El Pollo Loco 2015 Annual Report Download - page 11

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Table of Contents
the lengths we go through to deliver real food throughout the year. We tailor our message from television and direct mail, which garners broad
exposure, to our cost effective e-mail marketing program My Loco Rewards and social media platform where we engage in one-on-one
conversations to solicit new ideas and deepen the relationship between our customers and our brand. Within our restaurants we continue to
engage our customers at various points along their path to purchase to further drive our differentiation. We believe that our messaging and
communication channels work synergistically and have resulted in a 9% increase in new users and a 10% increase in lapsed users from 2012 to
2014. These new and lapsed users now account for approximately 15% of total visits.
Hacienda Remodel Program
. In 2011, we launched our new Hacienda remodeling program, which on average has resulted in an additional 3%
of comparable restaurant sales for remodeled restaurants. The redesigned Hacienda restaurants highlight our roots, while offering a more modern
feel and upscale dining experience. We and our franchisees have remodeled 214 restaurants as of December 31, 2014. We have remodeled over
50% of our restaurant system as of the end of fiscal 2014 and expect to have completed the remodeling program by 2018.
Enhance Restaurant Operations and Leverage Our Infrastructure.
Since 2011, we have increased our restaurant contribution margin by 320
basis points, to 21.9% in fiscal 2014. We believe that we can further improve our margins by maintaining fiscal discipline, increasing fixed-cost
leverage, and enhancing our purchasing efforts. We currently have an infrastructure that allows us and our franchisee partners to grow and
manage the productivity of each restaurant on a real-time basis. Additionally, we believe that as our restaurant base matures and AUVs increase
we will be able to leverage corporate costs and improve margins, as general and administrative expenses grow at slower rates than do revenues.
Site Selection and Expansion
New Restaurant Development
We believe that we are in the early stages of our growth story and that our restaurant model is designed to generate strong cash flow, attractive
restaurant-level financial results, and high returns on invested capital, which we believe provide us with a strong foundation for expansion. In
fiscal 2014, we opened eleven new company-operated restaurants, including two in Houston, Texas, and five new franchised restaurants. In
fiscal 2015, we intend to open sixteen new company-operated and eleven new franchised restaurants. There is no guarantee that we will be able
to open new company-operated or franchised restaurants, or to increase the overall number of our restaurants. We may be unsuccessful in
expanding within existing or into new markets for a variety of reasons described in Item 1A, “Risk Factors,” including competition for
customers, sites, franchisees, employees, licenses, and financing. Over the long term, we plan to grow the number of El Pollo Loco restaurants
by 8% to 10% annually.
Our strategy for entering new markets is to lead with company development while recruiting and developing franchisees to open new restaurants
with us during the second year of new market entry. This strategy will enable us to establish a development, operations, and marketing
infrastructure to help ensure that we maximize our consumer proposition and support franchisees as they enter the market. We anticipate that
entering new markets with both company-operated and franchised development is the best way to establish our brand, by enabling rapid scaling,
thereby driving operational and marketing efficiencies.
Our expansion strategy is initially focused on the southwestern region of the United States. We believe that this market provides an attractive
opportunity to leverage our brand awareness and infrastructure. After thoroughly researching this region, we selected Houston, Texas, as our
next new market and opened two restaurants there in fiscal 2014. In furtherance of our strategy, in August 2014, we entered into an exclusive
franchise development agreement with AA Pollo for twelve restaurants in the Houston area. We have identified 80 trade areas in Houston for
potential restaurant development by us or our franchisees over the next several years and we believe that there are additional development
opportunities beyond this.
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