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Potbelly to close more stores than it opens this year

Sandwich brand leans into off-premise and teases new strategies for 2020

Potbelly isn’t focused on unit growth this year. The Chicago-based sandwich brand expects to close 15 to 22 stores — and open only eight to 13 locations.

The sandwich brand is holding off on opening new company-run stores until it turns traffic around, said Potbelly CEO and president Alan Johnson, in a call with investors.

“The exceptions would be where we need sites to further refine our Shop of the Future concept or we see opportunistic and highly profitable locations, like airports,” said Johnson.

The first redesigned Shop of the Future opened in Chicago a few weeks ago, Johnson said. The concept is focused on an improved ordering process and customer experience. 

While Potbelly’s overall store count won’t increase in 2019, the restaurant has picked up the pace on franchising deals.

“Our franchising strategy has been a big win for us this year. We signed deals for more units in the first half of the year than we have in the last eight years,” said Johnson.

 Potbelly is hoping 2020 will be a turnaround year.

Third quarter performance wasn't strong:

Total revenue fell — 2.6% to $104.2 million.

Same-store sales fell — 3% at company run units. 

And, while average checks grew by almost 6% due to a pullback on discounting, traffic declines weighed down overall performance.  

Potbelly expects flat to low single digit decline in comparable store sales at company units for the 2019 fiscal year.

In an effort to move the needle on lackluster financial performance the sandwich company said it worked with a consulting firm to develop new strategies based on consumer research and trends.

“We felt we needed an outside-in perspective to develop the fact-based consumer insights that create a winning strategy,” said Johnson. 

“In working with this firm over the past 16 weeks, we have been fundamentally addressing the strategic question of where are we going to play and how are we going to win.”

Johnson didn’t give a lot of detail on the new strategy, but he said it would focus on the in-restaurant customer experience and build on momentum with menu optimization and digital and off-premise sales. 

Currently, off premise and digital programs are a bright spot for Potbelly, representing almost 22% of sales, an 18% increase during the third quarter. 

A summer partnership with delivery platform Doordash drove the sandwich brand’s growth, and Potbelly extended its digital ordering and delivery reach in October with an additional partnership with Grubhub.

“We now offer delivery in every single shop, every single day, every single hour that we are open,” said Johnson.

“That was not the case at this time last year. And then lastly, we have pickup shelves that you can order using our app or on the website in every single one of our shops across the entire system.”

Potbelly’s also plans to simplify its loyalty program, Potbelly Perks, in 2020.

Investors showed confidence in the brand’s go forward strategy with the stock rising 3.6% following the third quarter earnings announcement. 

Contact Jenna Telesca at [email protected]

Follow her on Twitter: @JennaTelesca

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