In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Potbelly Sandwich Shop franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Potbelly Sandwich Shop franchise, based on Item 7 of the company’s 2019 FDD
- Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Potbelly Sandwich Shop franchise, based on Items 5 and 6 of the company’s 2019 FDD
- Section IV – Number of franchised and company-owned Potbelly Sandwich Shop outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD
- Section V – Presentation and analysis of Potbelly Sandwich Shop’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
- 2018 average and median weekly gross sales for the 34 franchised Potbelly Sandwich Shop restaurants (excluding airport locations) that were open for the full 12 months in 2018
- 2018 average and median gross sales, net sales, total cost of sales, gross profit, total labor, other operating expenses, occupancy expenses, and shop profits for the 410 affiliate-owned Potbelly Sandwich Shop restaurants (excluding airport locations) that were open for at least 15 months as of the end of December 2018
Section I – Background Information
16 Things You Need to Know About the Potbelly Sandwich Shop Franchise
Accelerates Multi-Unit Franchise Growth
1. At the beginning of August 2019, Potbelly Sandwich Shop announced the signing of three new franchise agreements and the continued momentum in its franchising program. Over the last six months (at the time of the announcement), Potbelly had signed franchise agreements that, when fully built out over the coming years, will nearly double its franchise footprint with multi-unit development deals for a total of 38 units spanning Las Vegas, Nevada; Tampa, Florida; and the Carolinas.
2. In addition, Potbelly has opened a number of franchise stores this year that are driving brand penetration across several areas of the country, including recently opened shops in Irvine, California; Odessa, Texas; Richmond and Charlottesville, Virginia; Rochester, Minnesota; and Charlotte, North Carolina.
3. Alan Johnson, president and chief executive officer of Potbelly Corporation, said, “The momentum in our franchising business illustrates the improvements we are seeing in the strength of our brand and the execution of our strategy. We have been able to attract accomplished franchise partners that have considerable multi-unit experience and are looking for a unique concept with which to grow. Franchising is an important component of our future growth and I would like to commend our team on their early success and momentum in the first half of the year.”
4. Franchise agreements signed in the first and second quarters of 2019 are setting the course for Potbelly’s accelerated franchise growth. Some of the territories covered by these new franchise agreements are:
- Las Vegas, Nevada: Potbelly inked a multi-unit development deal with Eric Persson, an experienced, multi-brand restaurant operator and owner, to bring 10 shops to Las Vegas. Persson is the co-founder and co-owner of Maverick Gaming LLC, a group that currently owns the Wendover Nugget, Red Garter Hotel, Red Lion Casino, and the Gold Country Casino, all in northern Nevada. Additionally, Persson owns 40 stand-alone restaurants including Tropical Smoothie Café, Qdoba, and others in the Las Vegas and Phoenix markets. With his multi-brand experience, Persson embodies the type of franchise owner that Potbelly is looking to attract.
- Tampa, Florida: In the Sunshine State, Potbelly signed a 15-shop deal in Tampa with a multi-unit group that owns and operates multiple franchise units. The group identified Potbelly as an attractive growth opportunity as it sought to diversify its robust portfolio.
- The Carolinas: On the Eastern seaboard, entrepreneur Brent Brouse inked an agreement to open 13 shops in North and South Carolina in communities east of Interstate 95. Brouse’s first shop will be in the bustling college town of Wilmington, North Carolina. Brouse previously held leadership roles at Lettuce Entertain You, Inc., an iconic independent, family-owned restaurant group based in Chicago that owns, manages, and licenses more than 130 establishments in five states and Washington D.C. where he was responsible for opening several new concepts.
5. Peter Ortiz, vice president of franchise development for Potbelly, added, “The increased pace of franchising is a key component of Potbelly’s growth strategy and is premised on partnering with experienced, well-capitalized multi-unit operators. Our reception in the franchise marketplace has been very encouraging. We have enjoyed a solid first two quarters, and with additional attractive regions still available, our momentum should continue to grow as we enter 2020.”
6. While it expands franchising strategically across the country, Potbelly continues to refine its operations and introduce new initiatives designed to grow shop revenues, specifically as it relates to the following initiatives:
- Enhanced Menu: Potbelly rolled out its enhanced menu early in 2019 and continues to see strong results based on the menu’s improved “shopability,” as well as the addition of “Pick-Your-Pair” and “Meal Deal” initiatives, which are driving an increase in average check.
- Expanded Off-Premise Business: Additional growth is being driven through the brand’s recent national partnership with DoorDash, geared to address this growing consumer occasion.
- “Shop of the Future” Initiative: Potbelly’s new “Shop of the Future” platform continues to be tested and refined, and is expected to increase customer convenience, improve shop productivity and transparency, optimize sales, and leverage technology more effectively. This initiative will be attractive to prospective franchisees as it is projected to significantly reduce development costs, as well as the expected franchisee payback period.
Inks Multi-Unit Development Deal to Open Restaurants in Macy’s Stores
7. In early October 2019, Potbelly Sandwich Shop announced that it had signed a multi-unit franchise agreement to open shops in Macy’s department stores, adding to the fast-casual brand’s significant multi-unit franchise growth in 2019. The deal consists of four units, with three shops in California and one in New York, and builds off the existing relationship between Potbelly and Macy’s. A thriving Potbelly opened in the Macy’s at The Mall of America in 2018.
