Potbelly hasn’t experienced net unit growth since 2017, but that will change this year in a big way. The same will be true in 2025, 2026, 2027, and into the foreseeable future.
The chain ended 2023 with 424 restaurants systemwide, with a plan to grow by 10 percent. That would put it at about 40 net new stores after losing a net of 68 locations during the past six years. Expect more in the future as Potbelly projects low double-digit unit growth in the coming years. The long-term goal being to reach 2,000 units nationwide.
The sandwich company reached a peak of 495 stores at the end of Q1 2018 but finished that fiscal year with a net loss of six stores. Here’s a look at how the footprint has progressed over the calendars.
- 2017 EOY: 492 (+38)
- 2018 EOY: 486 (–6)
- 2019 EOY: 474 (–12)
- 2020 EOY: 446 (–28)
- 2021 EOY: 443 (–3)
- 2022 EOY: 429 (–14)
- 2023 EOY: 424 (–5)
According to Potbelly’s guidance, it should surpass 500 locations sometime toward the end of 2025. Most of that will come from franchisees, which is part of the company’s transformational strategy it announced two years ago. Traditionally, the chain expanded via corporate growth, even dating back to its IPO in 2013, which was used to fuel company unit development. Potbelly’s renewed objective is to become 85 percent franchised. Currently, it’s at roughly 20 percent, an improvement from 10 percent at the time it revealed the multi-year strategy in 2022.
The brand spent a great deal of time building infrastructure under SVP of franchising Lynette McKee, who came on board in June 2023. That included a marketing plan, a formal vetting process for operator candidates, approved architectural and engineering firms that work with franchisees, real estate support, relationships with master brokers across the country, and an in-house store designer.
“It’s been several years since we’ve had significant growth and development,” CEO Bob Wright says. “It’s a capital-intensive approach to build your own company units. And our management team wasn’t here then, but there was a series of classes of shops that were built that weren’t providing very good returns on those investments.”
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Year-to-date, Potbelly has signed deals representing 202 store commitments. And these area development agreements have come all over the U.S.—New York, Maryland, Florida, Ohio, Washington, Arkansas, North Carolina, Tennessee, and Texas, to name a few. Also, it’s partnering with experienced operators from well-known restaurant brands such as Burger King, Dunkin’, Wendy’s, and Wingstop.
The focus has not only been on filling a pipeline but also giving new and existing operators financial reasons to invest in the brand. When Potbelly first revealed its transformational plan, it wanted to reach AUV of $1.3 million and shop level margins of 16 percent. The brand reached the first benchmark in 2023 and has clear line of sight toward the second one, with margin coming in at 14.2 percent last year and 15.7 percent in Q4.
Additionally, Potbelly saw positive same-store sales for the 11th consecutive quarter, ending Q4 at 6.3 percent. For full-year 2023, same-store sales lifted 12 percent. In both cases, traffic was a major driver of the comps. In 2024, the chain projects same-store sales growth in the low-to-mid single digits and adjusted EBITDA expansion in the high single to low double digits.
All together, Potbelly has more than 600 locations open or in development. Recent financial success gives it confidence in gaining the additional 1,400 unit commitments to reach its 2,000-restaurant goal.
“We’ve got whitespace where franchisees can get complete territories and have the opportunity to develop that territory and own their trade area,” Wright says. ” … We’re on the East Coast, the West Coast. We’re in the northern boundary of the U.S., all the way down south of San Antonio. So we’ve proven the brand can travel and we have all this whitespace. Franchisees can’t find that combination of things in very many brands.”
Some of the franchise growth will involve Potbelly selling company-operated restaurants. Last year it sold 33 locations, but Wright expects the number to be much lower in 2024. The sandwich chain is selective about refranchising and will only do it if the franchisee agrees to develop stores organically as well. For instance, Bryant Keil, who served as Potbelly CEO from 1996 to 2008, and his son Hampden, signed a 27-unit deal comprising 12 existing restaurants and the development of 15 shops. Royal Restaurant Group agreed to a 40-unit deal where it grabbed four company locations in Ohio and signed on to build 36 outlets in Ohio and Florida.
All franchisees are expected to open at least one unit per year and take no longer than eight years to build out their entire agreement. For example, an operator with a four-unit deal has four years to meet their obligation. An operator with a 16-unit deal has eight years to do it. Each contract has a lease date and open date that franchisees must work toward. Potbelly assists restaurateurs with a map of targeted trade areas it believes most closely correspond to success criteria for building a restaurant.
“That means that instead of just going to try to find one site or try to find their first site, franchisees are literally searching for real estate in the middle of all of those trade areas at the same time because you never know which one’s going to fall your way depending on the landlord situation or the competitive environment,” Wright says. “And so they will go after their entire trade area at the same time. And the reality is sometimes they get a couple that follow their direction and they can get a little bit ahead of their development schedule. In order to stay on schedule, you’ve got to work the entire market all at once and we help them with that. Not all brands provide that level of support on the front end.”
Potbelly has been thoughtful about its store layout as it grows across the U.S. Traditional locations are typically in the mid-2,000-square-foot range, and some are more than 3,000 square feet. However, with digital accounting for 40 percent of sales, the sandwich shop is considering downsizing its footprint. The brand will consider how many seats it needs, but won’t completely remove the dining room for a pickup-only model. Wright says the leadership team extensively talks about Potbelly as a “fast casual sandwich restaurant in a sea of subs shops,” and the in-store experience is core to that.
Whatever is decided will be in the best interest of franchisees.
“We put forth a dramatically different Five Pillar strategy about three years ago and everyone on the team is really pulling in the right direction, working very hard to bring that to life. The initiatives that underpin that strategy are part of what they focus on every day,” Wright says. “I just couldn’t be happier and more excited about the success that team is having.”
