El Pollo Loco 2016 Annual Report Download - page 9

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customersatvariouspointsalongtheirpathtopurchasetofurtherdriveourdifferentiation.
Hacienda Remodel Program .In2011,welaunchedournewHaciendaremodelingprogram,whichonaveragehasresultedinanadditional3%to4%of
comparablerestaurantsalesforremodeledrestaurants.TheredesignedHaciendarestaurantshighlightourroots,whileofferingamoremodernfeelandupscale
diningexperience.Over70%ofourrestaurantsystemisneworremodeledasoftheendoffiscal2015andwe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300basispoints,to21.7%
infiscal2015.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.
Infiscal2015,weimplementedseveralinitiativesintendedtoimprovespeedofserviceandtheoverallcustomerexperienceinourrestaurants.Theseincluded
system-wideimplementationsofamoreefficientcenter-linelayout,simplifiedproductbuilds,streamlinedpoint-of-saleentry,andintroductionofguestpagersin
allcompany-ownedrestaurants.
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2015,weopened14new
company-operatedrestaurants,includingseveninHouston,Texas,andfivenewfranchisedrestaurants.Infiscal2016,weintendtoopen18to22newcompany-
operatedand10to15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alongwithus.
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since2014have
openedninerestaurantsthere.Infurtheranceofourstrategy,inAugust2014,weenteredintoanexclusivefranchisedevelopmentagreementwithAAPollofor12
restaurantsintheHoustonarea.DrivenbythegrowthinHouston,weannouncedourcontinuedTexasexpansionintotheDallasMarketwithcompanyand
franchiserestaurantsplannedfor2016.InDallas,weenteredintoasevenunit,exclusivefranchisedevelopmentagreementwithChickenTimeHoldings,LP.
Site Selection Process
Weconsiderthelocationofarestauranttobeacriticalvariableinitslong-termsuccessandassuch,wedevotesignificantefforttotheinvestigationandevaluation
ofpotentialrestaurantlocations.Ourin-housedevelopmentteamhasover100yearsofcombinedexperiencebuildingsuchbrandsasTacoBell,McDonald’s,
Starbucks,Jack-in-the-Box,andWendy’s.Weuseacombinationofourin-housedevelopmentteamandoutsiderealestateconsultantstolocate,evaluate,and
negotiatenewsitesusingvariouscriteria,includingdemographiccharacteristics,daytimepopulationthresholds,andtrafficpatterns,alongwiththepotential
visibilityof,andaccessibilityto,therestaurant.Theprocessforselectinglocationsincorporatesmanagement’sexperienceandexpertiseandincludesextensive
datacollectionandanalysis.Additionally,weuseinformationandintelligencegatheredfrommanagersandotherrestaurantpersonnelthatliveinornearthe
neighborhoodsthatweareconsidering.
Basedonourexperienceandresults,wearecurrentlyfocusedondevelopingfreestandingsiteswithdrive-thrus.Ourrestaurantsperformwellinavarietyof
neighborhoods,whichgivesusgreaterflexibilityandlowersoperatingriskwhenselectingnewrestaurantlocations.
6