WEBVTT - Portillo’s Boasts a Sizable Growth Opportunity 0:00:18.840 --> 0:00:19.960 Welcome to Chopping it Up. 0:00:20.079 --> 0:00:22.840 I'm your host, Mike Hanlon, Senior restaurant and food service 0:00:22.840 --> 0:00:26.720 analyst at Bloomberg Intelligence. I'm very excited to introduce my 0:00:26.800 --> 0:00:31.120 guest today. He's Michael osanlu CEO of Portillo's. Thanks for 0:00:31.200 --> 0:00:31.680 doing us. 0:00:31.640 --> 0:00:32.600 Michael, Thank you, Mike. 0:00:32.640 --> 0:00:33.480 I appreciate it. 0:00:34.320 --> 0:00:38.040 All right, So just before we kick things off, you know, 0:00:38.120 --> 0:00:40.559 I did a little background work and I love the 0:00:40.960 --> 0:00:44.880 French fry bar chart in the quarterly earnings presentation. 0:00:45.040 --> 0:00:46.239 It was very, very creative. 0:00:46.280 --> 0:00:48.080 Thank you. I got. I got a really sort of 0:00:48.120 --> 0:00:53.760 a fun, cheeky marketing team. They relish that kind of stuff. 0:00:55.920 --> 0:00:58.040 I see where they get it infected me with their 0:00:58.080 --> 0:00:59.120 passion for punts. 0:01:00.680 --> 0:01:01.240 That's awesome. 0:01:01.320 --> 0:01:05.160 Yeah, for the listeners that aren't aware, it's a you know, 0:01:05.280 --> 0:01:09.840 typical bar chart, but with crinkle cut French fries as 0:01:09.880 --> 0:01:10.800 the bars. 0:01:10.600 --> 0:01:13.880 It's pretty cool. So let's jump right in here. 0:01:13.880 --> 0:01:14.039 Man. 0:01:14.080 --> 0:01:16.759 There was a lot of noise in Seamstar sales traffic 0:01:16.800 --> 0:01:20.600 and guest check data since the start of twenty twenty three. 0:01:20.680 --> 0:01:23.000 Not just for you, I'm talking about industry wide. So 0:01:23.560 --> 0:01:25.800 for somebody like me, it's not easy to make sense 0:01:25.800 --> 0:01:28.240 of things. What are you seeing right now from the 0:01:28.319 --> 0:01:29.000 US consumer? 0:01:30.200 --> 0:01:31.880 You know, here's what I would say. I'd say, the 0:01:31.920 --> 0:01:38.319 first quarter, let's everybody had some very very attractive same 0:01:38.360 --> 0:01:41.119 sort of sales numbers, traffic numbers, et cetera, et cetera. 0:01:41.280 --> 0:01:43.480 We all did, and let's not get ourselves right. We 0:01:43.480 --> 0:01:46.840 were lapping Omicron in January and February of last year, 0:01:46.880 --> 0:01:49.120 so it's a little bit of an easy lap. I 0:01:49.160 --> 0:01:53.480 would tell you I'm cautious about the consumer. I think 0:01:53.520 --> 0:01:57.440 the consumer is in a fragile state. I think that 0:01:57.920 --> 0:02:01.160 there's a lot of economic uncertainty. I think this is 0:02:01.160 --> 0:02:03.720 a year where, for whatever reason, the government has been 0:02:03.760 --> 0:02:07.480 slow in issuing refunds tax refunds, and that actually, I mean, 0:02:07.520 --> 0:02:10.320 it sounds quirky, but that actually affects consumers, and it 0:02:10.360 --> 0:02:14.000 affects consumer spending. So I think we're seeing that right now. 0:02:14.040 --> 0:02:16.800 I think we're seeing a cautious consumer. I think they're 0:02:16.800 --> 0:02:20.639 pulling back in certain areas. I think restaurants are still 0:02:20.680 --> 0:02:23.760 doing reasonably well. You know, I think we're all relatively busy, 0:02:24.160 --> 0:02:26.359 But I think there are some areas hard goods, etc. 0:02:26.720 --> 0:02:29.240 That the consumer is showing some belt tightening. 0:02:29.919 --> 0:02:33.919 Yeah, i'd say our data is showing some similar things. 0:02:33.919 --> 0:02:36.120 You know, one thing we keep pointing to is rising 0:02:36.880 --> 0:02:40.320 credit card balances and stuff like that, love savings rate 0:02:40.400 --> 0:02:41.440 and things of that nature. 0:02:42.080 --> 0:02:45.600 Are you seeing any check management from your customers. 