Portillo’s finds expansion tougher than it seems

Portillo’s has seen sales weaken over the past two years. | Photo: Shutterstock.

A decade ago, the Chicago chain Portillo’s made waves with a sale to a private-equity firm for $1 billion—and it was definitely $1 billion, as Dick Portillo would insist to me at one point. At the time it was a stunning valuation, given the chain had just 38 locations. 

The question since has always been whether its new owners would be able to successfully expand outside of its home market, where it remains an institution and is well-loved. 

Eleven years later that question has yet to be answered. 

Earlier this week, as my colleague Lisa Jennings reported, Portillo’s downgraded its same-store sales projections for the year and ditched its breakfast test. It also said it plans to slow its growth, focusing on existing markets. 

In August, the now-95-unit chain said that sales slowed in its Texas locations, a market Portillo’s had spent considerable energy developing. The company also fended off with activist investors, which resulted in some interesting new members to its board in former Chipotle executive Jack Hartung and ex-Darden CEO Gene Lee.

Portillo’s same-store sales have been either weak or down for six straight quarters and its recent downgrade suggests that will extend at least another period or two. While a lot of chains, including so-called fast-casual brands, are in the same boat, the Italian beef and hot-dog concept underperformed its market last year and is losing ground again this year.

Its stock performance hasn’t exactly been appetizing. Its shares are down nearly 50% over the past year. Since soaring to about $40 a share after its IPO in 2021, the stock has lost three-quarters of its value. 

And its market cap? Now less than $500 million. 

Portillo’s has always been something of an industry oddball. In an era of Raising Cane’s where singularly focused menus rule, Portillo’s serves a broad assortment of items from beef sandwiches to salads to Cake Shakes. With other brands focused on smaller restaurants, Portillo’s opens massive shops decorated with kitsch that make them more ’90s Applebee’s than 2020s fast casual.

Those massive restaurants generate strong average-unit volumes of $8.7 million, though that was down 4.4% last year, according to data from Restaurant Business sister company Technomic. Yet big restaurants need big investment and big sales to make them work.

The company’s Southern expansion strategy was supposed to help because, after all, people are moving to places like Texas, which provides the population growth to fuel such locations. But roughly everybody is opening restaurants in Texas, which is making the market that much more competitive. And that market is now burdened with sales weakness in immigrant-heavy areas, making it a bit less of a slam dunk it had been.

Portillo’s has also unleashed a number of ideas rather similar to those espoused by much of the post-pandemic fast-food world, including a drive-thru-only idea. For a brand that prided itself on its in-restaurant experience, such an idea seemed outright foreign.

The breakfast test was another such idea. On the surface, it’s not a bad one. Portillo’s has a massive menu already and drive-thrus that should support the concept. We tasted the items, and many were certainly worthy. But in the famous words of Dr. Ian Malcolm, you were so preoccupied with whether you could, you didn’t stop to think if you should.

There is just so much demand for breakfast. So as tempting as the idea is, it’s not always a good idea. 

Ending that breakfast test and focusing on operations is a good start. The best strategy for Portillo’s to generate more sales is to ensure that it can get more customers through its dining rooms and drive-thrus to make way for additional customers. 

Slowing growth when demand is uncertain—and your expansion strategy itself is in question—is also a good step. Focus on those existing markets and build sales there first before stepping into another one.

Portillo’s is too unusual a restaurant chain to be aggressively pushing into new markets far away from that Chicago home. Let people get to know the brand first.