8. The California locations follow Potbelly’s opening of its first shop in the Golden State, located in Irvine and operated by a local franchisee. The New York location will be the 16th Potbelly restaurant in the state.
9. Peter Ortiz, vice president of franchise development for Potbelly, said, “This franchise agreement marks a major milestone in our multi-unit franchise growth. A development deal with one of the nation’s premier retailers is a testament to our focus and prioritization of our franchising initiative. We’re thrilled for what’s in store for the future with Macy’s.”
10. Potbelly locations are set to open at the following Macy’s stores:
- Macy’s Modesto Vintage Fair: 3401 Dale Road, Modesto, CA 95356;
- Macy’s Concord Sun Valley: 341 Sun Valley Mall, Concord, CA 94520;
- Macy’s Valencia Town Center: 26450 McBean Parkway, Santa Clarita, CA 91355; and
- Macy’s Smith Haven: 2 Smith Haven Mall, Lake Grove, NY 11755.
Kicks Off DoorDash Delivery Partnership With BOGO Deal
11. In mid-August 2019, Potbelly Sandwich Shop launched its nationwide partnership with DoorDash by offering a buy-one-get-one-free original sandwich exclusively available through DoorDash on orders of $15 or more, from Tuesday, August 13 through Sunday, August 18. To receive the deal, customers just needed to use code PBBOGO at checkout.
12. Brandon Rhoten, Potbelly’s chief marketing officer, said, “As a proud papa of three, I know the dinner struggle is real – satisfying the whole squad without breaking the bank is beastmode-level parenting. With DoorDash we found a partner that can help ease back-to-school chaos and make parents the real heroes.”
13. Toby Espinosa, vice president of business development for DoorDash, added, “At DoorDash we pride ourselves on connecting customers with the best food in their neighborhoods, and partnering with Potbelly definitely ups the game. We’re excited to bring Potbelly’s eclectic menu of toasty sandwiches, fresh salads, delicious soups, mac & cheese and chili to the homes of families around the country – especially ahead of the busy back-to-school season.”
14. Potbelly Sandwich Shop traces its roots to an antique shop owned by Peter Hastings and his wife in the Lincoln Park neighborhood of Chicago, Illinois. Although the Hastings’ shop did fairly well, they decided to start selling sandwiches in 1977 to bring in more customers. Eventually, people began coming just for the sandwiches and the antique shop turned into a little sandwich shop that also served homemade desserts and featured live music. The Hastings used items from their antique shop to decorate the restaurant, including its namesake, a Potbelly stove.
15. The Hastings continued to run Potbelly Sandwich Shop for the next couple decades before it was purchased by entrepreneur Bryant Keil in 1996. Keil quickly expanded the business and started franchising the Potbelly Sandwich Shop concept the following year. Over the next few decades, Potbelly Sandwich Shop continued to grow across the United States and by the early 2010s, the chain had grown to 300 locations. Around this same time, in 2011, Potbelly opened its first international restaurants in Dubai. Today, there are Potbelly Sandwich Shops in the U.S., the United Kingdom, the United Arab Emirates, Canada, Kuwait, and India.
Entrepreneur’s Franchise 500
16. Potbelly Sandwich Shop ranked No. 71 on Entrepreneur’s 2019 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Potbelly Sandwich Shop franchise costs, based on Item 7 of the company’s 2019 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on Potbelly Sandwich Shop’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 24
- Outlets at the End of the Year: 30
- Net Change: +6
- Outlets at the Start of the Year: 30
- Outlets at the End of the Year: 39
- Net Change: +9
- Outlets at the Start of the Year: 39
- Outlets at the End of the Year: 41
- Net Change: +2
- Outlets at the Start of the Year: 372
- Outlets at the End of the Year: 411
- Net Change: +39
- Outlets at the Start of the Year: 411
- Outlets at the End of the Year: 437
- Net Change: +26
- Outlets at the Start of the Year: 437
- Outlets at the End of the Year: 437
- Net Change: 0
Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis
- The historical financial performance representation appearing below provides (1) the actual average and median weekly Gross Sales during a specific timeframe for franchised Potbelly Shops and (2) the actual average and median annual Gross Sales, operating expenses, and profits during a specific timeframe for certain Potbelly Shops owned and operated by the franchisor’s affiliates.
- All of the Shops whose information is included in the averages and medians are substantially similar to one another in terms of products and services offered. They are also substantially similar to the Potbelly Shops the franchisor expects franchisees to operate under Franchise Agreements with it except that, during their start-up phase, franchised Potbelly Shops will not sell the full range of sandwich sizes currently offered and sold by the more mature affiliate-owned Potbelly Shops reflected in this financial performance representation and will not offer delivery services.
Part 1 – Average and Median Gross Sales for Franchised Shops
- As of the 2019 Disclosure Document’s issuance date, the company has 41 franchised Potbelly Shops open. Of the 41 franchised Shops, 37 Shops were open for the full 12-period timeframe (a full year) beginning with fiscal Period 1 in 2018 (i.e. January 2018) through fiscal Period 12 in 2018 (i.e. December 2018).
- This financial performance representation excludes the results of the 4 Shops that were not open for that full 12-period timeframe. Financial information from 3 franchised Potbelly Shops operated at airport locations also is excluded because, given the airport setting, their results sometimes are atypical compared with non-airport location results.