Potbelly Corporation reported softer-than-expected sales (down 0.2%) for the first quarter ended March 31, 2024, driven by fewer transactions from infrequent guests. It’s a familiar story across the foodservice industry, but while other operators have leaned into discounting to try to attract non-regulars facing a tough inflationary environment, Potbelly plans to shy away from that tendency. Instead, the Chicago-based sandwich chain will be doubling down on digital engagement, including the brand’s newly refreshed loyalty program, and touting everyday value to mitigate traffic woes.
As of Q4 2023, 41% of Potbelly’s sales are coming from digital channels, and after rolling out the newly refreshed Potbelly Perks app in January, the company saw a 36% increase in active year-over-year members.
“I think what we've seen, at least in our business — and I do think it's a symptom of the broader economy — is our less frequent consumer is pulling back a bit, and not just with us… their food budget as a whole is under pressure,” Potbelly CEO Bob Wright told Nation’s Restaurant News. “I think we continue to keep our foot on the gas with how we engage with and provide value through our digital channels to those customers that are so important to us.”
Potbelly plans to keep the focus on the brand’s more regular customers, and to attract both frequent and infrequent consumers by hyping up Potbelly’s everyday value, Wright said. That might look like increasing digital marketing and creating personalized offers through the refurbished loyalty app, or it might include repackaging meals on the menu or focusing on the brand’s skinny sandwiches, which provide smaller portion sizes for the budget-conscious consumer.
“I spent a lot of time in QSR, so I know exactly what it looks like to be slashing prices or taking premium items at a significantly discounted price,” Wright said. “But it’s really not brand-building when you do that, and we don’t believe we need to do that.”
Part of the everyday value equation is creative and exciting menu innovation. Potbelly is speeding up its menu innovation pipeline, with a particular focus on sandwiches, shakes, and cookies. Recent new and limited-time offerings include the jalapeno popper chicken sandwich, dulce de leche cookie, and cinnamon churro shake. Potbelly will also continue to add new items to its Underground Menu, which is the secret menu available only to loyalty members.
“Our customers are rewarding us for our pipeline and the pace with which we're bringing out products,” Wright said. “LTOs work well because people like new things, and it gives some of our regular customers the chance to explore new flavor options… We get credit for these high quality and unique menu items, and the LTO is our way of reinforcing that.”
Another sign that Potbelly is reinforcing the strength of its digital sales is the introduction of a new, smaller store footprint. The new restaurant prototype is 500 square-feet smaller than a typical Potbelly store, and designed to be more digital-centric, with customer flows that make sense for mobile order pickups. The first franchised location with the new prototype is opening later this month, and it will be the predominant design for Potbelly stores moving forward.
Despite the softer sales and transactions, Wright is not concerned about long-term customer trends, and anticipates that this cautionary spending environment won’t last forever:
“We don't see a significant change in customer behavior — people still love eating out, they're choosing carefully where they spend those dollars outside the home,” he said. “It’s not about losing customers, they’re just managing their restaurant frequency a little bit. We have a lot of ways — whether it's our digital programs or our food innovation — to hold our frequency and continue to build back into positive territory.”
For the first quarter ended March 31, Potbelly reported net income of $0.2 million, or nine cents a share, down from $0.6 million, or five cents a share, in the same quarter a year ago.
Revenues decreased 6% to $111.2 million compared to $118.3 million the same quarter last year.
As of March 31, Potbelly had 427 restaurants portfolio-wide.
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