Speaker 1: Welcome to Chopping it Up.
Speaker 2: I'm your host, Mike Hanlon, Senior restaurant and food service
Speaker 2: analyst at Bloomberg Intelligence. I'm very excited to introduce my
Speaker 2: guest today. He's Michael osanlu CEO of Portillo's. Thanks for
Speaker 2: doing us.
Speaker 1: Michael, Thank you, Mike.
Speaker 3: I appreciate it.
Speaker 2: All right, So just before we kick things off, you know,
Speaker 2: I did a little background work and I love the
Speaker 2: French fry bar chart in the quarterly earnings presentation.
Speaker 1: It was very, very creative.
Speaker 3: Thank you. I got. I got a really sort of
Speaker 3: a fun, cheeky marketing team. They relish that kind of stuff.
Speaker 3: I see where they get it infected me with their
Speaker 3: passion for punts.
Speaker 1: That's awesome.
Speaker 2: Yeah, for the listeners that aren't aware, it's a you know,
Speaker 2: typical bar chart, but with crinkle cut French fries as
Speaker 2: the bars.
Speaker 1: It's pretty cool. So let's jump right in here.
Speaker 3: Man.
Speaker 2: There was a lot of noise in Seamstar sales traffic
Speaker 2: and guest check data since the start of twenty twenty three.
Speaker 2: Not just for you, I'm talking about industry wide. So
Speaker 2: for somebody like me, it's not easy to make sense
Speaker 2: of things. What are you seeing right now from the
Speaker 2: US consumer?
Speaker 3: You know, here's what I would say. I'd say, the
Speaker 3: first quarter, let's everybody had some very very attractive same
Speaker 3: sort of sales numbers, traffic numbers, et cetera, et cetera.
Speaker 3: We all did, and let's not get ourselves right. We
Speaker 3: were lapping Omicron in January and February of last year,
Speaker 3: so it's a little bit of an easy lap. I
Speaker 3: would tell you I'm cautious about the consumer. I think
Speaker 3: the consumer is in a fragile state. I think that
Speaker 3: there's a lot of economic uncertainty. I think this is
Speaker 3: a year where, for whatever reason, the government has been
Speaker 3: slow in issuing refunds tax refunds, and that actually, I mean,
Speaker 3: it sounds quirky, but that actually affects consumers, and it
Speaker 3: affects consumer spending. So I think we're seeing that right now.
Speaker 3: I think we're seeing a cautious consumer. I think they're
Speaker 3: pulling back in certain areas. I think restaurants are still
Speaker 3: doing reasonably well. You know, I think we're all relatively busy,
Speaker 3: But I think there are some areas hard goods, etc.
Speaker 3: That the consumer is showing some belt tightening.
Speaker 2: Yeah, i'd say our data is showing some similar things.
Speaker 2: You know, one thing we keep pointing to is rising
Speaker 2: credit card balances and stuff like that, love savings rate
Speaker 2: and things of that nature.
Speaker 1: Are you seeing any check management from your customers.
Speaker 3: A little bit? It's you know, we have a little
Speaker 3: bit of what we would call negative mix, which is
Speaker 3: a tiny bit of less attachment, and so it's about
Speaker 3: two percent right now. But I can't in good conscience
Speaker 3: tell you driving that, Mic. I've looked at this a
Speaker 3: dozen ways. There's a different mix and an attachment level
Speaker 3: based on what channel somebody buys from. So you know,
Speaker 3: if they're ordering third party delivery, if they're ordering for
Speaker 3: delivery through US, if they're catering, it tends to be
Speaker 3: lots of stuff. If they're coming into the restaurant and
Speaker 3: ordering for themselves, it tends to be a smaller check.
Speaker 3: It's it's a couple of items, and so there's definitely
Speaker 3: some mix. There's some channel mix issues going on. Our
Speaker 3: dining is picking back up, our drive through staying pretty stable,
Speaker 3: and so it could just as easily be that. But
Speaker 3: theoretically it could be that, you know, somebody's saying, hey,
Speaker 3: I'm gonna pass on the cheese sauce on my fries
Speaker 3: this time, and it's really hard to like distill that
Speaker 3: with all the noise and everything going on.
Speaker 2: Yeah, there's a lot of variables and a lot of
Speaker 2: moving pieces, for sure. So what are the demographics of
Speaker 2: your customer base?
Speaker 3: Yeah, it's it's a great question. I'm going to give
Speaker 3: you a totally, totally, half half baked answer, which is it.
Speaker 3: It's sort of an upper it's slightly above average wealth,
Speaker 3: it's slightly uh, you know, a hair older than average.
Speaker 3: But averages mean nothing right. On average, you and I
Speaker 3: have a nice set of you know, like we have
Speaker 3: wispy hair. On average, it means nothing right, And so
Speaker 3: averages don't mean a whole lot to me. If you
Speaker 3: go into our restaurants and you look around and you
Speaker 3: see who's there at lunchtime, you're gonna see you're gonna
Speaker 3: see a lot of men in colored vests and work boots.
Speaker 3: You're going to see men in you know, zenya suits.
Speaker 3: You're gonna see moms and yoga pants. But you also
Speaker 3: see women in you know, in fancy work clothes. It's
Speaker 3: a really broad demographic. In the evenings, we have families
Speaker 3: coming in, we are you know, our restaurants are really attractive,
Speaker 3: they're nice, they're vibrant. So you see people making a
Speaker 3: decision to sit down with their family and have a
Speaker 3: meal at our restaur taurants in the evenings and the weekend.
