Potbelly returns to franchising strategy in national expansion
- To expand nationally, Potbelly will rely on franchised stores, including eight opened this year and another 10 expected in 2019 throughout the Midwest and Southeast, the company announced in a release.
- "We’re seeking to award franchise opportunities to experienced multi-unit franchisees who have an unquestioned capacity to expand our footprint and operate the best sandwich shops in America,” said Jeff Welch, SVP of development for Potbelly.
- The Chicago-based chain aims to fill voids in metropolitan markets that are still primed for development.
Potbelly’s expansion strategy took an important turn when the company went public in 2013, valued at $75 million. It pursued a “disciplined” franchising model, according to Crain’s Chicago, before turning to a more aggressive plan to hit the 1,000 restaurant mark.
Despite opening 40 company shops in 2016, QSR reported late last year, a host of underperforming stores closed. Then-CFO Mike Coyne said the company would recommit to franchising, believing “tremendous whitespace opportunity” existed across the U.S. for the Potbelly brand.
But the company has hit rocky waters time and time again, especially as fast casual continues to dominate growth across the industry. Thomas Fitzgerald replaced Coyne earlier this month as part of an extreme executive shake-up that welcomed a new CMO from Papa John’s, an operations officer from within and a culinary innovation lead from a Michelin-starred Las Vegas restaurant.
Sandwich shops have also blossomed into a hot category in recent years. Jersey Mike’s, though mostly company-owned, was the fastest-growing U.S. chain in 2016, surpassing 1,000 units and reaching $675 million in sales, according to Business Insider. Jimmy John’s, also based in Illinois, continues to grow and to lead in the ever-demanding delivery sphere. Florida chain Firehouse Subs has also exceeded 1,000 stores across nearly every state while establishing a presence in Canada and Puerto Rico.
Potbelly grew almost 8% since 2017, landing in Nation’s Restaurant News Top 200, but it hasn’t yet cracked the top-five in terms of market share. Thanks to Subway still snagging a hair above half the market, Arby's, Jimmy John's, Jersey Mike's Subs and Firehouse Subs rank second through fifth. If Potbelly wants to hit Jersey Mike’s or Firehouse’s 3% to 4% share, it seems likely the chain will have to franchise. The executive moves definitely play to a real attempt to reach those targets.
In the press release, Welch specifically mentions innovation as a key part to the chain’s future, but it’s possible it could win by sticking to its simpler sandwich roots. That’s a tough climb in this competitive marketplace, though, as breakfast becomes nearly as important as lunch. But Potbelly has found some success in penetrating worthy urban markets, and if it can find the right partners in other Midwestern and Southeastern cities, maybe it, too, can crack the top-five sandwich companies in the next few years