Potbelly eyes Oklahoma City for franchise growth

Chicago-based Potbelly Sandwich Shop has revealed a multiunit franchise growth plan for Oklahoma City, identifying a market where it hopes to accelerate expansion for its emerging franchise system.

Company officials said in a statement that it has targeted Oklahoma City as the next franchise market because of the area’s growing residential and business communities.

“Preserving the core of the Potbelly experience through its growth is our top priority, making certain that each new market develops a Potbelly fan base that calls their local shop their own,” head of franchise development Mike Walters said in a statement. “As has always been the case, each new shop will be a direct reflection of the community in which it is situated. We carefully select Potbelly franchisees to ensure they share a passion for community and our vision to offer an environment unlike any other.”

As of the close of fiscal 2013, franchisees operated only seven Potbelly units in the United States and 12 locations in the Middle East, compared with 288 company-owned restaurants in the United States.

Potbelly is calling for multiunit operators for Oklahoma City and eventually other Oklahoma cities like Tulsa, Norman and Stillwater. Outside the state, the company said it would target franchise growth in nearby Arkansas, Nebraska and Iowa.

The chain disclosed during its fourth-quarter earnings call that it is targeting 35 to 40 new company-owned shops to open in 2014, and that it expects franchisees to open five to eight units as well.

In a research note, securities analyst David Tarantino of Robert W. Baird & Co. wrote that his firm was confident Potbelly’s management team could deliver on its unit growth outlook, adding that the brand’s franchised system could gain momentum and reach 10 percent of the company’s unit mix by 2016, compared with 7 percent at the end of fiscal 2013.

“While franchising is currently only a small part of the Potbelly story,” Tarantino wrote, “we believe a faster pace of franchise growth can provide the company with a profitable revenue stream, as well as an opportunity to reach additional lower-priority markets more quickly than through company-operated growth alone.”

Potbelly chief executive Aylwin Lewis also said during last month’s fourth-quarter earnings call that the chain would open a new “hub” market in 2014, in keeping with the newly public company’s strategy of entering a major city for corporate development every 18 to 24 months.

“I believe our entry into these new markets,” Lewis said, “coupled with the growth in our legacy markets, as well as the significant amount of white space that we believe remains untapped, sets us up to deliver our long-term financial goals and, more importantly, achieve our stated goal of at least 10 percent new-unit growth for a long period of time.”

In recent years, Potbelly has entered major cities it identified as hub markets, such as New York City, Seattle, Boston and Phoenix. Recently developed spoke markets included Cleveland and Kansas City, Mo.

Potbelly has restaurants in 18 states and the District of Columbia.

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN