Earlier this year at Potbelly’s System Summit—where the chain brings together all of its franchisees to share important internal updates—CEO Bob Wright couldn’t help but feel energized by the crowd.
He looked across and saw a “superb group of folks” fully dedicated to growing their business and expanding the Potbelly name at the same time.
Last year, Potbelly opened 23 units in 10 states, 18 of which came from franchisees. The fast casual also added 115 new franchise shop commitments to its pipeline. The chain ended 2024 with 442 shops—346 company-operated and 96 franchised.
Potbelly’s long-term goal is to reach 2,000 units systemwide, with 85 percent being franchised. Over the past three years, the brand has moved from roughly 10 percent franchised to about 22 percent.
The brand hopes to open at least 38 locations in 2025. Potbelly hasn’t opened that many in a single year since 2017 when it launched 46.
If the chain meets its 2025 projection, it will reach 480 restaurants, the biggest unit count in company history.
“Our senior vice president of franchising Lynette McKee will tell you in her channel checks with her peers in the space, there are a lot of brands, a lot of companies, that wish they had sold as many franchise units as we did in 2024,” Wright says. “And of course we wish we’d sold even more. So we think that we can accelerate and build on that number and continue to fill the pipeline with development commitments that will keep us on track to continue to accelerate actual openings.”
Earlier in March, Potbelly announced a 50/50 Large Area Developer Incentive Program for operators who open earlier than scheduled. Franchisees who enter a development area agreement to open at least 15 restaurants in eight years or less will receive reduced franchise and deposit fees, plus 50 percent off royalty fees for the period the shop is open ahead of the required opening date. The program runs through 2026.
“We’re seeing a broader array of larger and more financially savvy and very sharp investing franchisees and franchise candidates that are coming into the system,” Wright says. “And as they’re looking at their long-range plan and thinking about building two or three or in some cases considering territories where they need to build four units a year, everything for them is about longer-term planning. And putting this incentive in place means that they can start to look forward and see real value if they’re supposed to open two a year, opening 2.3 or 2.5 a year, and layering that year on year on year can be really lucrative for the long-term for them and their business.”
Potbelly grew mostly through corporate stores until three years ago when the brand instituted an accelerated franchise development strategy. It built infrastructure in support of real estate selection, market planning, engineering, construction, and opening support, among other measures.
During that process, the brand recognized that company-owned markets had higher-than-average margins, lower construction costs, and remained under-penetrated. The results were enough that it made sense to leadership to layer in some company-owned expansion in addition to the franchise growth. Potbelly could further densify markets with a lighter G&A load by using existing infrastructure. The chain could also use the same approach to real estate selection and much of the same team.
“We think it’s a great investment,” Wright says. “First of all, the capital that we’ve put into a new unit with those margins and those sales and return numbers makes great sense from an investment perspective. It gives us a chance to lead and walk the talk with our franchisees when it comes to development. We can lead with the prototype development and further enhancing that … We think it can have a very nice impact on our EBITDA while we continue to accelerate franchise growth. We can accelerate EBITDA growth in the nearer term. By adding that layer of growth on top, it makes great sense for us.”
Potbelly plans to open company stores in the mid-to-high single digits later in 2025 and reach up to 20 stores annually starting in 2026. Wright mentions the Midwest and Texas as some of the targeted company markets because of their strong performance at the unit level, attractive building costs, under-penetration, and lack of franchise interest.
The chain also hopes to drive returns through remodels in company-owned restaurants. Potbelly is in the early stages, but it’s planning to test four levels of remodels in 2025 and prove return profiles before considering a larger effort.
Company-operated same-store sales increased 0.3 percent in Q4, above the high end of Potbelly’s expectations. The comps growth was fueled by a 2.2 percent rise in average check, offset by a 1.9 percent decrease in transactions. The higher average check included a 3.5 percent rise in price. Average weekly sales were $25,230, or $1.3 million in annualized AUV. For fiscal 2024, company-operated same-store sales decreased 0.3 percent compared to an increase of 12 percent in 2023.
Potbelly used menu innovation in Q4 to excite customers, such as two new signature sandwiches featuring slow-cooked pulled pork, including the return of the Cubano. The chain also added new sauces: Hot Pepper Ranch, Sweet Heat Barbecue, Roasted Garlic Aioli, and Red Wine Vinegar. The fast casual paired that with Potbelly Craft Refreshers—in partnership with Tractor Beverage Co.— to drive beverage attachment rates.
Digital channels were crucial as well. The business represented more than 40 percent of sales in Q4, up 100 basis points year-over-year. After relaunching the Perks loyalty program in early 2024, the brand is now focused on enhancing customer-facing platforms to improve user experience and using data and analytics to optimize digital marketing and drive frequency.
Potbelly expects comps to be between negative 1.5 percent and negative 0.5 percent in Q1, including impact of weather in January and February. It also eyes four first-quarter openings, three of which have already been completed.
