Potbelly Stock

Potbelly Corporation (Potbelly) owns and operates Potbelly Sandwich Shop concepts in the United States. The company also has domestic franchise operations of Potbelly Sandwich Shop concepts.

The company operates its shops successfully in a wide range of geographic markets, population densities and real estate settings. The company operates and franchises shops in 31 states and the District of Columbia.

Business Strategy

The company’s ‘Traffic-Driven Profitability’ 5-pillar strategic plan includes a prioritized set of low-cost strategic investments that will continue to deliver strong returns. The 5 pillars are craveable-quality food at a great value; people creating good vibes; customer experiences that drive traffic growth; digitally-driven awareness, connection and traffic; and franchise-focused development. These initiatives include improvements to the company’s overall customer experience, an updated, simplified menu and further enhanced Potbelly Perks rewards program. They also include improvements to drive a better digital customer experience.

Lastly, the company is prioritizing high-return traffic driving opportunities, as well as numerous initiatives that are focused on expanding shop-level margins. The company’s strategy is to focus primarily on franchise unit growth and limit the company’s rate of company-operated shop growth.

Food

Menu

Each of the company’s shops offers freshly-made food with high-quality ingredients. The company’s menu includes toasty hot sandwiches, signature salads, soups, chili, sides, desserts and, in the company’s breakfast locations, breakfast sandwiches.

Potbelly Operations

The company’s business includes over 35% digital orders through the Potbelly App or website and third-party delivery services providers, along with the company’s in-shop and drive-thru experiences. The highest sales volume daypart is lunch, but other parts of the day are also important to the company’s business.

The company has also invested and is expanding new technology with the Potbelly Digital Kitchen (‘PDK’) that helps streamline digital orders and support high volume shops with in-line order taking tablets to improve throughput and customer satisfaction.

The company also leverages third-party companies to provide customer service feedback and conduct food safety assessments to assess and improve the Potbelly experience. The company also provides off-premise services, including catering, delivery and order ahead to serve the company’s Potbelly fans.

Franchising

The company’s franchise arrangements grant third parties a license to establish and operate a shop using the company’s systems and the company’s trademarks.

Advertising and Marketing

Advertising

The company promotes its brand in all markets where the company has shops. The use of digital media is the most common advertising vehicle. Additionally, the company relies on in-shop materials to communicate and market to the company’s customers.

Digital Marketing

The company has increased its use of digital marketing tools, which enable the company to reach a significant number of people in a timely and targeted fashion. The company’s customers will use social media to make dining decisions or to share dining experiences, therefore the company advertises on Facebook, Instagram and several other digital media platforms. The company also leverages its Potbelly App to communicate with its customers and personalize offers for them. These platforms allow them to transact with the company digitally by ordering ahead for pickup or delivery, paying with their phone and earning tasty treats.

Potbelly Perks

The company offers a loyalty program for customers called Potbelly Perks that can be accessed at potbelly.com, the Potbelly App and at the point of sale in the company’s shops.

Sourcing and Supply Chain

The company contracts with Distribution Market Advantage, Inc. (‘DMA’), a cooperative of multiple food distributors located throughout the nation.

For 2022, distributors through the company’s DMA arrangement supplied the company with more than 85% of its food supplies through six primary distributors: Reinhart FoodService, L.L.C., Ben E. Keith Company, Harbor Foodservice, Shamrock Foods, Gordon Food Service and Nicholas & Co. The company’s remaining food supplies are distributed by other distributors under separate contracts.

The company has a non-exclusive contract with Campagna-Turano Bakery, Inc. for the company’s signature multigrain bread. Campagna-Turano Bakery, Inc. produces bread items in a primary and secondary production facility.

Government Regulation

The company’s shop operations are also subject to federal and state labor laws, including the U.S. Fair Labor Standards Act and the U.S. Immigration Reform and Control Act of 1986, governing such matters as minimum wages, overtime and worker conditions.

The company and its franchisees are subject to the Americans with Disabilities Act (the ‘ADA’), which, among other things, requires the company’s shops to meet federally mandated requirements for the disabled. In addition, the company’s employment practices are subject to the requirements of the Immigration and Naturalization Service relating to citizenship and residency.

The company’s franchising activities are subject to the rules and regulations of the Federal Trade Commission (‘FTC’) and various state laws regulating the offer and sale of franchises.

Seasonality

The company’s business is subject to seasonal fluctuations. Historically, customer spending patterns for the company’s established shops are lowest in the first quarter of the year (year ended December 2022) due to holidays, consumer habits and adverse weather.

Intellectual Property and Trademarks

The company regards its ‘Potbelly’ and ‘Potbelly Sandwich Works’ trademarks as having significant value and as being important factors in the marketing of the company’s shops. The company has also obtained trademarks for several of its other menu items, such as ‘A Wreck,’ and for various advertising slogans, including ‘Good Vibes, Great Sandwiches,’ ‘Feed Your Smile’ and ‘A First Class Dive.’

History

The company was founded in 1977. It was formerly known as Potbelly Sandwich Works, Inc. and changed its name to Potbelly Corporation in 2002. The company was incorporated in Delaware in 2001.