0:02:44.800 --> 0:02:47.120 A little bit? It's you know, we have a little 0:02:47.160 --> 0:02:51.600 bit of what we would call negative mix, which is 0:02:51.840 --> 0:02:56.360 a tiny bit of less attachment, and so it's about 0:02:56.360 --> 0:02:59.520 two percent right now. But I can't in good conscience 0:02:59.520 --> 0:03:02.040 tell you driving that, Mic. I've looked at this a 0:03:02.080 --> 0:03:06.359 dozen ways. There's a different mix and an attachment level 0:03:06.720 --> 0:03:11.360 based on what channel somebody buys from. So you know, 0:03:11.400 --> 0:03:15.400 if they're ordering third party delivery, if they're ordering for 0:03:15.520 --> 0:03:19.800 delivery through US, if they're catering, it tends to be 0:03:20.000 --> 0:03:23.160 lots of stuff. If they're coming into the restaurant and 0:03:23.280 --> 0:03:25.919 ordering for themselves, it tends to be a smaller check. 0:03:25.960 --> 0:03:29.160 It's it's a couple of items, and so there's definitely 0:03:29.240 --> 0:03:32.680 some mix. There's some channel mix issues going on. Our 0:03:32.760 --> 0:03:36.880 dining is picking back up, our drive through staying pretty stable, 0:03:37.400 --> 0:03:41.080 and so it could just as easily be that. But 0:03:41.240 --> 0:03:44.720 theoretically it could be that, you know, somebody's saying, hey, 0:03:45.160 --> 0:03:47.520 I'm gonna pass on the cheese sauce on my fries 0:03:47.600 --> 0:03:51.680 this time, and it's really hard to like distill that 0:03:51.840 --> 0:03:54.000 with all the noise and everything going on. 0:03:54.760 --> 0:03:56.400 Yeah, there's a lot of variables and a lot of 0:03:56.440 --> 0:04:00.040 moving pieces, for sure. So what are the demographics of 0:04:00.080 --> 0:04:00.880 your customer base? 0:04:01.920 --> 0:04:03.800 Yeah, it's it's a great question. I'm going to give 0:04:03.800 --> 0:04:08.680 you a totally, totally, half half baked answer, which is it. 0:04:08.920 --> 0:04:13.440 It's sort of an upper it's slightly above average wealth, 0:04:13.480 --> 0:04:16.880 it's slightly uh, you know, a hair older than average. 0:04:17.320 --> 0:04:20.160 But averages mean nothing right. On average, you and I 0:04:20.200 --> 0:04:22.120 have a nice set of you know, like we have 0:04:22.200 --> 0:04:26.039 wispy hair. On average, it means nothing right, And so 0:04:26.680 --> 0:04:28.919 averages don't mean a whole lot to me. If you 0:04:28.960 --> 0:04:30.880 go into our restaurants and you look around and you 0:04:30.920 --> 0:04:34.600 see who's there at lunchtime, you're gonna see you're gonna 0:04:34.600 --> 0:04:38.400 see a lot of men in colored vests and work boots. 0:04:38.440 --> 0:04:41.920 You're going to see men in you know, zenya suits. 0:04:41.960 --> 0:04:44.159 You're gonna see moms and yoga pants. But you also 0:04:44.200 --> 0:04:48.120 see women in you know, in fancy work clothes. It's 0:04:48.120 --> 0:04:50.920 a really broad demographic. In the evenings, we have families 0:04:50.960 --> 0:04:54.160 coming in, we are you know, our restaurants are really attractive, 0:04:54.200 --> 0:04:56.640 they're nice, they're vibrant. So you see people making a 0:04:56.680 --> 0:04:59.159 decision to sit down with their family and have a 0:04:59.200 --> 0:05:02.040 meal at our restaur taurants in the evenings and the weekend. 0:05:02.160 --> 0:05:05.640 So it's a broad demographic. We do well in urban settings. 0:05:06.040 --> 0:05:08.799 One of our most successful restaurants is in a town 0:05:08.880 --> 0:05:12.039 in Indiana that has thirty thousand people. It does twelve 0:05:12.120 --> 0:05:16.000 million bucks. So we appeal to a really broad demographic. 0:05:17.400 --> 0:05:17.919 Very cool. 0:05:18.040 --> 0:05:20.400 And I would say I'm definitely below average on the 0:05:20.800 --> 0:05:22.760 hair on the whiskey, and I'm. 0:05:22.640 --> 0:05:25.919 Probably slightly above average, so between us we're average. 0:05:26.200 --> 0:05:27.680 Yeah, you do have a nice head of hair. It's 0:05:27.680 --> 0:05:32.920 too bet our listeners can't see it, all right, cool? 0:05:32.920 --> 0:05:35.080 And so the unit economics really stood out to me 0:05:35.920 --> 0:05:38.360 at the IPO right when I was reading that S one. 0:05:38.440 --> 0:05:40.000 So do you have any updates there? 