Speaker 3: So it's a broad demographic. We do well in urban settings.
Speaker 3: One of our most successful restaurants is in a town
Speaker 3: in Indiana that has thirty thousand people. It does twelve
Speaker 3: million bucks. So we appeal to a really broad demographic.
Speaker 1: Very cool.
Speaker 2: And I would say I'm definitely below average on the
Speaker 2: hair on the whiskey, and I'm.
Speaker 3: Probably slightly above average, so between us we're average.
Speaker 2: Yeah, you do have a nice head of hair. It's
Speaker 2: too bet our listeners can't see it, all right, cool?
Speaker 2: And so the unit economics really stood out to me
Speaker 2: at the IPO right when I was reading that S one.
Speaker 1: So do you have any updates there?
Speaker 3: We do remarkably well when it comes to box economics, right,
Speaker 3: So we average about eight point three million dollars per restaurant,
Speaker 3: which is sort of for people in this business, is
Speaker 3: ridiculously high. We're at that, Like if you just looked
Speaker 3: at our numbers, you'd say this must be a relatively
Speaker 3: nice steakhouse. It's not. It's a it's a fast casual
Speaker 3: place that lives on ten dollars per person, but still
Speaker 3: generates eight point three million on the top line and
Speaker 3: very healthy bottom lines. We continue to do really well.
Speaker 3: I would tell investors that as we continue to build
Speaker 3: more and more new restaurants and we build faster, that
Speaker 3: number has to come down, right because the new restaurants
Speaker 3: are just not going to perform quite as well as
Speaker 3: restaurants that have been in our base for twenty thirty
Speaker 3: years in our hometown. So it's a very very lofty number.
Speaker 3: It will come down over time. It's not going to
Speaker 3: come down to a low number. It's still going to
Speaker 3: be outstanding AUVs and outstanding margins for us.
Speaker 1: Yeah, for sure.
Speaker 2: You know, I look at the brand and I think
Speaker 2: that it has a unique opportunity being a sixty year
Speaker 2: old brand with so much white white space. You know,
Speaker 2: in my career, I've seen some older brands with a
Speaker 2: rich history become strong growth stories. You know, Popeyes is
Speaker 2: definitely more that comes to mind for me. So you're
Speaker 2: growing in Florida, Arizona.
Speaker 1: And Texas. I noticed I saw that those are areas
Speaker 1: of importance for you.
Speaker 2: I'd imagine the migration into these states was a factor
Speaker 2: in deciding to grow in these markets. What other factors
Speaker 2: contributed to that decision.
Speaker 3: Yeah, First of all, you've said a couple of things
Speaker 3: that I want to emphasize because I because I appreciate
Speaker 3: you doing your homework. You're one hundred percent right. We
Speaker 3: just celebrated our sixtieth anniversary, which really in this business
Speaker 3: is extraordinary to be a restaurant company that's been around
Speaker 3: for sixty years. And you're right in that despite being
Speaker 3: a sixty year old brand, we're like rambunctious teenagers still, right,
Speaker 3: We're still growing up, we're still figuring stuff out. We're
Speaker 3: getting really good and our Sun Belt strategies is exactly what.
Speaker 3: It's really simple. We're going where population is. You know,
Speaker 3: we're going to the three fastest growing states in America, Texas, Florida, Arizona.
Speaker 3: We're not fools. We're also following where there's a Chicago emigration. Right,
Speaker 3: there's people from the Midwest going to those markets. It's
Speaker 3: really nice to go into these towns and see x
Speaker 3: Midwesterners who are warmly embracing us and are excited to
Speaker 3: have their favorite restaurant to join. Now that's not that's
Speaker 3: not going to sustain your business. You still have to,
Speaker 3: you know, you have to become very quickly a local
Speaker 3: restaurant company, and that's what sustains the business. But we
Speaker 3: feel really good about getting off to a good start
Speaker 3: and then sustaining it. And I'll give you some examples.
Speaker 3: You know, we opened in Orlando, Florida a little about
Speaker 3: two years ago, and we had extraordinary performance. We had
Speaker 3: nearly ten million dollars of revenue in the very first year.
Speaker 3: You're not doing that on just Chicago expats, right that
Speaker 3: that volume, you really do have to appeal to locals.
Speaker 3: And then in this business, you know, your revenues go
Speaker 3: up first year, they down, then they build back up again.
Speaker 3: That's very common. Our second year is almost as good
Speaker 3: as the first year in Orlando.
Speaker 4: It's a very very little dip, and so I feel
Speaker 4: really good about that because again, that means we're sustaining
Speaker 4: a business built on local guests and local community.
Speaker 3: Same thing as happening to us in Texas. I had
Speaker 3: a lot of people asking questions like why do you
Speaker 3: think you're going to sell Italian beef to people in Texas,
Speaker 3: and so you know, my response is, first, it's Italian,
Speaker 3: not Italian, and second it's beef and bread. And I'm
Speaker 3: pretty confident that the fine people of Texas has said
Speaker 3: yes to beef and bread and that Texas has come
Speaker 3: out of the gates extraordinarily well. Right we opened in January.
Speaker 3: Right now, it's one of our top three performing restaurants
Speaker 3: in the country. It's performing as well as our very
Speaker 3: best restaurants in the city of Chicago. It has it
Speaker 3: opens every morning with lines outside the door, and it's
Speaker 3: being sustained by the local community. So so I love
Speaker 3: going where the growth is. I love finding pockets of
Speaker 3: latent demand, but then we very quickly have to build
Speaker 3: to that local community.
