El Pollo Loco Holdings Inc.is working to hold onto a growing base of younger customers and economically pinched lower-income patrons, executives said Thursday.
The Costa Mesa, Calif.-based fire-grilled chicken brand would continue to drive differentiation, said Larry Roberts, the brand CEO, on a fourth-quarter earnings call, “through our product offerings, advertising and remodeled restaurants.”
Roberts cited El Pollo Loco’s Overstuffed Quesadillas promotion during the fourth quarter, which included three options, one of which was beef.
“Overstuffed Quesadillas achieved a mix of almost 7% of total sales, with beef being a top performer,” Roberts said. “The promotion success was at least partially due to the continued use of TikTok to reach younger consumers, which achieved over 10 million views during the module.”
Both Overstuffed Quesadillas and beef have the “potential to be permanent menu items that help us attract younger consumers,” he said.
“Recognizing that many consumers are increasingly budget conscious, we also have focused on value offerings during the fourth quarter, with the promotion of our $24 Family Feast and revised Fire-Grilled Combo meals starting at $5,” Roberts said. “Both resonated well with consumers and further highlight the need to provide value offerings to maintain frequency among budget-constrained consumers.”
Into the new year, El Pollo promoted Loco Burrito Grillers at the beginning of January and started marketing our Double Tostada Salad in late February. “Both promotions included shredded beef options, as we continue to test our way to permanently serving shredded beef at our restaurants,” Roberts said. The company had success with a beef birria promotion last year.
The company has also tested $5 bowls, he said. “We do think that's going to resonate with the lower-income consumer and get them back into our restaurants as frequently as they used to,” Roberts said.
Year-over-year pricing at company-owned restaurant in the fourth quarter was 10.6%, Roberts said. Ira Fils, El Pollo Loco’s chief financial officer, said that for the first quarter, the menu will “be just shy of 11% pricing, as we took another price increase. We took a 2.5% price increase in March. And as we move forward through the year, we're going to be careful with our pricing.” The company is thinking about “another moderate price increase later in the year,” Fils said, and expects to end the year with about a 4%-range increase.
Roberts said consumers were reacting “a little bit by maybe buying a little bit less,” and the drink mix was down.
“People are managing their budgets a little more tightly again, amongst low-income consumers,” Roberts said, but mid-level and higher-income consumers were not exhibiting much difference. The third-party delivery was mixing about the same as throughout 2022, executives said, at about 7.5% to 8% of sales. But it was not growing, they added.
El Pollo Loco does plan to launch a revamped smartphone app and loyalty program in April, Roberts said. “These upgrades will make it significantly easier for consumers to order food from us, and our loyalty program will provide additional options for engagement and food redemption,” he said.
The brand is also revamping its dessert and catering offerings as they “present significant opportunities for incremental sales that we have not aggressively pursued,” Roberts said.
Staffing became less of a challenge throughout 2022, Roberts added.
“Crew member turnover during the fourth quarter was down to 100%, and 93% of our company-owned restaurants were fully staffed,” Roberts said. “All company-operated restaurants are able to open all sales channels for all operating hours.”
Roberts said the company was turning to building bench strength. “In 2023, we are expanding our operations focus to include bench building, enhanced training and cost management,” Roberts said. “We believe that the key to building sustainable and consistent restaurant operations is through the development of restaurant leader bench, including area managers, general managers, assistant managers, and shift leaders.”
El Pollo Loco has completed the rollout of an enhanced e-learning platform across its system, he said. “This will not only improve the training our team members receive but enable us to track completion of the various modules, thereby ensuring employees are certified for the positions they are working,” Roberts noted.
“With improved staffing levels and customer service at company-operated restaurants, we are now increasing our focus on better managing labor and food costs,” he said. “This includes minimizing overtime, meal break penalties, staffing inefficiencies, and food waste. I am pleased to say that we're already making good progress against these since the start of the year.”
Simplifying operations remains a top priority, Roberts added. “We're building upon the work we did last year by implementing several initiatives geared for reducing complexity and improving product quality,” he said. As part of the program, soap tanks for cleaning grill filters and broilers will be implemented in company-owned restaurants by May and throughout the system this summer, he said.
For the fourth quarter ended Dec. 28, El Pollo Loco’s net income was $6.5 million, or 18 cents a share, compared to $6.2 million, or 17 cents a share, in the same period last year. Revenue increased 6.4% to $115.9 million, up from $109 million in the prior-year quarter
Same-store sales increased 4.7% in the quarter.
Fils said that in 2022 El Pollo Loco “opened a total of four new company restaurants and nine new franchise restaurants. During the fourth quarter, we remodeled two company restaurants and eight franchise restaurants, which brings our completed remodels for the year to six company and 16 franchise remodels. Looking into 2023, we expect to complete 10 to 15 company remodels and 20 to 30 franchise remodels.”
Roberts said remodels generally produce a sales lift of between 3% and 5%. The company offers a Level 1 remodel at between $250,000 and $300,000, a mid-level remodel at about $350,000 and a high-level remodel in the $400,000 to $450,000 range. Most are in the first two levels, he added.
For its 2023 outlook, Fils said El Pollo Loco plans to open four to six company-owned restaurants and eight to 12 franchise restaurants.
El Pollo Loco has more than 485 company-owned and franchised restaurants in Arizona, California, Colorado, Louisiana, Nevada, Texas and Utah.
Correction March 10, 2023: This story has been edited to correct remodeling costs.
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