0:05:40.920 --> 0:05:45.360 We do remarkably well when it comes to box economics, right, 0:05:45.440 --> 0:05:49.520 So we average about eight point three million dollars per restaurant, 0:05:49.520 --> 0:05:52.599 which is sort of for people in this business, is 0:05:53.400 --> 0:05:56.760 ridiculously high. We're at that, Like if you just looked 0:05:56.760 --> 0:05:59.039 at our numbers, you'd say this must be a relatively 0:05:59.120 --> 0:06:02.960 nice steakhouse. It's not. It's a it's a fast casual 0:06:03.040 --> 0:06:06.240 place that lives on ten dollars per person, but still 0:06:06.279 --> 0:06:08.400 generates eight point three million on the top line and 0:06:08.560 --> 0:06:11.400 very healthy bottom lines. We continue to do really well. 0:06:11.440 --> 0:06:14.440 I would tell investors that as we continue to build 0:06:14.520 --> 0:06:18.520 more and more new restaurants and we build faster, that 0:06:18.640 --> 0:06:21.920 number has to come down, right because the new restaurants 0:06:21.960 --> 0:06:24.200 are just not going to perform quite as well as 0:06:24.520 --> 0:06:26.800 restaurants that have been in our base for twenty thirty 0:06:26.880 --> 0:06:31.000 years in our hometown. So it's a very very lofty number. 0:06:31.120 --> 0:06:34.839 It will come down over time. It's not going to 0:06:34.880 --> 0:06:36.919 come down to a low number. It's still going to 0:06:36.920 --> 0:06:41.040 be outstanding AUVs and outstanding margins for us. 0:06:41.880 --> 0:06:42.640 Yeah, for sure. 0:06:43.720 --> 0:06:46.479 You know, I look at the brand and I think 0:06:46.560 --> 0:06:50.000 that it has a unique opportunity being a sixty year 0:06:50.040 --> 0:06:53.080 old brand with so much white white space. You know, 0:06:53.440 --> 0:06:55.640 in my career, I've seen some older brands with a 0:06:55.760 --> 0:06:59.279 rich history become strong growth stories. You know, Popeyes is 0:06:59.279 --> 0:07:03.800 definitely more that comes to mind for me. So you're 0:07:03.880 --> 0:07:06.080 growing in Florida, Arizona. 0:07:05.640 --> 0:07:08.680 And Texas. I noticed I saw that those are areas 0:07:09.400 --> 0:07:10.520 of importance for you. 0:07:10.600 --> 0:07:13.960 I'd imagine the migration into these states was a factor 0:07:14.000 --> 0:07:17.400 in deciding to grow in these markets. What other factors 0:07:17.440 --> 0:07:19.360 contributed to that decision. 0:07:20.360 --> 0:07:22.040 Yeah, First of all, you've said a couple of things 0:07:22.040 --> 0:07:25.000 that I want to emphasize because I because I appreciate 0:07:25.040 --> 0:07:27.600 you doing your homework. You're one hundred percent right. We 0:07:27.760 --> 0:07:32.440 just celebrated our sixtieth anniversary, which really in this business 0:07:32.480 --> 0:07:35.080 is extraordinary to be a restaurant company that's been around 0:07:35.120 --> 0:07:38.360 for sixty years. And you're right in that despite being 0:07:38.360 --> 0:07:42.680 a sixty year old brand, we're like rambunctious teenagers still, right, 0:07:42.720 --> 0:07:45.360 We're still growing up, we're still figuring stuff out. We're 0:07:45.400 --> 0:07:50.160 getting really good and our Sun Belt strategies is exactly what. 0:07:50.280 --> 0:07:53.560 It's really simple. We're going where population is. You know, 0:07:53.600 --> 0:07:59.880 we're going to the three fastest growing states in America, Texas, Florida, Arizona. 