Speaker 1: Awesome.
Speaker 2: Yeah, I'd imagine that popularity of Italian beef in Texas
Speaker 2: would alleviate some investor concerns about how well your food travels.
Speaker 2: But have you had Are you still getting pushed back
Speaker 2: about it expanding away from your stronghold in Illinois?
Speaker 3: For sure? And it's understandable, right, I Mean, there's there's
Speaker 3: a there's a probably an entire graveyard of regional restaurant
Speaker 3: companies that were never able to expand nationally. So on
Speaker 3: one hand, I totally understand the logic of the question,
Speaker 3: and I and I think it's a very fair, legitimate question.
Speaker 3: I of course have a perspective, right, It's why I've
Speaker 3: sort of bet my career coming to Portillo's and knowing
Speaker 3: that I think that this is an expandable concept and
Speaker 3: that the food will travel. So I and a lot
Speaker 3: of my team members have made that career decision that
Speaker 3: we think Portillo's is a sleeping giant and will be
Speaker 3: a national concept. And you know, we're seventy We're seventy
Speaker 3: six restaurants on our way to being six hundred plus,
Speaker 3: so it's super exciting. And I'm willing to bet that
Speaker 3: we will succeed in Texas, and we already are and
Speaker 3: succeeding in Arizona and Florida, So I'm fine with that.
Speaker 2: Yeah, I think social media has changed the game there.
Speaker 2: You know, when we did some analysis pre IPO on
Speaker 2: your company, we looked at the amount of followers you
Speaker 2: had on Facebook and Instagram per store, and it was
Speaker 2: extremely high. I'm sure part of that is the AUVs,
Speaker 2: but you're not going to have followings like that unless
Speaker 2: you're a very popular restaurant. You've had chains like Shakesheck
Speaker 2: proove that, you know, through a big social media audience
Speaker 2: that they can grow stores across the country, and in fact,
Speaker 2: in their case, some of these stores across the world
Speaker 2: are open into huge Yeah, it's a huge fanfare. So
Speaker 2: I think social media's kind of changed the game a
Speaker 2: bit there.
Speaker 3: I think there's a lot of truth to what you're saying.
Speaker 3: I actually you know, and I also think that I mean,
Speaker 3: I think Shakeshak's a wonderful example because they're a fantastic
Speaker 3: company have bucked that trend. One of the intellectual debates
Speaker 3: I like to get into with some investors in one
Speaker 3: on ones is, look, if your concern is will my
Speaker 3: food travel well, an Italian beef sandwich travel will an
Speaker 3: iconic Chicago style hot dog with all of our fixings traveled?
Speaker 3: I say, that's a very legitimate question, and you're obviously
Speaker 3: asking that because the food is so unique and iconic.
Speaker 3: But here's the logical sort of flip of that. The
Speaker 3: logical corollarya is, if my food does travel, then you
Speaker 3: must think we're worth the fattest multiple in the restaurant
Speaker 3: industry because our food is so iconic. And unique. So
Speaker 3: you know, you can't have it both ways, right. If
Speaker 3: our food travels and we can prove it to you,
Speaker 3: then we're really really interesting unicorn in the restaurant industry.
Speaker 2: Yeah, no, it's good. It's good to be differentiated. There's
Speaker 2: no doubt about that.
Speaker 1: You know.
Speaker 2: I I one of the CFOs I used to work with.
Speaker 2: You know, he used to criticize his competitors and casual dining.
Speaker 2: He was a fan worked out a family dining chain,
Speaker 2: but you know he used to call them TGI chilibes,
Speaker 2: right because they were all the same alfer and the
Speaker 2: same food.
Speaker 1: So that there's there's definitely.
Speaker 2: It's definitely important, and I think a nice differentiating factor
Speaker 2: that if you can sell other types of food that
Speaker 2: your competitors aren't. How are the building bottlenecks right now,
Speaker 2: like permitting and equipment.
Speaker 3: Gosh, I want to say something positive, but I'd be
Speaker 3: stretching the truth too much. It's still really hard. It's
Speaker 3: still really really hard. You know, if you look at
Speaker 3: building costs. Over the last three years, just material costs
Speaker 3: have grown like it's just an insane amount. The costs
Speaker 3: have gone up. The availability of material and supply has
Speaker 3: been very challenged. The labor costs associated with building has
Speaker 3: gone up. The processes permitting approvals, anything touching the government
Speaker 3: and municipalities has gotten incredibly slow and bugged down. If
Speaker 3: there's any good news is that it's not getting any worse,
Speaker 3: that it's now stabilized. The other little bit of good news,
Speaker 3: I mean it's not good news, but in a healthy
Speaker 3: dose of pragmatism, when it comes to the timelines, we
Speaker 3: have gone and budgeted significantly more time to get our
Speaker 3: restaurants done. Right. So what we were doing, you know historically,
Speaker 3: if you know, if I in the real estate team
Speaker 3: and my reset real estate committee looked at a site,
Speaker 3: liked it and said, go, I felt really confident that
Speaker 3: we could get that restaurant built from that moment twelve
Speaker 3: months later. So that's no longer viable. So now it's
Speaker 3: the minute we say, go that restaurant we think can
Speaker 3: get built eighteen months later. So we've budgeted that extra
Speaker 3: six months for supply availability, for permitting, et cetera. We
Speaker 3: are getting So that deals with the timing, and then
Speaker 3: we are actively looking at what we call the restaurant
Speaker 3: of the future. Right, everybody knows the way people interact
Speaker 3: with restaurants is changing, and I think some of these
Speaker 3: changes with off premises are not going to come back.
