Texas residents grow weary of Portillo's offerings
Portillo's, the fast-casual restaurant chain that went public in 2021, is pushing forward with its expansion into the Sun Belt, despite facing some initial growth challenges in Texas.
In Texas, where Portillo’s debuted in 2023, the initial expansion involved smaller prototype restaurants and a cautious volume management approach that slowed momentum. The company acknowledges an early overcorrection to maintain service quality, leading to underinvestment in marketing during crucial early openings in Houston and Dallas fill-ins, resulting in "flattish" sales in Q2 2023.
However, Portillo’s CEO Michael Osanloo highlights the importance of sustained marketing and grassroots efforts, including food sampling and local community engagement, to raise brand awareness in Texas.
Despite the slow ramp-up in Texas, Portillo’s draws confidence from its stronger Sun Belt performances in Arizona and Florida, where markets are more mature with better margin profiles. The company reports that Sun Belt locations average unit volumes (AUVs) around $10 million, close to the $11 million AUVs seen in Chicago, indicating solid potential for growth once markets like Texas mature.
Strategically, Portillo’s is diversifying its formats to better fit market demands. The rollout of its “Restaurant of the Future” concept, with smaller, cost-efficient designs, is helping expand into urban centers with controlled costs. Moreover, its loyalty program, Portillo's Perks, with nearly 1.9 million members, bolsters customer retention and repeat visits across regions, including Texas.
Financially, the company maintains liquidity and is cautiously managing capital allocation to support its growth pipeline in the Sun Belt, aiming to avoid new debt borrowing in 2026. Expansion efforts continue in Texas and will extend into new Sun Belt markets like Atlanta in late 2025.
In addition to its physical expansion, Portillo’s is also testing AI drive-thru technology to boost drive-thru speed time and is expanding its test of this technology. The company is also exploring new formats, such as opening its first in-line restaurant in Florida and planning its first airport location at Dallas-Fort Worth for 2026.
Portillo's is focused on providing value to its customers and is not engaging in shrinkflation or gouging customers. Guests are trading down, buying smaller beef sandwiches or fries, which mitigates the typical check-boosting benefit from kiosk ordering. Beef costs are expected to be a challenge in the second half of the year.
In summary, Portillo’s has faced initial growth challenges in Texas due to early overcorrection and insufficient marketing but is actively executing more aggressive brand awareness campaigns and format diversification. Performance in other Sun Belt states offers encouraging signs that Texas could improve as the market matures and the company refines its approach.
The restaurant industry's performance in Texas, where Portillo's debuted, has been sluggish due to an initial overcorrection and underinvestment in marketing during crucial early openings in Houston and Dallas, as reflected in "flattish" sales in Q2 2023.
Despite these growth challenges, Portillo’s CEO Michael Osanloo remains optimistic, drawing confidence from the company's stronger Sun Belt performances in Arizona and Florida, and emphasizes the importance of sustained marketing and grassroots efforts to raise brand awareness in Texas. This aggressive brand awareness campaign, coupled with format diversification, seems crucial to Portillo’s strategy for improvement in the Texas market.
In finance, Portillo’s maintains liquidity and is cautiously managing capital allocation to support its growth pipeline in the Sun Belt, aiming to avoid new debt borrowing in 2026.