0:08:00.040 --> 0:08:04.400 We're not fools. We're also following where there's a Chicago emigration. Right, 0:08:04.440 --> 0:08:07.680 there's people from the Midwest going to those markets. It's 0:08:07.800 --> 0:08:12.080 really nice to go into these towns and see x 0:08:12.160 --> 0:08:16.160 Midwesterners who are warmly embracing us and are excited to 0:08:16.200 --> 0:08:20.360 have their favorite restaurant to join. Now that's not that's 0:08:20.360 --> 0:08:22.720 not going to sustain your business. You still have to, 0:08:23.400 --> 0:08:25.600 you know, you have to become very quickly a local 0:08:25.640 --> 0:08:30.440 restaurant company, and that's what sustains the business. But we 0:08:30.560 --> 0:08:34.160 feel really good about getting off to a good start 0:08:34.240 --> 0:08:36.800 and then sustaining it. And I'll give you some examples. 0:08:37.000 --> 0:08:41.199 You know, we opened in Orlando, Florida a little about 0:08:41.240 --> 0:08:44.960 two years ago, and we had extraordinary performance. We had 0:08:45.120 --> 0:08:47.880 nearly ten million dollars of revenue in the very first year. 0:08:48.360 --> 0:08:52.240 You're not doing that on just Chicago expats, right that 0:08:52.440 --> 0:08:55.600 that volume, you really do have to appeal to locals. 0:08:56.120 --> 0:08:58.640 And then in this business, you know, your revenues go 0:08:58.800 --> 0:09:01.720 up first year, they down, then they build back up again. 0:09:01.800 --> 0:09:05.319 That's very common. Our second year is almost as good 0:09:05.360 --> 0:09:06.840 as the first year in Orlando. 0:09:07.080 --> 0:09:11.079 It's a very very little dip, and so I feel 0:09:11.120 --> 0:09:14.800 really good about that because again, that means we're sustaining 0:09:15.559 --> 0:09:19.839 a business built on local guests and local community. 0:09:20.679 --> 0:09:24.079 Same thing as happening to us in Texas. I had 0:09:24.080 --> 0:09:27.000 a lot of people asking questions like why do you 0:09:27.080 --> 0:09:31.520 think you're going to sell Italian beef to people in Texas, 0:09:32.360 --> 0:09:35.800 and so you know, my response is, first, it's Italian, 0:09:35.840 --> 0:09:41.000 not Italian, and second it's beef and bread. And I'm 0:09:41.000 --> 0:09:43.520 pretty confident that the fine people of Texas has said 0:09:43.640 --> 0:09:47.280 yes to beef and bread and that Texas has come 0:09:47.320 --> 0:09:51.280 out of the gates extraordinarily well. Right we opened in January. 0:09:52.679 --> 0:09:55.200 Right now, it's one of our top three performing restaurants 0:09:55.200 --> 0:09:57.960 in the country. It's performing as well as our very 0:09:58.000 --> 0:10:02.840 best restaurants in the city of Chicago. It has it 0:10:03.000 --> 0:10:07.240 opens every morning with lines outside the door, and it's 0:10:07.280 --> 0:10:11.240 being sustained by the local community. So so I love 0:10:11.280 --> 0:10:14.640 going where the growth is. I love finding pockets of 0:10:15.320 --> 0:10:18.840 latent demand, but then we very quickly have to build 0:10:18.840 --> 0:10:20.000 to that local community. 0:10:21.559 --> 0:10:22.000 Awesome. 0:10:22.720 --> 0:10:26.679 Yeah, I'd imagine that popularity of Italian beef in Texas 0:10:26.679 --> 0:10:30.800 would alleviate some investor concerns about how well your food travels. 0:10:31.480 --> 0:10:33.559 But have you had Are you still getting pushed back 0:10:33.600 --> 0:10:36.839 about it expanding away from your stronghold in Illinois? 0:10:37.480 --> 0:10:40.360 For sure? And it's understandable, right, I Mean, there's there's 0:10:40.360 --> 0:10:44.320 a there's a probably an entire graveyard of regional restaurant 0:10:44.320 --> 0:10:47.560 companies that were never able to expand nationally. So on 0:10:47.559 --> 0:10:51.520 one hand, I totally understand the logic of the question, 0:10:52.080 --> 0:10:56.559 and I and I think it's a very fair, legitimate question. 