Speaker 3: So I think that people are more and more saying that, hey, look,
Speaker 3: I want my food delivered it is I can deal
Speaker 3: with the excess costs, and I know that it's not
Speaker 3: going to be quite as hot and fresh, and I'm
Speaker 3: okay with that. There are people who say, I don't
Speaker 3: want to deal with human beings. I just want to
Speaker 3: order it via my app and I want to pick
Speaker 3: it up. And so I think it's important to pivot
Speaker 3: to a restaurant of the future, which is going to
Speaker 3: have smaller dining rooms. We still need to produce as
Speaker 3: much food and do as much sales, but it's more
Speaker 3: of it's going to go through third party delivery, our
Speaker 3: own delivery, catering, and even our drive throughs. So we're
Speaker 3: right sizing and redeveloping the restaurant and shrinking the footprint.
Speaker 3: And so we think that that is a very viable
Speaker 3: thing for us to do on a go forward basis.
Speaker 3: It will take excess costs out of the restaurant. I
Speaker 3: still want a beautiful, dynamic, engaging restaurant for the people
Speaker 3: who want to dine in, but I think we can
Speaker 3: save a bunch of money and square footage and get
Speaker 3: on a smaller pad et cetera, et cetera, et cetera.
Speaker 3: So that's the other way we have to deal with
Speaker 3: the new normal of cost and supply chain.
Speaker 1: Yeah.
Speaker 2: Cool, So I noticed that you had small smaller square footage.
Speaker 1: Test going on. I guess that's what you're kind of
Speaker 1: referring to.
Speaker 3: Well, there's one that's actually so, we do have one.
Speaker 3: We have one that's a smaller square footage. We're designing
Speaker 3: it actively. My goal is to roll it out in
Speaker 3: twenty four at one of our restaurants in twenty four.
Speaker 3: Right now, we do have a what we call a
Speaker 3: Portillo's pickup, which is drive through pickup delivery catering. It
Speaker 3: just doesn't have a dine in and that's gone exceedingly well.
Speaker 3: I'm a little nervous about rolling that out too broadly,
Speaker 3: right because we're very, very protective of our brand and
Speaker 3: I really want a consumer's a guests first experience with Portillo's.
Speaker 3: I want them to come into the restaurant. Because we
Speaker 3: do what I call balance sheet marketing. We build beautiful
Speaker 3: restaurants with lots of engaging, inviting components. People take selfies
Speaker 3: in our restaurants, and so I'm really happy to build
Speaker 3: these pickup only locations in Chicago Land where everybody knows us.
Speaker 3: And then that's a you know, that's sort of a
Speaker 3: penetration strategy. But outside Chicago Land, we need to be
Speaker 3: cautious because I really want a guest first experience to
Speaker 3: be in a full line restaurant.
Speaker 2: Okay, so this is more of like an infill strategy.
Speaker 2: Yeah at the moment, Yeah, that makes a lot of sense,
Speaker 2: and I'd imagine this would impact your total market opportunity.
Speaker 3: Gosh, I think. So we're going to refresh that in September.
Speaker 3: We're going to give a do an analyst day and
Speaker 3: do an entire development update on where we are, what
Speaker 3: we're seeing, all the great questions you're asking everyone wants
Speaker 3: to know more about, and so we'll talk about prototypes,
Speaker 3: total addressable market, et cetera, et cetera.
Speaker 2: Okay, cool, And you know, do you are you worried
Speaker 2: at all that that a focus on some of that
Speaker 2: stores could maybe take some of your attention from building
Speaker 2: the core business.
Speaker 3: No, because I'm a I'm a you know, I'm a
Speaker 3: simpleton at heart, and so I'm just going to go
Speaker 3: after the lowest hanging fruit right now, which is mainline
Speaker 3: restaurants in A plus markets and A plus locations. And
Speaker 3: I try to do my best, and I get distracted
Speaker 3: by all the chat chatcha.
Speaker 2: Fair enough, you know, I don't buy that simpleton at
Speaker 2: heart for a second.
Speaker 1: But that's good stuff.
Speaker 2: So how long does it take for one of your
Speaker 2: new units to nail the operations and get to that
Speaker 2: steady run rate restaurant margin.
Speaker 3: Well, look, we're blessed in some ways, which is and
Speaker 3: I think this is a surprise to some people. Our
Speaker 3: restaurants cash flow positive almost immediately. So from go, our
Speaker 3: restaurants are making money. And there's there's a you know,
Speaker 3: there's a little curve. I think we don't put restaurants
Speaker 3: into the comp base until after two years because we
Speaker 3: think that that's a really stable period of time. But
Speaker 3: you know, they come out of the gate performing well,
Speaker 3: they come out of the gate making money. I think
Speaker 3: our operations I cut the team a lot of slack
Speaker 3: in terms of investments in labor and food costs for
Speaker 3: the first six months because what I don't want to
Speaker 3: do is we don't want to do anything to hurt
Speaker 3: the guests experience. So we're very consciously over investing in
Speaker 3: labor for six months because I don't want guests to
Speaker 3: have a bad experience. We overinvest in food costs because
Speaker 3: if something's not perfect, toss it, do it again, make
Speaker 3: it perfect for the guests, because what you really want is,
Speaker 3: you know, you're welcoming new people, you're teaching them what
Speaker 3: Portillo's is all about, and so you want them to
Speaker 3: have as great of an experience as humanly possible. And
Speaker 3: I'm okay investing in that in the first six months.
