Quick-service restaurant chain El Pollo Loco is rolling out various initiatives to mitigate increasing labor costs in California, according to interim president and CEO Maria Hollandsworth and chief financial officer Ira Fils, who presented Monday morning at the annual ICR conference.
The chain is headquartered in Costa Mesa, Calif., and that state is home to about 75% of its units, which are a mix of company-owned and franchised. Minimum wage for fast food workers in that state will go up to $20 an hour from $16 an hour on April 1 this year.
While some restaurant brands are raising menu prices to compensate for the increased labor costs, El Pollo Loco is leaning into labor efficiencies to “help us take less price than some of the other brands in California,” Fils said.
While the brand, known for its grilled chicken, may raise prices in the “mid-single digits,” executives hope to offset the labor costs by installing order kiosks and streamlining kitchen procedures. For example, the menu was recently slimmed to include only one kind of salsa, instead of two. Hollandsworth said this move was also good for employee morale.
Fils expects kiosks to be rolled out to every company-owned store by midyear.
Overall, Fils said the labor savings from initiatives like these will offset anywhere from a third to a half of the impact of a rising minimum wage. As a bonus, units outside of California — El Pollo Loco also has stores in Arizona, Colorado, Louisiana, Mississippi, Nevada, Texas, and Utah — will also benefit from the labor savings.
Elsewhere, executives are focused on “reinforcing a culture of recognition and accountability,” Hollandsworth said. “Do we have the right people to help us execute our strategy?” She was appointed to her current role in early November, when it was announced that previous CEO, president, and director Larry Roberts was leaving the company. Hollandsworth originally joined El Pollo Loco as chief operating officer in October 2022.
Menu-wise, the team is focused on its signature chicken, despite the popularity of a birria limited-time offer in May 2022. “We’re really emphasizing chicken,” Fils said. “We won’t have beef permanently but will augment it periodically if it helps accentuate one of our platforms.”
Current menu promotions focus on value for families; for example, offering an additional side with family meals.
Catering is also a big focus, and according to Hollandsworth they are “thrilled with the progress we are seeing so far.”
Overall, the company saw a strong margin recovery in 2023 after a COVID-related struggle, and is confident going into 2024. According to Fils, following a digital overhaul last April, the company sees about 12% of its overall sales come from digital — 8% from delivery, and 4% from order-ahead on the brand’s mobile app. Drive-thru accounts for 55% of all sales.
Marketing-wise, El Pollo Loco is focused on younger consumer groups, particularly on TikTok, Hollandsworth said. That video-focused social-media platform made birria the brand’s most successful LTO in 40 years, driving an 8.5% sales increase, so it makes sense as a focus for the company.
The menu also features items specifically targeting younger consumers, such as crunchy chicken tacos and an avocado chicken quesadilla.
El Pollo Loco is also continuing to focus on franchise growth, including refranchising outside California. Fils said an existing successful franchisee came to corporate and asked to take on the Houston market. Going forward, he sees opportunities to sell some California restaurants to franchisees as well.
“Growth going forward will be franchise-led,” he said.