0:10:57.160 --> 0:10:59.319 I of course have a perspective, right, It's why I've 0:11:00.080 --> 0:11:04.160 sort of bet my career coming to Portillo's and knowing 0:11:04.200 --> 0:11:07.040 that I think that this is an expandable concept and 0:11:07.040 --> 0:11:09.760 that the food will travel. So I and a lot 0:11:09.760 --> 0:11:13.920 of my team members have made that career decision that 0:11:14.040 --> 0:11:16.440 we think Portillo's is a sleeping giant and will be 0:11:16.440 --> 0:11:20.760 a national concept. And you know, we're seventy We're seventy 0:11:20.760 --> 0:11:23.800 six restaurants on our way to being six hundred plus, 0:11:23.960 --> 0:11:27.440 so it's super exciting. And I'm willing to bet that 0:11:27.520 --> 0:11:31.440 we will succeed in Texas, and we already are and 0:11:31.520 --> 0:11:35.120 succeeding in Arizona and Florida, So I'm fine with that. 0:11:36.240 --> 0:11:38.520 Yeah, I think social media has changed the game there. 0:11:39.360 --> 0:11:42.920 You know, when we did some analysis pre IPO on 0:11:43.040 --> 0:11:45.800 your company, we looked at the amount of followers you 0:11:45.880 --> 0:11:49.160 had on Facebook and Instagram per store, and it was 0:11:49.240 --> 0:11:52.120 extremely high. I'm sure part of that is the AUVs, 0:11:52.200 --> 0:11:54.959 but you're not going to have followings like that unless 0:11:54.960 --> 0:11:58.000 you're a very popular restaurant. You've had chains like Shakesheck 0:11:58.120 --> 0:12:02.920 proove that, you know, through a big social media audience 0:12:03.120 --> 0:12:07.040 that they can grow stores across the country, and in fact, 0:12:07.280 --> 0:12:09.360 in their case, some of these stores across the world 0:12:09.400 --> 0:12:12.720 are open into huge Yeah, it's a huge fanfare. So 0:12:13.200 --> 0:12:15.160 I think social media's kind of changed the game a 0:12:15.200 --> 0:12:15.680 bit there. 0:12:16.679 --> 0:12:18.400 I think there's a lot of truth to what you're saying. 0:12:18.440 --> 0:12:21.920 I actually you know, and I also think that I mean, 0:12:21.960 --> 0:12:24.960 I think Shakeshak's a wonderful example because they're a fantastic 0:12:25.000 --> 0:12:30.560 company have bucked that trend. One of the intellectual debates 0:12:30.600 --> 0:12:33.200 I like to get into with some investors in one 0:12:33.240 --> 0:12:36.200 on ones is, look, if your concern is will my 0:12:36.320 --> 0:12:40.640 food travel well, an Italian beef sandwich travel will an 0:12:40.840 --> 0:12:44.800 iconic Chicago style hot dog with all of our fixings traveled? 0:12:45.360 --> 0:12:48.520 I say, that's a very legitimate question, and you're obviously 0:12:48.559 --> 0:12:51.480 asking that because the food is so unique and iconic. 0:12:52.440 --> 0:12:55.720 But here's the logical sort of flip of that. The 0:12:55.760 --> 0:12:59.560 logical corollarya is, if my food does travel, then you 0:12:59.600 --> 0:13:02.360 must think we're worth the fattest multiple in the restaurant 0:13:02.400 --> 0:13:06.080 industry because our food is so iconic. And unique. So 0:13:07.320 --> 0:13:10.439 you know, you can't have it both ways, right. If 0:13:10.720 --> 0:13:12.640 our food travels and we can prove it to you, 0:13:12.720 --> 0:13:18.640 then we're really really interesting unicorn in the restaurant industry. 0:13:19.080 --> 0:13:21.440 Yeah, no, it's good. It's good to be differentiated. There's 0:13:21.480 --> 0:13:22.400 no doubt about that. 0:13:23.840 --> 0:13:24.040 You know. 0:13:24.200 --> 0:13:27.240 I I one of the CFOs I used to work with. 0:13:27.320 --> 0:13:30.600 You know, he used to criticize his competitors and casual dining. 0:13:30.920 --> 0:13:32.920 He was a fan worked out a family dining chain, 0:13:33.000 --> 0:13:35.280 but you know he used to call them TGI chilibes, 0:13:35.360 --> 0:13:37.160 right because they were all the same alfer and the 0:13:37.200 --> 0:13:37.720 same food. 0:13:37.800 --> 0:13:40.000 So that there's there's definitely. 0:13:41.480 --> 0:13:45.240 It's definitely important, and I think a nice differentiating factor 0:13:45.320 --> 0:13:48.360 that if you can sell other types of food that 0:13:48.400 --> 0:13:52.560 your competitors aren't. How are the building bottlenecks right now, 0:13:52.600 --> 0:13:55.040 like permitting and equipment. 