Speaker 1: Only have one chance to make a first impression, that's
Speaker 1: for sure.
Speaker 3: Amen.
Speaker 2: Yeah, I love that all your twenty twenty three openings
Speaker 2: are going to have an experienced GM running it. So
Speaker 2: outside of what is your biggest hurdle to rapid expansion,
Speaker 2: you know, is it finding quality sites or the cost
Speaker 2: of building or what is it?
Speaker 3: No, it's so Look, We're I'm not trying to build
Speaker 3: fifty restaurants a year, right, We're we're building you know,
Speaker 3: we built seven, we're building nine. There are plenty of
Speaker 3: A plus locations for us, so that's not an issue.
Speaker 3: We're you know, it's funny in this day and age,
Speaker 3: we're incredibly fortunate that we don't have to rely on
Speaker 3: banks for financing, right I don't. We don't have to
Speaker 3: worry about what the interest rates are, We don't have
Speaker 3: to worry about is this bank going under?
Speaker 1: What have you?
Speaker 3: We self finance because we generate enough cash flow that
Speaker 3: we can build all of our restaurants with our own
Speaker 3: cash flow. So that's actually a sneaky good thing for
Speaker 3: a growth company right now, to be able to self
Speaker 3: finance the the limitation. And you know, my executive team
Speaker 3: and I have held hands. My HR has done unbelievable
Speaker 3: work over the last several years to develop a pipeline
Speaker 3: of talent for us to populate these new restaurants. And
Speaker 3: it's not It sounds really simple and easy to say, yeah,
Speaker 3: I've got a pipeline of people, but here's what it takes.
Speaker 3: It means you've got to know for every management person
Speaker 3: and even every senior hourly person in your company, and
Speaker 3: for us that's somewhere the neighborhood of eight nine hundred people,
Speaker 3: what their development needs are when you think they can
Speaker 3: be a GM, What are their personal desires, what is
Speaker 3: their geographical mobility, where do they want to go, And
Speaker 3: then you have to put in development programs against all that.
Speaker 3: So if I know, hey, Mike's a rock star, but
Speaker 3: Mike needs to work on this, this and this, and
Speaker 3: we think Mike can be ready to be a general
Speaker 3: manager for us in two years. And Mike, by the way,
Speaker 3: really desperately wants to relocate to Arizona. So what that
Speaker 3: means is, I want Mike to work in an experience
Speaker 3: setting for a year and we're going to target him
Speaker 3: for a restaurant opening in twenty six in Arizona. We're
Speaker 3: penciling his name in. So that's what it's taken to
Speaker 3: get to the point where I can look you through
Speaker 3: the lens in the eye and tell you that every
Speaker 3: restaurant in twenty three, I can identify the general manager
Speaker 3: as well as the assistant general manager, and they're all
Speaker 3: experienced people. All the restaurants in twenty four, we're doing
Speaker 3: the same thing, every restaurant manager, every AGM, and even
Speaker 3: in that situation, we're trying to get fifty plus percent
Speaker 3: of the rest of the managers to be experienced Portillo's people.
Speaker 3: That just de risks these investments, right, and so that's
Speaker 3: the single biggest hurdle for us, and that's the single
Speaker 3: biggest gating factor on how fast we can grow.
Speaker 1: Yeah, I think that's fantastic.
Speaker 2: And there's been a lot of research done that shows,
Speaker 2: you know, probably the biggest correlation with strong same star
Speaker 2: sales growth is having a great GM. So yeah, I
Speaker 2: think I think that's smart, and I think it was
Speaker 2: smart to do the work, have your HR team do
Speaker 2: the work on your employees and anything you'd like to
Speaker 2: share about turnover because I remember, you know, at the IPO,
Speaker 2: your turnover numbers were pretty significantly better than a lot
Speaker 2: of your peers.
Speaker 3: Yeah. I think we all collectively take great pride in that,
Speaker 3: and it's I would tell you that I'm a I'm
Speaker 3: a culture evangelist, you know. I think that whatever whatever
Speaker 3: you do for a living, whether whatever company you work with,
Speaker 3: whatever sports team you follow, whether it's my beloved Michigan Wolverines,
Speaker 3: culture wins over everything else. Right, Great talent is good,
Speaker 3: great ops are great, but culture is triumphant. And so
Speaker 3: we have worked very very hard on culture. We believe
Speaker 3: in you know, our values are family, greatness, energy, and fun.
Speaker 3: We evangelize those. We espouse those we recruit against those.
Speaker 3: When we recruit people to come to the company, the
Speaker 3: first thing we do is this person a cultural fit.
Speaker 3: Are they going to treat each other and our teams
Speaker 3: like family? Do they aspired to greatness? Right? Like, there's
Speaker 3: a phrase that I love, which is, you know, good
Speaker 3: enough sucks, and so I want people who want to
Speaker 3: be great, high energy, fun. And so we've done a
Speaker 3: really I think a really good job of being cultural
Speaker 3: culture first people. And what that means from our frontline
Speaker 3: team members is we went candidly from paying below average
Speaker 3: wages across the country to now we're at sixtieth seventieth percentile,
Speaker 3: and I'd like to get the seventy fifth percentile. We
Speaker 3: have a benefits package that I'm exceptionally proud of, and
Speaker 3: it's crazy. It's like, you know, guys like my age,
Speaker 3: we want healthcare and four one ks the benefits that
Speaker 3: we're providing our team members that they love is you know,
Speaker 3: they get access to pet insurance and gym pass memberships
Speaker 3: and you know, mental health coaches and so it's just
Speaker 3: a different vibe. But we're doing, I think a really
Speaker 3: good job of being responsive to the needs of our teams,
Speaker 3: and then you know, I'm an enlightened capitalist, right, I
Speaker 3: take great care of your frontline team members. Don't think
Speaker 3: of them as a cost, think of them as your
Speaker 3: brand ambassador, because that's really what they are. And it
Speaker 3: creates a beautiful virtual cycle. So we've done that, and
Speaker 3: it means that we have twenty to thirty percentage points
Speaker 3: better turnover at the hourly level, and I think we
Speaker 3: have sort of industry leading turnover at the management level.
