QSR May 2023

FAST CASUAL

Along the way, Potbelly carried its Underground Menu, fresh baked cookies, and hand-scooped milkshakes to fresh audiences as it worked to stoke that history. Yet Potbelly’s cult-like fanbase hasn’t always flowed to top line success. When Wright, a former EVP and COO of Wendy’s, assumed his CEO post in summer 2020, it was a brand known

the first 10 weeks and yet still finished down 10.1 percent—a sign of how steep the COVID cliff truly was. But all told, the chain Wright took helm of that summer was more than just a pandemic recovery project. It was a comeback years in the works. Potbelly’s fan-centric differentiation was a line circulated to investors for years—one that had yet to cash in. Wright set course. “I think it’s important to [know] that before I was approached [for the CEO role], this is a brand I’ve always had a really strong affinity for,” he says. “… The brand is terrific. The food is great. The experience is unique. And when you get that combination of things in the same com pany, it’s a very defensible point of differentiation and that’s what gets you to grow.” Wright began with a five-pillar strategy announced publicly in fall 2020: food quality at great value, positive work environ ment, customer experiences that drive growth, digitally driven awareness, and franchised-focused development. It was taking root behind the curtain. Company-owned same-store sales declined 21 percent in Q3 2020 and 19.4 percent in October, an improvement from a 41.5 percent slide in Q2. Additionally, the brand reached unit-level profitability and traffic soared 21 percentage points. Those 100 potential store closures? It ended up at just 28, with 321 leases getting renegotiated. Potbelly has been a rocket since. Total revenues in full-year 2022 increased 19 percent to $452 million. Same-store sales climbed 18.5 percent and units aver aged $22,464 per week—a record figure. Potbelly’s Q4 comps of 18.9 percent represented its seventh consecutive quarter of posi tive gains. Weekly average sales closed the year even higher—at $24,144 (or about $1.2 million on a yearly view). That number was $19,455 in Q1 2022. On the topic of growth, Potbelly headed into 2023 with signed development area agreements for 51 new shop commit ments over the next seven to eight years. The genesis, Wright says, dials back to the same DNA that hooked him as a customer. If Potbelly couldn’t replicate crave able, high-quality food at a great value, it was going to drown in a beehive of sandwich chains. All of that equity curated over 46 years would become more nostalgia than reality. “We had to focus on those experiences that would bring peo ple back,” Wright says. “And frankly, our operations needed some attention, and we weren’t necessarily giving people the best reasons to come back. That’s where traffic growth comes from—your own experiences.” Just like the entire restaurant field, Potbelly had to make the brand digitally available to do so. The 12 months leading up to the end of fiscal 2021 were a turning point. Potbelly launched a simplified, value-enhanc ing menu (more on this later), upgraded its tech stack with a revamped app, website, digital ordering integration, and Perks loyalty program, as well as filling out its leadership team with a crop of new hires. In a perhaps less sexy, yet no less vital move, the chain fortified its payment solution as well. “But it was all in recognition of where the customer was going,” Wright says. “We wanted to make sure we were more

BOB WRIGHT / CEO

as much for its potential as its performance. “For whatever rea son,” Wright says, “It just hadn’t realized it.” Wright arrived in the mouth of the pandemic. Potbelly wasn’t alone with its troubles, which were more pronounced across café-style fast casuals than fast food. Potbelly’s same-store sales dropped nearly 70 percent that March and the company cau tioned investors it could permanently shutter up to 100 corporate units. Before getting into what actually happened, it’s worth flipping back another chapter. Potbelly’s turnaround wasn’t a COVID-triggered task. The brand had a plan called “Project Aurora” in place pre virus. Aided by a consulting firm, Potbelly built a “state of powerful tech-based consumer insights” to drive progress. This included everything from menu optimization to quality control to revamped advertising. Also, a “Shop of the Future” model that closed the circle. Sales on the top line dipped 3 percent across 2019 and ran negative every quarter from Q1 2017 to Q4 2019, before the COVID crisis entered the picture. Growth halted in Q3 2019 as the company redirected efforts. Things had begun to improve somewhat on the doorstep of lockdowns. A Q4 2019 comps decline of 0.1 percent was Pot belly’s best quarter in three years. The brand outperformed the industry in traffic and comps for 11 of 13 weeks, per Black Box Intelligence, and projected a return to positive same-store sales in Q1 2020. Naturally, nothing about that opening period would prove to be in Potbelly’s crystal ball. Comps rose 2.6 percent across

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MAY 2023 | QSR | www.qsrmagazine.com