0:13:55.840 --> 0:13:58.160 Gosh, I want to say something positive, but I'd be 0:13:58.200 --> 0:14:01.680 stretching the truth too much. It's still really hard. It's 0:14:01.679 --> 0:14:03.880 still really really hard. You know, if you look at 0:14:04.160 --> 0:14:07.959 building costs. Over the last three years, just material costs 0:14:08.080 --> 0:14:13.959 have grown like it's just an insane amount. The costs 0:14:14.000 --> 0:14:18.520 have gone up. The availability of material and supply has 0:14:19.080 --> 0:14:23.760 been very challenged. The labor costs associated with building has 0:14:23.800 --> 0:14:30.000 gone up. The processes permitting approvals, anything touching the government 0:14:30.320 --> 0:14:35.200 and municipalities has gotten incredibly slow and bugged down. If 0:14:35.200 --> 0:14:37.920 there's any good news is that it's not getting any worse, 0:14:38.120 --> 0:14:42.040 that it's now stabilized. The other little bit of good news, 0:14:42.120 --> 0:14:44.480 I mean it's not good news, but in a healthy 0:14:44.600 --> 0:14:48.840 dose of pragmatism, when it comes to the timelines, we 0:14:48.920 --> 0:14:52.560 have gone and budgeted significantly more time to get our 0:14:52.600 --> 0:14:57.480 restaurants done. Right. So what we were doing, you know historically, 0:14:57.840 --> 0:15:01.400 if you know, if I in the real estate team 0:15:01.480 --> 0:15:04.920 and my reset real estate committee looked at a site, 0:15:05.120 --> 0:15:08.200 liked it and said, go, I felt really confident that 0:15:08.240 --> 0:15:12.040 we could get that restaurant built from that moment twelve 0:15:12.080 --> 0:15:17.080 months later. So that's no longer viable. So now it's 0:15:17.360 --> 0:15:19.960 the minute we say, go that restaurant we think can 0:15:20.000 --> 0:15:23.520 get built eighteen months later. So we've budgeted that extra 0:15:23.640 --> 0:15:29.120 six months for supply availability, for permitting, et cetera. We 0:15:29.360 --> 0:15:32.320 are getting So that deals with the timing, and then 0:15:32.520 --> 0:15:35.640 we are actively looking at what we call the restaurant 0:15:35.640 --> 0:15:40.600 of the future. Right, everybody knows the way people interact 0:15:40.600 --> 0:15:44.160 with restaurants is changing, and I think some of these 0:15:44.240 --> 0:15:48.200 changes with off premises are not going to come back. 0:15:48.600 --> 0:15:52.560 So I think that people are more and more saying that, hey, look, 0:15:52.600 --> 0:15:55.280 I want my food delivered it is I can deal 0:15:55.320 --> 0:15:57.200 with the excess costs, and I know that it's not 0:15:57.240 --> 0:15:58.880 going to be quite as hot and fresh, and I'm 0:15:58.920 --> 0:16:01.320 okay with that. There are people who say, I don't 0:16:01.320 --> 0:16:02.840 want to deal with human beings. I just want to 0:16:02.920 --> 0:16:04.320 order it via my app and I want to pick 0:16:04.360 --> 0:16:08.680 it up. And so I think it's important to pivot 0:16:08.720 --> 0:16:10.720 to a restaurant of the future, which is going to 0:16:10.760 --> 0:16:14.240 have smaller dining rooms. We still need to produce as 0:16:14.360 --> 0:16:17.040 much food and do as much sales, but it's more 0:16:17.080 --> 0:16:19.720 of it's going to go through third party delivery, our 0:16:19.760 --> 0:16:23.840 own delivery, catering, and even our drive throughs. So we're 0:16:23.920 --> 0:16:29.160 right sizing and redeveloping the restaurant and shrinking the footprint. 0:16:29.320 --> 0:16:32.080 And so we think that that is a very viable 0:16:32.120 --> 0:16:34.240 thing for us to do on a go forward basis. 0:16:35.040 --> 0:16:39.240 It will take excess costs out of the restaurant. I 0:16:39.280 --> 0:16:42.320 still want a beautiful, dynamic, engaging restaurant for the people 0:16:42.360 --> 0:16:44.600 who want to dine in, but I think we can 0:16:44.680 --> 0:16:47.360 save a bunch of money and square footage and get 0:16:47.400 --> 0:16:49.640 on a smaller pad et cetera, et cetera, et cetera. 