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El Pollo Loco looks to kiosks, kitchen technology to offset some labor costs

Brand looks to ease some workforce expenditures as seeking cuts ahead of California wage law

El Pollo Loco Holdings Inc. is looking to technology in the form of kiosks and kitchen equipment to offset increased labor expenses as California readies for quick-service wage hikes to $20 an hour on April 1, brand executives said.

The Costa Mesa, Calif.-based quick-service brand has simplified its salsa offerings from two to one, executives said on a a fourth-quarter earnings call last week with analysts, and is adding salsa processors to make the food prep easier, said Ira Fils, El Pollo Loco’s chief financial officer.

Maria Hollandsworth, the interim CEO, president and chief operating officer, who was being succeeded by Liz Williams on Monday, said kiosks were also being added to El Pollo Loco units as well.

“Our customers will learn quickly and adapt very easily as well as if we have multiple kiosks in the restaurants,” Hollandsworth said. “That's the one thing we've learned. It's really helped us with being efficient when it comes to our customers putting in their orders as well as our team members preparing the orders for our customers.”

Hollandsworth added that the company planned to look for other operational efficiencies with labor all throughout the year, as well as in other areas of the profit-and-loss statement. “We are leveraging third-party data and really scrutinizing all costs to help offset expected incremental labor costs from upcoming legislative changes,” she said.

Fils said, “We're still comfortable with that range of a third to half of that of the California minimum wage impact will be offset by labor savings. And honestly, the rest of it, we're working on taking some pricing. We've already taken a little bit. And for the year, we're going to be in the mid- to high-single digits on pricing. We'll adjust that as we manage the impact of the minimum wage increase of our labor savings. Our whole goal is really to protect margins while balancing traffic.”

Fils said labor inflation during the fourth quarter, which ended Dec. 27, was 3.6%. “We expect wage inflation between 12% and 14% for the full year 2024, driven by the California minimum wage increase to $20 an hour for QSR restaurants on April 1,” he said.

Fils said El Polo Loco was also saw a sales lift among units that had been remodeled, which included 33 franchised units and 15 company-owned restaurants in the most recent period.

We're seeing a good sales momentum from the remodels,” Fils said on the call. “And so it's why the franchisees are accelerating their development. We're getting a mid-single-digit sales lift from the remodels when we're spending a little under $400,000 on average for these remodels.”

The brand expects to push forward on the remodels, with targets to remodel 15 to 20 company restaurants and 40 to 50 franchise restaurants in 2024.

For the fourth quarter ended Dec. 27, El Pollo Loco’s net income was $4.4 million, or 14 cents a share, down from $6.5 million, or 18 cent a share, in the same period a year ago. Fourth-quarter revenues were $112.2 million, down from $115.9 million in the same period a year ago.

Systemwide same-store sales increased 0.9%.

El Pollo Loco has more than 490 company-owned and franchised restaurants in Arizona, California, Colorado, Louisiana, Nevada, Texas, and Utah.

Contact Ron Ruggless at [email protected]

Follow him on X/Twitter: @RonRuggless

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