Potbelly seeks to turn around its flagging fortunes with new store designs, a franchise expansion and a lot of soul-searching

CHICAGO – When Alan Johnson took over as CEO of Potbelly 19 months ago, he saw a beloved sandwich chain that had lost its mojo and fallen behind its swelling roster of competitors.

The Chicago-based company had no app. It offered delivery only intermittently. The cozy look of its restaurants hadn't changed in some 20 years. It hardly advertised and certainly couldn't turn on a dime to offer a timely promotion.

"I affectionately say we were in the slow casual business trapped in the fast casual industry," Johnson said.

Now Johnson and the management team he brought on to turn around the fortunes of the 42-year-old sandwich brand are trying to pick up the pace and grow Potbelly without messing with the magic that had gained the brand a strong following.

Among the changes are a new look for the restaurants and a new approach to franchising that will dramatically increase its franchise footprint.

All new Potbellys will feature an updated store design meant to save money and improve the somewhat chaotic experience that customers now encounter. Two existing Chicago-area restaurants, in the city's Logan Square neighborhood and in suburban Park Ridge, in September will debut the new design and serve as test sites. Other stores may be retrofitted with those features during their regular renovations.

Rather than follow their sandwich down a line, leaning over a tall counter to shout out whether they want to hold the hot peppers or add mustard, customers will find workers standing at a cash register to take their order, with a menu board on the wall behind them rather than the existing scattered display, and signage pointing them to where to pick up their completed sandwich. Workers will make the sandwiches behind a glass counter so customers can still watch the process.

Also, Potbelly on Thursday announced it had signed franchise agreements with three experienced restaurant operators that will open 38 new Potbelly shops in Las Vegas; Tampa, Fla.; and the Carolinas, doubling its total to 80 franchises. The vast majority of Potbelly's nearly 500 restaurants are company-owned, but it hopes to shift that balance with a new strategy that focuses on large franchise partners who would shoulder the cost of opening new restaurants.

No longer will Potbelly partner with mom-and-pop franchisees who brought passion but tended to require more resources to manage. Going forward it will recruit franchisees with financial backing, a track record and plans to open at least 10 restaurants in major metropolitan areas.

Potbelly's identity crisis is among the factors that have dragged on it in the years since its high-flying IPO in 2013, when it was a darling of the ascendant fast-casual segment.

Since then, the number of places to buy a sandwich has increased 6% to 9% a year, while the population has grown at 1%, causing many restaurant chains to suffer sales pressures. But in addition, Potbelly opened too many stores across too many states in a scattershot fashion, leading to underperformance, and tried to boost sales by raising menu prices at a higher rate than inflation or the competition, prompting fewer people to come into its doors, Johnson said.

Johnson's first order of business upon taking the reins was to "focus, focus, focus," which included closing all 15 of the company's international restaurants and getting back to basics. His first hire was Ryan LaRoche, formerly executive chef of the Park Hyatt, to improve the chain's culinary chops.

The quest for the soul of Potbelly rests partly on the shoulders of chief marketing officer Brandon Rhoten, who joined the team last year after a brief tenure at Papa John's and before that, headed up digital and social media marketing at Wendy's.

His team has spearheaded some marketing campaigns that have driven customers to Potbelly's doors — a social media promotion for its ice cream sandwiches increased sales of the dessert to 14,000 for the week, up from a meager 400 on a typical week — but the harder task is identifying what gives people "a starry look in their eye" when they talk about Potbelly.