Portillo employees pay 20% more as pressure continues

The Portillo Unicorn Story was the headline before it went public in October. The fact that it is a 67-unit brand with average unit volumes of nearly $ 8 million and a store-level adjusted EBITDA margin of 28.6%, mythical numbers in fast service . In addition, with 7,800 square foot boxes taking an average of 87 employees to staff, with no menu category accounting for more than 23% of sales, the daily lunch and dinner slices essentially break down at 48 and 52%, respectively, average checks of $ 9.60; and drive-thru driving $ 4.9 million per unit amid COVID.

Still, the brand’s first quarterly report as a state-owned company sounded familiar. Inflation in raw materials, labor, and rising costs to simply run a restaurant today all weighed on the brand in the third quarter. Adjusted margins at the restaurants in Portillo were 24.8% compared to 28.9% in the previous year period. The cost of goods sold jumped to 32.1 percent from 30.6 percent, mainly due to higher prices for commodities, especially beef.

CFO Michelle Hook said Thursday that the brand’s average hourly rates were up nearly 20% quarter-over-quarter. And yet, the brand remains 10% understaffed.

The third-quarter workforce represented 26.8% of Portillo’s revenue, a significant increase from 24.3% last year. Salaries have pushed the numbers up, as have training costs and discretionary bonuses.

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However, even while struggling to recruit staff, Hook said Portillo did not limit service channels or hours of operation throughout the period.

Credit, CEO Michael Osanloo said, goes to a “massive increase” in work efficiency achieved during COVID and Portillo’s efforts to train staff. He didn’t lay off a single worker when the pandemic hit. “It’s absolutely part of what alleviates some of the cost pressures is that our people are just more efficient,” Osanloo said. “And they work incredibly diligently. We believe this is a learning we got over the course of the COVID year that will continue to pay off for us, our team members, and our investors for years to come. “

That’s not to say Portillo isn’t working to bring levels back to past standards. “We certainly plan to recruit fully as these opportunities arise, ”added Osanloo,“ because we intuitively believe that fully staffed restaurants perform better and that there are compensation opportunities there. “

Portillo’s total revenue increased 15.3% to $ 138 million. Same store sales increased 6.8% year-on-year.

The latter result is due to a 7.9% increase in average checkout thanks to higher menu prices, a mix of items sold, and more items per order. In this equation, Portillo’s also observes some common COVID themes. Traffic remains depressed compared to pre-pandemic brands thanks to a drop in restaurant traffic. The brand pushed business to the four walls of $ 4.4 million before the crisis. That number was $ 2.1 million in the 12 months ending in the third quarter of 2021. Meanwhile, drive-thru has grown from $ 3.4 million per store to $ 4.9 million. Delivery was $ 500,000 per catering company in 2019. Now it’s $ 900,000.

Delivery and drive-thru generally appreciate larger orders. In turn, the face of Portillo’s business has adjusted.

All of its dining rooms were open in the third quarter, but Portillo’s continues to face mask warrants in many of its locations, Osanloo said. Chicago being the main one.

“Now the good news is that our traffic behind the wheel actually remains incredibly strong and resilient,” he said. “And so, as our dining room slowly returned to the mix, it didn’t negatively affect our drive-thru channel. I don’t know where it’s going to stabilize, I think there are a lot of opportunities for us, but it would be foolish of me to guess how much that is incremental compared to how much it changes.

Although Portillo cannot flip the tarot cards over on this one, he does not stand back. Prototypes hitting the market, including stores in Glendale, Arizona; Orlando Florida; Addison and Kimball, Illinois; and Sterling Heights, Michigan, are focused on off-premises sales. Less formal dining room with large outdoor patios. Entrances and vestibules dedicated to delivery by third parties. A shelving system near the door for curbside parking spaces so customers can grab food in and out quickly.

Additionally, Portillo’s is building a drive-thru concept only in Joliet, Ill., With three lanes on an acre lot (instead of the typical sites over 2 acres) that it calls a “pickup.” Portillo ”. And a restaurant in West Madison, Wisconsin in the works that will be the first with a third lane specifically designed to fulfill online orders and delivery. Osanloo said Portillo’s was playing with the idea of ​​labeling this “fast lane”.

“And that’s for people who have ordered through the app or want a sidewalk type experience where you don’t have to get out of your car,” he said. “You can cross that third drive-thru lane and the food is brought to you. … We are moving towards where the consumer is, that is, the consumer says, “we want more access and availability off-site”. And the need to sit in restaurants decreases.

On the drive-thru store in particular, Osanloo said, if successful, it could give Portillo a powerful role model to fill mature markets as he moves towards the company’s ultimate goal of 600 units.

Portillo plans to open seven restaurants in 2022, en route to 10% growth per year. It targets Florida, Arizona, Indiana and Michigan, as well as the initial expansion to Texas. This will unfold in two ways: continued expansion into key areas of the Midwest and new Sunbelt home markets for opportunistic growth.

Osanloo was invited Thursday to elaborate on Texas. “Everyone in the room is shaking their heads vigorously now that I can’t tell you the city,” he said, adding that he thought it would be “a flagship restaurant” and a “really high performer” . The secret will be revealed in the fourth quarter.

Returning to inflation, Portillo’s did not take additional pricing in the third quarter, which led to some of the aforementioned results as the brand absorbed operating pressures head on. But he did so at the start of the fourth quarter, by about 3%.

Hook said the company sees no end in sight for commodity inflation. And in turn, will continue to evaluate prices in the upcoming calendar. “But we know the healthy way to grow this business is through growing transactions,” Hook said.

Portillo’s five restaurants open since Q3 2020 are 35% above typical parameters for new AUV $ 6.4 million stores. So almost $ 8.5 million. And most of them are outside of Chicagoland.

“The next six to nine months require us to just be super agile and responsive to supply chain dynamics. But also, when it comes to work, we’re just going to keep doing what we’re doing, which is offering a differentiated opportunity to people, we are hiring people based on values, we are giving them an opportunity to life, if they choose it, ”Osanloo said. “And I know you know that… but we don’t pay minimum wage at any of our restaurants. We are significantly above minimum wage across the country because we truly believe that people are the heart of our business and we take care of our people.

When Portillo’s completed its IPO last month, it gave all restaurant managers one-time restricted stock unit grants.

Osanloo also spoke briefly about recent efforts to simplify Portillo’s menu. On average, the chain removed 75 SKUs from each restaurant during COVID. Some cut 150-200. Along the way, the quality of Portillo has been tightened.

Caesar salads are better. The quality of the chicken has increased. The fish sandwich has been reworked. The introduction of a spicy chicken sandwich alone, which includes the brand’s Giardiniera hot sauce, increased Portillo’s chicken category by 27%, year over year.

“I tease because I call it a Darwinian exercise with the menu, we have the strong that kills the weak, and that’s what we do, ”he said.