Most of the U.S. may not have heard of Portillo’s, given that it only exists in nine states. But chances are likely they will soon.
The 67-unit, Chicago-based hot dog restaurant chain made its debut on the NASDAQ
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What has investors so excited–especially after a year in which the restaurant industry’s vulnerabilities (like safety, supply chain and labor pressures) have been exposed? For starters, Portillo’s average unit volumes are out of this world, or about $7.9 million. For context, Chick-fil-A’s AUVs are about $4.5 million, while McDonald’s
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Further, Portillo’s is very differentiated from its competition, with a focus on hot dogs and beef and sausage sandwiches. This bodes well in an otherwise homogenous industry. Simultaneously, it also competes in the burger and chicken sandwich space and touts its desserts and fries as well–so it’s typically able to negate any veto votes.
“I think of our Italian beef sandwich, which is roast beef with au jus. The combination is masterful, and it translates across the entire country. We are the beneficiaries that nobody else does this on a national scale,” CEO/President Michael Osanloo said during a phone interview on opening day.
Of course, Portillo’s isn’t quite national yet. The company plans to use proceeds from its IPO to pay off debt and then focus on growth. That’s the plan now, at least, as the ring from its opening day bell still lingers.
Osanloo admits the market is “turbulent,” and some IPOs this year (like Krispy Kreme) have proven as much. Still, he is confident in his concept’s ability to sustain investor interest, and it’s not just because of the food.
“We are a well-performing, strong company and we take a lot of pride in being a people-centered organization. We have amazing people, food, culture, and if you can nail it on those things, that’s the foundation for a great restaurant company,” he said.
The ultimate goal, Osanloo adds, is to become one of the most exciting growth restaurant options on the market. That growth will come organically in neighboring states across the Midwest, as well as along the Sun Belt–specifically Texas, Florida and Arizona.
“We know those states are fast growing in terms of population. They also have pent-up demand for Portillo’s. Texas is the number one state we ship to. If people get tired of Chicago winters, those are the states they go to,” Osanloo said.
Currently, plans are modest. Portillo’s expects to open two new units in Q4 and seven new units in 2022, including its first flagship restaurant in the Dallas market. The company is also partnering with Kitchens United to explore growth in the lower-investment, delivery-focused ghost kitchen space.
“Our partnership with Kitchens United is going exceptionally well. It’s meant to take the pressure off our dense locations for third-party delivery. We love it and we think it has legs,” Osanloo said.
Portillo’s also plans to open a drive-thru-only location in Joliet, Illinois, in Q1 2022. The model is about half the site of traditional Portillo’s and includes three drive-thru lanes, one dedicated specifically to digital order-ahead traffic. The challenge with such a model, however, is that it will be hard to duplicate the brand’s vibrant environment without a dining room. Osanloo said the company is trying to solve for that; for example, outfitting the “crew team” in NASCAR outfits.
“We sometimes get criticized because our restaurants are expensive to build. My response is always ‘no.’ You can cut costs in certain ways, but our restaurants are differentiators,” Osanloo said. “That is balance sheet marketing. Our restaurants are engaging, inviting, fun. That’s some of the best marketing we’re going to get. We are working very hard to have a similar guest experience with our drive-thru. We won’t lower that bar.”
Arguably, Portillo’s restaurants are “engaging and fun” because they’re more than fully staffed. This is evidenced by its AUVs and heavy drive-thru volumes, and this is a rarity in today’s labor-challenged environment.
Osanloo claims his company has been somewhat insulated from current labor pressures, however, because of what he calls “enlightened capitalism.” He claims Portillo’s turnover rates are 20% lower than industry averages, while management turnover is 10-to-15% lower. This may also appeal to investors, as several concepts in the industry struggle to maintain operating hours amid a historically-high quit rate.
“The key to our success is we really are a values-driven organization. When COVID happened, we didn’t lay off or furlough a single team member. At the time, 50% of our business came from dining rooms, but we cross trained people to do curbside and order taking and tested self-delivery,” he said. “We paid them bonuses and meals and created a 501c3 so we could take care of them. When you take care of your team, great things happen, and we have the best level of productivity we’ve ever seen. I feel really, really good about where we’re headed.”