Just a couple years ago, the Portillo’s restaurant chain was hot stuff. “The Bear,” a TV drama that began with life behind the counter of an Italian beef stand in Chicago, had given this beefy local favorite an opening to go national — or so its executives thought.
Focusing on Illinois, they maintained, would limit them. The state wasn’t growing like its rivals in the Sun Belt. Only by pioneering new pastures could this homegrown chain keep the beef sandwiches flowing.
Portillo’s has found out the hard way that there’s no place like home.
Its ambitious plan of just two years ago to expand from roughly 80 outlets to an eye-popping 920 has run aground. The stock has plunged from a once-lofty peak, leadership has turned over at the top, and the max-growth strategy has fallen apart like a beef sandwich left too long in the dipping juice.
What did Portillo’s brass get wrong? The No. 1 factor, in our view, was underestimating how good they have it in Illinois.
True, the state isn’t growing its population and its back-breaking pension debts continue to pile up. Bad government is a fact of life in the Land of Lincoln: The most powerful politician of his generation, Mike Madigan, reported to federal prison earlier this month after finally being held accountable for overseeing decades of corruption.
But nowhere else is the Italian beef sandwich an essential part of the culture, and a must-have even if it means making a special trip to inconvenient restaurant locations during a snowstorm. Portillo’s brass knew as much, yet still they embarked on an ambitious expansion far from their roots.
At an investor conference in 2023, the chain’s then-Chief Executive Officer Michael Osanloo bragged about a restaurant in far north suburban Gurnee, located at the back end of a mall, practically invisible from the street, yet wildly successful. “In any other state, this restaurant is a failure. In Chicago, it does $11.3 million.”
Portillo’s would need to pay for more expensive real estate to attract new customers in target states such as Texas, Arizona and Florida, he said. But it had developed a scaled-down store design, and, after all, who could say no to a “Bear”-style beef sandwich, Chicago-style hot dog or decadent cake shake?
“This isn’t a Midwestern food phenomenon,” Osanloo told an investor conference last year. “This is a real thing that people love everywhere.”
Alas, the cowboys and snowbirds of the South said, “No.” Even the retirees from Chicago didn’t bite as much as expected, and the company has had to downsize its outsized ambitions.
After starting life as a humble hot dog stand in Villa Park, Portillo’s had grown into a 67-restaurant chain when it went public four years ago, raising $405 million. As of last month, it was closing in on 100 stores, but sales were flatlining and its restaurant build-outs were costing more than expected. An experiment with breakfast offerings had gone nowhere.
The Oak Brook-based company is likely to finish several restaurants under construction in Sun Belt locations, but its rapid expansion into new markets will have to wait. Portillo’s second-quarter earnings in August were rough, and during an investor conference last month, Osanloo told Wall Street that customer traffic to the stores was coming under pressure in the third quarter.
He left the company shortly after that. Now an interim CEO is expected to face a grilling when Portillo’s reports its third-quarter earnings on Nov. 4. Among those listening will be Engaged Capital, an activist investor that has pushed to overhaul company operations.
Earlier this month, the Jefferies investment bank downgraded Portillo’s stock and lowered its cash-flow expectations, citing a cloudy outlook for growth and same-store sales. Jefferies had served as lead joint book-running managers and representatives for the public offering, so its thumbs-down was especially troubling.
Restaurants are a tricky business, and plenty of strong performers over the years have run into problems when they’ve tried to expand. Portillo’s effort ran into tough competition in its “fast casual” niche, where revenues overall have gone soft and promotional activity has stepped up, cutting into profitability.
We’re keeping the faith in Portillo’s, and crossing our fingers that it won’t need a painful retrenchment. The company should focus on improving the health of its current restaurants, and potentially shut down some of its underperforming locations down south. Trimming breakfast might be only the start of scaling down its menu to help simplify operations.
One ray of sunshine: Portillo’s reportedly is opening another restaurant within the city of Chicago, just steps from Wrigley Field. If that plan goes forward, we’re optimistic about the reception from hungry Cubs fans. Maybe it’s a sign that the restaurant chain’s new brass are thinking about making money, vs. becoming the McDonalds of Italian beef.
Portillo’s, your brand is still golden in your home state. Double down on what works.
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