Speaker 3: And that's that's just a gift that keeps on giving.
Speaker 3: There's hard costs, but there's a lot of soft costs
Speaker 3: that's associated with that.
Speaker 1: Yeah, that's awesome.
Speaker 2: I think you know, I'd have to imagine that contributes
Speaker 2: significantly to your multi year highs and speed of service, accuracy,
Speaker 2: guest satisfaction. Are there are there any other initiatives that
Speaker 2: have kind of fed into that.
Speaker 3: You're going to think this is totally hokey, But I
Speaker 3: honestly believe that happy people make happy food and it
Speaker 3: translates to a happy guest. I mean, it's just it's
Speaker 3: just that simple, right. Yes, it's feed of service as that,
Speaker 3: but it's like when a happy person makes your food
Speaker 3: and serves it to you, it just tastes better, it
Speaker 3: creates a it's it's a it's a virtuous cycle. It's
Speaker 3: very very hard to like point to every single economic
Speaker 3: advantage to it. And that's why there's so much soft
Speaker 3: benefit that is. That's you know, to to an accountant
Speaker 3: would be like, I don't see where this is, But
Speaker 3: to you know, people who experience it, who have a
Speaker 3: gut sense for what's going on, it's real.
Speaker 1: Yeah. I couldn't agree more.
Speaker 2: My last episode with Fred la Frunk, we we dove
Speaker 2: into this entire topic. It was about empowering your employees
Speaker 2: to help turn around struggling brands and yeah, grow emerging ones.
Speaker 2: So I think, I think, I think it's great.
Speaker 1: How much pricing did you run last year and how
Speaker 1: much do you expect to run this year?
Speaker 3: Yeah, so we were just around a little bit over
Speaker 3: eight percent last year. So we trailed inflation by a
Speaker 3: hair and trailed the rest of our peers by a
Speaker 3: little bit more than a hair. I think a lot
Speaker 3: of our peers took pricing above inflation, and honestly, I
Speaker 3: love that position for us. I want I think that
Speaker 3: I genuinely believe that the consumer, whether or not the
Speaker 3: country goes into recession, the consumer is in a recessionary mindset,
Speaker 3: and I think it's very important to have a sharp
Speaker 3: value proposition in that situation, and so that that's where
Speaker 3: we are. I want to have fantastic value. I also
Speaker 3: do not believe in discounting, So we're not a brand
Speaker 3: that's ever on sale, right because I think that causes
Speaker 3: long term harm to your brand. You're telling people I'm
Speaker 3: not worth this price, you should only buy me when
Speaker 3: I'm on sale. So we don't discount.
Speaker 1: We don't.
Speaker 3: We don't do value meals, value menu, we don't do
Speaker 3: any of that stuff. And so it's it's we can't
Speaker 3: cut prices like everybody, you know, the big QSRs do,
Speaker 3: so we're slow and steady when it comes to pricing.
Speaker 3: I expect that we will. You know, we've taken two
Speaker 3: pricing actions our year over year increases and prices have
Speaker 3: actually slowed down, and I'm not sure what's going to
Speaker 3: happen the rest of the year, So I don't I
Speaker 3: don't know if we need the price anymore this year.
Speaker 3: But I but again I didn't. I didn't expect the
Speaker 3: inflation last year that we experience fifteen percent in commodities,
Speaker 3: eight nine percent in labor. So based on what I
Speaker 3: see now, I feel really good. But if if the
Speaker 3: world continue, if the world goes bonkers again, then you know,
Speaker 3: we can always price. We have plenty of pricing power,
Speaker 3: but I'd rather not use it. I'd rather I'd rather
Speaker 3: drive our business via great execution and transactions and traffic count.
Speaker 3: And I think it's a it's a little bit of
Speaker 3: a dangerous path to use price, seeing as your vehicle
Speaker 3: for cop sales growth.
Speaker 2: Yeah, well, I I have a friend in the business.
Speaker 2: He says, you know when your your saints or sales
Speaker 2: are going up, but your traffic's declining.
Speaker 1: He likes to call that the jaws of death.
Speaker 2: Right, So I think the smart long term view is
Speaker 2: trying to grow your traffic. So I think that's a
Speaker 2: smart move on your part. What percentage of the commodity
Speaker 2: portfolio does beef makeup? How much inflation do you expect
Speaker 2: this year? And how much of your supply is locked
Speaker 2: in if any?
Speaker 3: All right, those are all excellent questions that I wish
Speaker 3: my CFO was here to give you one hundred percent answers.