0:16:50.280 --> 0:16:52.120 So that's the other way we have to deal with 0:16:52.920 --> 0:16:56.000 the new normal of cost and supply chain. 0:16:57.400 --> 0:16:57.680 Yeah. 0:16:57.680 --> 0:17:02.480 Cool, So I noticed that you had small smaller square footage. 0:17:02.040 --> 0:17:04.000 Test going on. I guess that's what you're kind of 0:17:04.000 --> 0:17:04.680 referring to. 0:17:06.440 --> 0:17:09.480 Well, there's one that's actually so, we do have one. 0:17:09.600 --> 0:17:12.840 We have one that's a smaller square footage. We're designing 0:17:12.840 --> 0:17:15.920 it actively. My goal is to roll it out in 0:17:16.160 --> 0:17:18.480 twenty four at one of our restaurants in twenty four. 0:17:18.960 --> 0:17:21.040 Right now, we do have a what we call a 0:17:21.080 --> 0:17:26.679 Portillo's pickup, which is drive through pickup delivery catering. It 0:17:26.800 --> 0:17:31.240 just doesn't have a dine in and that's gone exceedingly well. 0:17:31.600 --> 0:17:35.080 I'm a little nervous about rolling that out too broadly, 0:17:35.160 --> 0:17:39.880 right because we're very, very protective of our brand and 0:17:40.080 --> 0:17:44.480 I really want a consumer's a guests first experience with Portillo's. 0:17:44.520 --> 0:17:47.080 I want them to come into the restaurant. Because we 0:17:47.119 --> 0:17:49.920 do what I call balance sheet marketing. We build beautiful 0:17:50.000 --> 0:17:54.920 restaurants with lots of engaging, inviting components. People take selfies 0:17:54.960 --> 0:17:59.000 in our restaurants, and so I'm really happy to build 0:17:59.000 --> 0:18:02.880 these pickup only locations in Chicago Land where everybody knows us. 0:18:03.359 --> 0:18:05.119 And then that's a you know, that's sort of a 0:18:05.160 --> 0:18:10.119 penetration strategy. But outside Chicago Land, we need to be 0:18:10.200 --> 0:18:13.800 cautious because I really want a guest first experience to 0:18:13.840 --> 0:18:15.720 be in a full line restaurant. 0:18:16.720 --> 0:18:19.439 Okay, so this is more of like an infill strategy. 0:18:20.240 --> 0:18:22.320 Yeah at the moment, Yeah, that makes a lot of sense, 0:18:22.640 --> 0:18:26.840 and I'd imagine this would impact your total market opportunity. 0:18:27.480 --> 0:18:30.760 Gosh, I think. So we're going to refresh that in September. 0:18:30.760 --> 0:18:33.199 We're going to give a do an analyst day and 0:18:33.240 --> 0:18:37.439 do an entire development update on where we are, what 0:18:37.440 --> 0:18:40.240 we're seeing, all the great questions you're asking everyone wants 0:18:40.240 --> 0:18:43.800 to know more about, and so we'll talk about prototypes, 0:18:44.000 --> 0:18:46.440 total addressable market, et cetera, et cetera. 0:18:47.520 --> 0:18:50.600 Okay, cool, And you know, do you are you worried 0:18:50.680 --> 0:18:52.840 at all that that a focus on some of that 0:18:52.880 --> 0:18:55.199 stores could maybe take some of your attention from building 0:18:55.240 --> 0:18:55.959 the core business. 0:18:56.760 --> 0:18:59.080 No, because I'm a I'm a you know, I'm a 0:18:59.160 --> 0:19:02.000 simpleton at heart, and so I'm just going to go 0:19:02.040 --> 0:19:05.160 after the lowest hanging fruit right now, which is mainline 0:19:05.240 --> 0:19:10.240 restaurants in A plus markets and A plus locations. And 0:19:10.359 --> 0:19:13.760 I try to do my best, and I get distracted 0:19:13.760 --> 0:19:14.760 by all the chat chatcha. 0:19:16.280 --> 0:19:19.680 Fair enough, you know, I don't buy that simpleton at 0:19:19.680 --> 0:19:20.560 heart for a second. 0:19:20.600 --> 0:19:23.040 But that's good stuff. 0:19:24.640 --> 0:19:26.280 So how long does it take for one of your 0:19:26.320 --> 0:19:28.880 new units to nail the operations and get to that 0:19:28.920 --> 0:19:31.080 steady run rate restaurant margin. 