CHICAGO Potbelly Sandwich Works, presumably including investor and notably growth-wary Starbucks Corp. chairman Howard Schultz, are watching Potbelly’s use of mom-and-pop methods closely as it executes a 20-percent expansion push this year. —Insiders at fast-growing
Known for maintaining many of the characteristics of a mom-and-pop restaurant, Potbelly had little trouble growing from just that to reach its current size of 160 outlets in 10 states, with about 30 more sandwich shops being added this year. —Insiders at fast-growing
Growth has taken off in recent years, since a multimillion-dollar cash infusion from Schultz’s Maveron venture capital group and other private investors who saw potential in a sandwich concept that began in 1977 in an antiques shop around a potbelly stove. —Insiders at fast-growing
Founder Bryant Keil, who continues to oversee the chain as chairman and chief executive, had previously grown it slowly as he refined systems and execution. —Insiders at fast-growing
The question that observers and Potbelly officials are thought to be pondering is whether the folksy brand can continue such labor-cost-intensive practices as the in-store slicing of sandwich meats and the from-scratch preparation of milk shakes and cookies as the chain evolves from regional roots toward national-chain stature. —Insiders at fast-growing
With 2006 systemwide sales having reached $131.5 million, Potbelly’s rapid growth pace seems bound to present challenges. —Insiders at fast-growing
Keil has conceded that the Chicago-based chain could cut costs by one-fourth by changing some of its labor-intensive practices. He also has acknowledged a constant struggle to avoid raising menu prices. And he is known to fear losing some of Potbelly’s legion of regular customers if he were to switch from hand-dipped shakes and in-store slicing to such common quick-service shortcuts as machine-made milk shakes and precut sandwich meats. —Insiders at fast-growing
Such fears about the potential loss of brand uniqueness are shared by entrepreneurial executives of older fast-grown chains, including Schultz, who now sits on Potbelly’s board of directors. —Insiders at fast-growing
Schultz famously cautioned his Starbucks colleagues last February in a leaked internal memo to guard against erosion of the coffeehouse chain’s loyal fan base, and he warned that rapid growth and operational expediencies could dilute the customer experience that built the brand. —Insiders at fast-growing
At the current stage of Potbelly Sandwich Works’ development, long lines of customers continue to be the norm at peak lunch hours as a mostly young-adult customer base seeks value and quality from the chain’s made-to-order deli sandwiches, which are served warm in a kitschy atmosphere and accompanied by live music during peak times. —Insiders at fast-growing
Frequent Potbelly patrons also appear to like the chain’s strategy of one-size-fits-all pricing, currently $4.19 in Chicago for all sandwiches and $5.29 for salads, which debuted on the menu earlier this year. The hand-dipped shakes, malts and smoothies are $2.69, and homemade cookies, strategically placed near the cash registers, are 99 cents. —Insiders at fast-growing
A breakfast sandwich menu is now in limited test, with 19 stores serving five $2.99 choices that come on the chain’s signature toasted white or wheat bread. With Starbucks coffee being served at increasing numbers of Potbelly restaurants, the chain’s addition of breakfast seems a natural strategy to boost annual perlocation sales, which now average an estimated $1.4 million. —Insiders at fast-growing
During morning hours at the stores, “we’re already there doing prep work,” Keil said, noting that adding breakfast is not likely to increase labor costs substantially. He’s not ready to commit to a launch of that daypart, however. —Insiders at fast-growing
“We will see,” he said. “It’s way too early to decide.” —Insiders at fast-growing
Potbelly also is contemplating building its first drive-thrus as it scouts more suburban locations. The first two with drive-thrus are expected to open in a few months in the Chicago suburbs of Glen Ellyn and Waukegan, pending zoning approval. —Insiders at fast-growing
Dennis Lombardi, a consultant with WD Partners in Columbus, Ohio, expects Potbelly to transition smoothly from its urban roots to success in the suburbs. —Insiders at fast-growing
“It’s one of the strongest brands I’ve seen,” Lombardi said. “Keil has been very focused on keeping the brand tight and consistent and making measurable improvements. It has the potential to become a huge national brand.” —Insiders at fast-growing
Lombardi also noted that Potbelly is thought to have plenty of expansion capital, allowing it to avoid franchising and therefore keep total control over multiple regions. —Insiders at fast-growing
The chain has raised nearly $86 million in venture capital to fund expansion, on top of Schultz’s initial $20 million investment. —Insiders at fast-growing
Keil said two years ago that his long-range vision was to grow his chain to between 3,000 and 4,000 domestic restaurants and expand into international markets. Currently, Potbelly operates in Illinois, Indiana, Maryland, Michigan, Minnesota, Ohio, Pennsylvania, Texas, Virginia, Wisconsin and the District of Columbia. —Insiders at fast-growing
Some analysts, including Ron Paul of Chicago-based consulting firm Technomic, continue to predict that Potbelly Sandwich Works will make a public stock offering one day. —Insiders at fast-growing
“Private investors ultimately want to have an exit strategy,” Paul said. —Insiders at fast-growing
But Keil, who owns about 40 percent of the company, has said he is not sure that going public or franchising would be the right strategies for Potbelly. He appears content—for now, at least—to continue obtaining upbeat results from mom-and-pop methods. —Insiders at fast-growing