Speaker 3: I can tell you it's like, look, beef is a
Speaker 3: big deal to us because our beef touches, our beef sandwiches,
Speaker 3: which was a beef flat, it's a roast. Beef touches,
Speaker 3: are burgers, which is a mix of different types of beef,
Speaker 3: and beef is in our hot dogs, which are one
Speaker 3: hundred percent beef. And so the beef complex is very
Speaker 3: important to us. It's close, it's probably it's close to
Speaker 3: fifty percent of our total buy. We are very thoughtful
Speaker 3: about locking in prices when it's at or better than budget,
Speaker 3: and so we have about thirty percent of our total
Speaker 3: beef complex locked in for this year going to go
Speaker 3: forward basis, and we you know, we need to be
Speaker 3: open a little bit to the market because you know,
Speaker 3: if you if you read everything and you see what
Speaker 3: people say, there's some thought that beef prices are actually
Speaker 3: going to come down in the back half of the year.
Speaker 3: So I don't want to be totally locked and miss
Speaker 3: out on an opportunity to get that. But you know,
Speaker 3: we we we think that we're in a good spot.
Speaker 3: We're budgeting mid single digits on commodity inflation, which keep
Speaker 3: in mind last year was like fifteen slightly above fifteen
Speaker 3: percent for US, so mid single digits is a big slowdown,
Speaker 3: but it's the slowdown is really back half of the year, right.
Speaker 3: You don't go from fifteen percent in the fourth quarter
Speaker 3: to six percent in the first quarter, So it's a
Speaker 3: it's a taper. So we expect it to continue to
Speaker 3: slow down, and we're allowing ourselves to benefit if the
Speaker 3: market improves better than what we expect.
Speaker 1: Okay, good.
Speaker 2: When when can we expect the company to make significant
Speaker 2: progress in leveraging GNA.
Speaker 3: It's a great question. Like I think we try to
Speaker 3: be very disciplined on GNA, so we're definitely you know,
Speaker 3: we want to grow GNA slower than we grow revenues,
Speaker 3: and we have some I think we've publicly said, think
Speaker 3: about GNA in the seventy two to seventy five million
Speaker 3: range this year. I think it's reasonable for us to
Speaker 3: leverage GNA every year, and I'd like to get down
Speaker 3: to the point where GNA is a you know, it's
Speaker 3: a fraction of revenue growth, right. You know, I lived
Speaker 3: in CpG for a while and there's some really good
Speaker 3: hygiene on. Hey, your GNA should not should not grow
Speaker 3: more than you know, sixty seventy percent of what your
Speaker 3: revenue is and so I think we can get there.
Speaker 3: At the same time, we're still a you know, we're
Speaker 3: a growth company. I don't want to get penny wise
Speaker 3: and pound foolish, right, I don't want to not invest
Speaker 3: in the business and in growth because we're trying to
Speaker 3: watch a line in the P and L that is
Speaker 3: more relevant to a mature company.
Speaker 1: That makes a lot of sense. Can you speak to.
Speaker 2: The remodels and the kitchen twenty three upgrades? I guess
Speaker 2: what you're looking to do, especially in the back of
Speaker 2: the house, and what the expected impact is going to
Speaker 2: be on those initiatives.
Speaker 3: The great question so for if for people who haven't
Speaker 3: experienced of Portillos, the original Portillos had sort of this
Speaker 3: wonky design element which you go to a front counter
Speaker 3: in order and there's this wing along your right side
Speaker 3: where there's people making salads. It's called the salad bowl area.
Speaker 3: And then directly in front of you and to the
Speaker 3: left is a a is a line where they're producing
Speaker 3: all of the sandwiches and the hot food and so.
Speaker 3: And then over here on the far left is what
Speaker 3: we call the bar area where they serve beer. So
Speaker 3: if you go and order at the front counter and
Speaker 3: you order a salad and a sandwich and a beer.
Speaker 3: You literally have to go to three different places to
Speaker 3: pick up your food. And it's it's just it's there's
Speaker 3: a bunch of sort of tribal mythology on why that
Speaker 3: was a good idea, and it's it's not. It's a
Speaker 3: bad idea. So what we're doing is we're consolidating it
Speaker 3: to you order in one place. You can get your
Speaker 3: beverage right here, you can get your beer right here.
Speaker 3: You walk down the line and you pick up all
Speaker 3: your food, salad, et cetera. The salad bowl areas are
Speaker 3: becoming slow, they don't look good, their eye sores. So
Speaker 3: we're repurposing that, making it beautiful into a more of
Speaker 3: a retail merchant kind of visual.
Speaker 1: Right.
Speaker 3: It's like think of those, you know, the beautiful counters
Speaker 3: at Starbucks with all that stuff. You can grab and
Speaker 3: go food, et cetera, and even chotschki. Right, So that's
Speaker 3: what we're doing. You can do grabb and go beverages,
Speaker 3: grab and go desserts, you can get packs of beef
Speaker 3: and gravy to take home and make it home, and
Speaker 3: then t shirts, hats, all this other stuff. By moving
Speaker 3: the salad bowl over to the main line, I've made
Speaker 3: the guests life easier. I've made the box economics better,
Speaker 3: and it actually it reduces conveyance. This is like my
Speaker 3: operator who's brilliant, has taught me that conveyance is like
Speaker 3: a four letter word in the restaurant industry. It means
Speaker 3: carrying stuff around for no reason. And so you just
Speaker 3: remove sixty feet of walking people walking back and forth
Speaker 3: and moving stuff. And so we think that there is
Speaker 3: a significant labor savings because our folks are just going
Speaker 3: to be more productive, etc. It's all great. If we
Speaker 3: do it for no other reason than just to clean
Speaker 3: up the eyesore and make the consumers experience better, it's
Speaker 3: a home run. But if there's incremental sales, because we
Speaker 3: are seeing where we've tested this an uptick in beverage
Speaker 3: sales and dessert sales, and if we actually get the
Speaker 3: labor savings that we're seeing, then this is a home run.