0:19:32.240 --> 0:19:35.760 Well, look, we're blessed in some ways, which is and 0:19:35.800 --> 0:19:38.320 I think this is a surprise to some people. Our 0:19:38.359 --> 0:19:43.760 restaurants cash flow positive almost immediately. So from go, our 0:19:43.800 --> 0:19:48.199 restaurants are making money. And there's there's a you know, 0:19:48.200 --> 0:19:51.480 there's a little curve. I think we don't put restaurants 0:19:51.520 --> 0:19:54.480 into the comp base until after two years because we 0:19:54.520 --> 0:19:56.480 think that that's a really stable period of time. But 0:19:57.320 --> 0:19:59.360 you know, they come out of the gate performing well, 0:19:59.359 --> 0:20:01.720 they come out of the gate making money. I think 0:20:01.760 --> 0:20:05.280 our operations I cut the team a lot of slack 0:20:06.640 --> 0:20:10.199 in terms of investments in labor and food costs for 0:20:10.240 --> 0:20:12.760 the first six months because what I don't want to 0:20:12.760 --> 0:20:15.520 do is we don't want to do anything to hurt 0:20:15.520 --> 0:20:23.159 the guests experience. So we're very consciously over investing in 0:20:23.240 --> 0:20:25.440 labor for six months because I don't want guests to 0:20:25.440 --> 0:20:28.440 have a bad experience. We overinvest in food costs because 0:20:28.480 --> 0:20:31.720 if something's not perfect, toss it, do it again, make 0:20:31.760 --> 0:20:35.080 it perfect for the guests, because what you really want is, 0:20:35.600 --> 0:20:38.199 you know, you're welcoming new people, you're teaching them what 0:20:38.240 --> 0:20:41.000 Portillo's is all about, and so you want them to 0:20:41.080 --> 0:20:45.000 have as great of an experience as humanly possible. And 0:20:45.040 --> 0:20:47.800 I'm okay investing in that in the first six months. 0:20:48.560 --> 0:20:50.880 Only have one chance to make a first impression, that's 0:20:50.880 --> 0:20:51.320 for sure. 0:20:52.000 --> 0:20:52.359 Amen. 0:20:52.800 --> 0:20:56.480 Yeah, I love that all your twenty twenty three openings 0:20:56.520 --> 0:20:59.040 are going to have an experienced GM running it. So 0:20:59.200 --> 0:21:03.320 outside of what is your biggest hurdle to rapid expansion, 0:21:03.480 --> 0:21:06.920 you know, is it finding quality sites or the cost 0:21:06.960 --> 0:21:08.520 of building or what is it? 0:21:09.520 --> 0:21:13.480 No, it's so Look, We're I'm not trying to build 0:21:13.520 --> 0:21:18.080 fifty restaurants a year, right, We're we're building you know, 0:21:18.119 --> 0:21:21.960 we built seven, we're building nine. There are plenty of 0:21:22.480 --> 0:21:25.800 A plus locations for us, so that's not an issue. 0:21:26.720 --> 0:21:29.520 We're you know, it's funny in this day and age, 0:21:29.960 --> 0:21:32.760 we're incredibly fortunate that we don't have to rely on 0:21:32.880 --> 0:21:35.760 banks for financing, right I don't. We don't have to 0:21:35.800 --> 0:21:38.720 worry about what the interest rates are, We don't have 0:21:38.800 --> 0:21:40.720 to worry about is this bank going under? 0:21:41.080 --> 0:21:41.639 What have you? 0:21:42.240 --> 0:21:45.000 We self finance because we generate enough cash flow that 0:21:45.000 --> 0:21:46.879 we can build all of our restaurants with our own 0:21:46.960 --> 0:21:49.639 cash flow. So that's actually a sneaky good thing for 0:21:49.720 --> 0:21:51.680 a growth company right now, to be able to self 0:21:51.680 --> 0:21:58.000 finance the the limitation. And you know, my executive team 0:21:58.040 --> 0:22:01.600 and I have held hands. My HR has done unbelievable 0:22:01.640 --> 0:22:05.480 work over the last several years to develop a pipeline 0:22:05.480 --> 0:22:10.359 of talent for us to populate these new restaurants. And 0:22:10.400 --> 0:22:13.640 it's not It sounds really simple and easy to say, yeah, 0:22:13.640 --> 0:22:17.000 I've got a pipeline of people, but here's what it takes. 0:22:16.800 --> 0:22:22.400 It means you've got to know for every management person 0:22:22.480 --> 0:22:26.439 and even every senior hourly person in your company, and 0:22:26.520 --> 0:22:29.280