El Pollo Loco 2015 Annual Report Download - page 10

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Table of Contents
economics. We plan to continue to expand our business, drive restaurant sales growth, improve margins, and enhance our competitive
positioning by executing on the following strategies:
Expand Our Restaurant Base
. As of December 31, 2014, we had 415 locations in five states. In fiscal 2014, we opened eleven new company-
operated and five new franchised restaurants, and in 2015 we intend to open sixteen new company-operated and eleven new franchised
restaurants. Over the long term, we plan to grow the number of El Pollo Loco restaurants by 8% to 10% annually. There is no guarantee that we
will be able to increase the number of our restaurants. We may be unsuccessful in expanding within our existing or into new markets for a
variety of reasons, as detailed in Item 1A, “Risk Factors,” including competition for customers, sites, franchisees, employees, licenses, and
financing.
We believe that our restaurant model is designed to generate strong cash flow, attractive restaurant-level financial results, and high returns on
invested capital. Our current investment model targets an average new unit cash investment of $1.4 million, net of tenant allowances, an AUV of
approximately $1.8 million, and a cash-on-cash return in excess of 25% in a restaurant’s third full year of operations, although there is no
guarantee that these targets will be met. While most of our growth in 2014 was derived from the expansion of our company-operated restaurant
base, we will continue to strategically develop our franchisee relationships and grow our franchised portfolio within existing and new markets.
For example, in July and August of 2014, we entered into exclusive franchise development agreements with AA Pollo, Inc., and the owners
thereof (together, “AA Pollo”), for eight restaurants in the greater San Antonio area and twelve restaurants in the Houston area, and, in
September 2014, we completed the sale of six company-
operated restaurants in the greater San Antonio area to AA Pollo. We view our franchise
program as an important tool for expanding our brand, allowing us to increase our restaurant penetration.
In our existing markets, where we believe that we possess strong brand awareness and a loyal following, we have identified over 325 potential
new trade areas for restaurant development. As we continue to increase and strengthen our position in our core markets, we also intend to expand
our presence into key, contiguous, new markets. We believe that a contiguous market expansion strategy will provide us with an attractive
opportunity to leverage our brand awareness and infrastructure while increasing our geographic presence. After thoroughly researching potential
new markets in the Southwest region, we selected Houston, Texas, as our next new market and opened two restaurants there in fiscal 2014. In
Houston, we have identified an initial 80 trade areas 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.
Increase Our Comparable Restaurant Sales
. Our system has experienced 14 straight quarters of comparable restaurant sales growth through our
fiscal quarter ended December 31, 2014. We aim to build on this momentum by increasing customer frequency, attracting new customers, and
improving per-person spend. Furthermore, we are well positioned to benefit from shifting culinary and demographic trends in the United States.
Menu Strategy and Evolution
. We will continue to adapt our menu to create entrees that complement our signature fire-grilled chicken and that
reinforce our differentiated QSR+ positioning. We believe that we have opportunities for menu innovation as we look to provide customers more
choices through customization and limited time alternative proteins, such as carne asada. In addition, we will continue to tap in to the need for
healthier offerings by building on the success of our popular “Under 500 Calorie” menu and other “better for you” products. Our marketing and
operations teams collaborate to ensure that the items developed in our test kitchen can be executed to our high standards in our restaurants with
the speed and value that our customers have come to expect.
Increase Brand Awareness and Consumer Engagement
. We engage consumers through our 10-
module product calendar which features seasonal
favorites from our “Under 500 Calorie” low calorie menu for New Year’s resolutions to Signature Salads in Spring, and carnitas for the winter
holiday season. Our key points of differentiation are communicated through our advertising campaign “Crazy You Can Taste,” which highlights
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