Dunkin’s regional vice president of operations for the West and Southwest and spent more than 10 years at Jack in the Box in multiple roles.
As the interim CEO, her goal is to transform El Pollo into an “operational powerhouse.”
That starts with what the fast casual is known for—it’s flame-grilled chicken. Hollandsworth implemented a semi-annual marination calibration to ensure the chicken’s taste remains consistent. The brand is also testing enhanced holding equipment that should improve availability, especially in shoulder periods, as well as consistency of temperature and taste. The test should be completed by mid-February. Additionally, in late September, El Pollo launched a revamped catering program, which includes a new menu with more options beyond chicken on the bone. The chain’s goal is to boost catering mix from 1 percent to 5 percent.
The fast casual expects process and technology upgrades to help profitability. In recent weeks, El Pollo expanded its kiosk test to roughly 20 company-owned restaurants, in addition to several franchised locations. Thus far, Hollandsworth said the pilot has been “very encouraging” and resulted in reduced labor hours per day. The adoption by guests has exceeded expectations as well. The company is also launching new salsa processing equipment that’s easier to use and clean. The rollout to corporate units should be done by mid-2024, and all franchisees should receive it by the end of 2024. Along with the equipment, El Pollo is simplifying its salsa lineup by introducing a salsa fresca offering and reducing its salsa count. An automated dishwasher is in the works too.
In terms of development, the chain grew by a net of five restaurants compared to Q3 2022. Two new company-owned stores and three to four franchised outlets are expected for the rest of 2023. At the end of the quarter, El Pollo completed the refranchising of 17 locations in California, Utah, and Texas to existing operators.
Floyd said the company plans to dedicate more resources toward the franchise business to boost expansion. He expects new CMO Jill Adams to help with building brand awareness.
“We perhaps had not committed as much in that area in the past, and that’s changing,” he said. “And we are going to also be exploring additional marketing resources to grow that business. First of all, we have to have a good story for new franchisees. What is the ‘why?’ And as I said to you, we have a unique product that is very different than any other chicken concept. And we may have not told that story as effectively in the past as we have.”
Systemwide same-store sales increased 0.8 percent in Q3, which breaks down to 1.1 percent growth for franchisees and 0.3 percent for corporate locations. The company-owned comps were fueled by a 0.9 percent decrease in transactions and a 1.3 percent rise in average check, fueled by a 7 percent price increase. In the fourth quarter through October 25, systemwide same-store sales grew 3.2 percent, including 2.1 percent for company-operated stores and 3.9 percent for franchises.
Food and paper costs decreased 240 basis points year-over-year to 26.8 percent due to higher menu prices and lower commodity costs. Commodity deflated 2 percent in Q3. For the full year, El Pollo projects commodity inflation of roughly 1 percent. Labor and related expenses as a percentage of company restaurant sales held steady year-over-year at 32.2 percent. Higher menu pricing and improved labor management was offset by wage rate increases and higher workers’ compensation expense. Wage inflation during the third quarter was about 3 percent. For the full year 2023, El Pollo expects wage inflation of roughly 4 percent.