Speaker 3: And so we've tested this and we're rolling it out
Speaker 3: across Chicago Haan. Right now, it's largely a back half,
Speaker 3: but we we're going to get seventeen restaurants done this year.
Speaker 3: And of course that design element is going into our
Speaker 3: new kitchens that we're building going forward.
Speaker 1: All right, exciting stuff.
Speaker 2: So do you think there's an overhang from your pe
Speaker 2: Backer Berkshire Partners ownership? And what are their plans for
Speaker 2: the for their shares moving forward?
Speaker 3: I mean, look, this is that's a very savvy question.
Speaker 3: So a ton of credit to you for understanding that nuance.
Speaker 3: Right for those who aren't as savvy, Look, we were.
Speaker 3: This company was bought by private equity in twenty fourteen, right,
Speaker 3: and so private equity has limited partners who expect returns
Speaker 3: on their investment, et cetera. And the private equity firm
Speaker 3: has had a fantastic outcome. They've made over five times
Speaker 3: their money. And so and it's almost ten years, right,
Speaker 3: this is nine years that those LPs have owned this investment.
Speaker 3: And it's you know, if you make an investment somewhere
Speaker 3: after nine years, it's like, hey, where's my money? You
Speaker 3: made me five times? Can I have my money please?
Speaker 3: And that's a little bit of what's going on. And
Speaker 3: it's totally normal. It's reasonable. Our private equity partners are
Speaker 3: wonderful people. I enjoy them very much, but it is
Speaker 3: appropriate for them to be selling off, and that does
Speaker 3: create an overhang, because what it does is, you know,
Speaker 3: every smart short seller out there knows that there's a
Speaker 3: technical short for us, because when you know, my PE firm,
Speaker 3: my PE partners still own thirty percent of the company,
Speaker 3: and when they sell stock, it's going to have, you know,
Speaker 3: supply and demand issues and it's going to have a
Speaker 3: negative impact on the stock. So you've got a bunch
Speaker 3: of people sitting on a technical short, not a fundamental short,
Speaker 3: but this technical short. And so that will resolve itself
Speaker 3: relatively quickly. Right when we went public, I think we
Speaker 3: had what twenty million shares twenty five million shares in
Speaker 3: a public flow. We've doubled the float. We're still trading
Speaker 3: above our IPO price, which is fantastic. So the market
Speaker 3: has absorbed twice as much Portillo shares more than double
Speaker 3: now and so so I think there is an overhang.
Speaker 3: I think that that overhang will resolve itself and then
Speaker 3: all of those lovely shorts will become longs because they
Speaker 3: have to get out of their positions.
Speaker 1: Yeah for sure. All right, So what keeps you up
Speaker 1: at night?
Speaker 3: You know? Uh, I am blessed with an amazing team.
Speaker 3: I've it's I love the team I work with. I
Speaker 3: love I have a fantastic supportive board. Uh. You know,
Speaker 3: I'd like to slay I sleep well, but I'm a
Speaker 3: middle aged man, so you know I don't sleep well.
Speaker 3: But nothing keeps me up at night. I mean, I
Speaker 3: have a great team. They're doing a great job. This.
Speaker 3: This industry is a game of whack a mole. There's
Speaker 3: always something going wrong. But if that keeps you up
Speaker 3: at night, then you're probably in the wrong business, right you.
Speaker 3: I actually I love this. I love my job. I
Speaker 3: love this industry. I think it's it's such a dynamic,
Speaker 3: fun place. Right the the time between action and reaction
Speaker 3: is so quick you can you can try stuff, okay
Speaker 3: that didn't work, go on to the next thing, and uh,
Speaker 3: it's a ton of fun. It's a real fun industry.
Speaker 1: That's great.
Speaker 3: Uh.
Speaker 2: And I love that answer, and I love covering it.
Speaker 2: I'm blessed just just to be associated with it.
Speaker 1: So that was great. Man.
Speaker 2: Is there anything that we didn't cover that maybe you
Speaker 2: think investors should know?
Speaker 3: Uh, here's a fun fact for you. We keep testing
Speaker 3: this and my investor, even my investors and my analysts
Speaker 3: are always incredulous about this, But every time we test
Speaker 3: a net promoter score, are you familiar with those, Mike, Yes, right,
Speaker 3: we typically have the highest net promoter score when we
Speaker 3: test it. I mean that's comparing to some titans in
Speaker 3: this industry, Like you know, to say that not only
Speaker 3: are we in the same league as Chipotle and Chick
Speaker 3: fil A and McDonald's and these, but that we're actually
Speaker 3: we have better net promoter scores is outstanding. And this isn't,
Speaker 3: by the way, just in Chicago. This is across the country.
Speaker 3: So any market where people experience us, our net promoter
Speaker 3: scores are exceedingly high. That that is man, that is
Speaker 3: that is that is gold. I don't know, I don't
Speaker 3: know too many companies that that have that kind of uh,
Speaker 3: that kind of brand strength. And so I'm a brand guy.
Speaker 3: I love great brands. I've never experienced a brand that
Speaker 3: punches above its weight like this brand.
Speaker 2: Very exciting, man, and I look forward to continuing to
Speaker 2: follow your progress and Patillo's progress. It's it's a great
Speaker 2: exciting emerging grill story. So thanks again for doing this.
Speaker 2: I'm want to thank the listeners for listening in and
Speaker 2: have a good day.
Speaker 1: Everybody.