COSTA MESA Calif. High unemployment in California and deep-discounting by competitors, as well as its own promotional activities, took a toll on El Pollo Loco Inc., which reported Thursday a significantly widened loss for the second quarter.
For the quarter ended July 1, the company reported a net loss of $27.2 million, compared with a net loss of $5.6 million for the same quarter last year. Items including increased interest expense, higher occupancy costs and increased advertisement expenses each hurt the bottom line. In addition, slowed sales and promotional giveaways that hit the chain’s average check were not beneficial, the company said.
Marketing initiatives going forward will “focus on striking the right balance between value and check performance,” said Stephen Carley, El Pollo Loco’s chief executive.
During the quarter, El Pollo Loco’s primary rival KFC debuted its grilled chicken line with a free giveaway in April throughout the 5,200-unit chain. El Pollo Loco responded with its own giveaway and launched a chicken fight in the media asking consumers to vote for their favorite grilled bird, using viral videos to challenge KFC’s grilling technique and raise questions about ingredients in the larger’s chain’s marinade.
Despite the brouhaha, El Pollo Loco’s second-quarter systemwide same-store sales fell 6.8 percent. Total revenue fell 4.9 percent to $72.7 million.
Carley noted that the chain opted to keep menu prices steady during the first half of the year while increasing promotional activity, such as the one-day two-piece chicken giveaway. The move, combined with reduced consumer spending overall, put pressure on the chain’s average check, he said.
“As we expected, 2009 has proven to be more challenging than last year as a result of several converging factors which include further contraction in the economy; disproportionately high levels of unemployment in our core markets, and, in particular, among Hispanics, which are a key demographic for our brand; and fierce competitive activity fueled by deep discounting,” Carley said. “The depressed economy, especially in California where the vast majority of our restaurants are located, negatively impacted our same-store sales and restaurant margins and contributed to our first decline in six-month same-store sales in nine years.”
For the six months ended in June, same-store sales fell 6.3 percent.
El Pollo Loco ended the quarter with 167 corporate stores and 250 franchised units.
For the remainder of 2009, Carley said the chain will see “modest” growth in light of difficulties franchisees have had obtaining financing. Seven new restaurants have opened so far this year, and the company plans to open four more in 2009, with franchisees expected to add another eight locations, the company said.
Contact Lisa Jennings at [email protected].