Portillo’s Inc. is adding 12 restaurants this year, and the chain is following a real estate strategy based on draw, visibility and convenient access, the company’s chief financial officer said Wednesday.
Michelle Hook, CFO of the Oak Brook, Ill.-based Portillo’s, spoke about real estate during a fireside chat with Brian Harbour, an equity analyst, during the Morgan Stanley Global Consumer & Retail Conference.
“We've gotten a lot more refined on that over the course of the last few years,” Hook said.
“When you look at Portillo's as a whole, we could build a restaurant in Chicago really anywhere and it would do well,” she said. “That's not the case outside our core market.”
Hook outlined three categories where Portillo’s sought real estate in 2022 and 2023.
“We can't be the only draw to an area,” she said. “So we need to be building our restaurants where people are gathering, where they're congregating. … We need to have good visibility. You don't want to be buried in the corner of a mall or in an another area and then because our restaurants average as a system almost $9 million in AUV's — clearly these are busy restaurants — you have to have good access, so good ingress-egress.”
Portillo’s has recently expanded beyond the Midwest to Arizona, Florida, and Texas, and the “vast majority” of its growth over the next couple of years will be in the Sun Belt, she said.
“We're going to start scouting sites in Atlanta, Denver, and Vegas,” Hook added. “Those are the next three markets that we'll look to enter.”
Hook said that as Portillo’s opens new markets, it seeks get to scale as quickly as possible.
“We believe minimum scale in a market is at least six restaurants,” she said, noting that the company, after debuting in the Dallas market in early 2023, plans to open its fifth restaurant in the region, a unit in Mansfield, Texas, in the first quarter of 2024. “The goal is within 24 to 36 months of going into a market you get to scale,” she said.
As an infill strategy, Portillo’s this past weekend opened its second drive-thru and pick-up only unit with no seating in Rosemont, Ill., after debuting the concept in 2022 in Joliet, Ill.
“We'll use it today as just an infill strategy in that market, but, as we get scale in other markets, it's definitely an opportunity that we're going to continue to look at,” Hook said.
Portillo’s has also been working on reducing the size of the restaurants in other ways, Hook said.
“A traditional Portillo's is probably anywhere from 10,000 to 11,000 square feet,” Hook explained. “If you go into the kitchen, you'll see a production line that's very linear, That's about a 100 feet of production line.”
What the company has termed “Kitchen 23” is about 7,700 square feet, she said, with about 65 feet of production line. “Obviously, with that shrinkage on the line, you get less conveyance more adjacencies as you're working,” Hook said, “and so we've seen the benefit of the labor efficiencies with this new kitchen as we move into what we're calling the restaurant of the future. That prototype today is 5,500 to 6,000 square feet and the production line is about 47 feet. So we will start to build those late in ‘24 at the earliest.”
The company has also completed retrofits at 18 of its existing restaurants with the new, more efficient kitchen design, she said, and plans to do the remainder through 2025.
Hook said Portillo’s has two remaining restaurants to open this year. “We started this year with 72 restaurants,” she said. “We will be at 84 by the end of this year, so we will have opened 12 new restaurants in fiscal ’23, which is the most Portillo's has ever opened.”
Portillo’s only opens a unit with an experience general manager, Hook added. “We need to make sure that we're de-risking these openings and putting seasoned general managers into the restaurant to make sure we're giving the guests a good experience,” she said.
The company expects each new restaurant to make at least $7 million in average unit volume, so it seeks sites that produce little sales cannibalization, Hook said.
Portillo’s has seen its digital-order mix hold steady at about 22%. About 40% of its sales are through the drive-thru, about 40% is dine-in and 20% is through other channels, she said. About 13% to 14% of the other channels are delivery, which includes third-party platforms and its own delivery of orders $100 or more.
“That channel has been very resilient,” Hook said. “It's actually surprised me, and we've seen that 13%-14% pretty much hold steady. You would think that logically in this type of environment people would migrate toward the other channels, but we're just not seeing that.”
Portillo's, founded in 1963, has more than 80 restaurants across 10 states.
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