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Big Sandwiches Equal Big Profits at Potbelly's Sandwich Works

Potbelly Sandwich Works has created some major buzz lately in the uber competitive fast casual restaurant industry. With so many options for consumers to chose from, it's tough to come out a winner especially with the high level of brand loyalty in the sector. After witnessing the long lines outside of the 303 W. Madison St location in Chicago nearly 10 years ago (in the dead of winter!), we knew Bryant Keil was on to something.

The Potbelly’s train is firing on all cylinders and has successfully penetrated the uber-competitive fast casual sandwich sector. Potbelly sells a basic sub (PBJ, Pizza, etc) with relevant options (health, supremes) and offers an awesome dining experience. Their main target demographic is the lunch market, and their lunch lines are often out the door. Their menu includes soups, shakes and salads in addition to subs and the old-wood decor and live music make for a warm, neighborhood feel. Atmosphere is only the beginning though. Their products are well-crafted and satisfying. The quality of their ingredients is a cut above, yet price remains similar to that of their competition.

Potbelly Franchise  - Key Details

Total Investment$456k-$768k
Initial Franchise Fee
6% up to $1.0mm in sales, 7% thereafter
Net Worth RequirementNA

Potbelly Franchise Application and Opening Process:

Potbelly’s is privy to a strong management team. They offer a level of assistance to franchisees that is higher than most of their competitors. However, management seems all too aware of how good a concept they have on their hands -- so much so that their discussions with prospective franchisees feel similar to an interview with Goldman Sachs (an esteemed Investment Bank on Wall Street). 

The process to join the “Potbelly Nation” is long and seems to have been installed as a means of preserving exclusivity within the brand.

Steps include:

  1. Fill out a “Get Started Form” 
  2. Complete a “Detail Information Form” 
  3. Participate in a telephone interview
  4. Complete a background and credit check consent form
  5. Complete a 50 question online franchise survey
  6. Attend a 6-day in store experience
  7. Sign the preliminary Potbelly Franchise agreement
  8. Work with a designated real estate company to find a location
  9. Complete design and construction training
  10. Sign a final franchise agreement 
  11. Attend an 8 week training course
  12. Build the store
  13. Hire store staff 
  14. Open for business
Additionally, Potbelly’s is only looking for life partners to join as franchisees. Single operators are shunned. The process to become a franchisee may impede future sales or transfers due to its length. Though this model is not necessarily ideal for growth, it works very well for the maintenance of a brand. Strict guidelines result in greater quality control and standards remaining consistently upheld.

Another issue that one might find off-putting is that certain locations appear to be reserved exclusively for corporate operation. Cities in the Northeast, like Boston, would be ideal for a concept like Potbelly’s to see great success. The brand knows this and is keeping such locations for in-company operators. Honestly, who could blame them though? There isn’t much risk involved in starting up in locations like these, so it makes sense to hold on to them and profit directly.

From a financial standpoint, it should be noted that Potbelly’s makes a lot of money because stores can generate $1mm in sales and nearly 20% pre-tax margins. Some locations in Chicago generate upwards of $50k in sales per week. Rent and labor, though, are comparatively higher than Potbellys’ competitors (due to larger real estate needs) while advertising and royalties costs are about average. See financial statement at bottom.

Potbelly’s has a lot going for it as a franchise. The product is one that you can stand behind and the high cash flow doesn’t hurt either. The franchising process is long and cumbersome and there is a strong possibility of micro- managing from the brand. However, that’s most likely a method to weed out sub- par operators. If you don’t mind a brand that is cautious about the people they do business with (and has policies which demonstrate such caution), get in on Potbelly’s and snag a location with a hungry lunch crowd.

Potbelly’s 1-Store Potential Income Statement

Here's a theoretical look at a possible income statement for a single Potbelly's location:

Amount% of Sales
Average Store Sales$935,000

Royalties & Advertising$93,500
Cost of Food & Packaging$266,475
Other Expenses$93,500
Owner Operated Cash Flow before Interest and Taxes
"Buying" A Franchise

Here at FranchiseHelp we’re constantly asked about the opportunity to buy a franchise. Unfortunately I’m going to have to tell you something that might disappoint you. You can’t “buy” a franchise. In reality you are engaging in a “leasing” transaction rather than a “purchasing” transaction. Why is it a lease? In any franchise deal, the franchisee receives the assets up front, but only for a period of time - the term of the franchise agreement. The term of the agreement may run for five to ten years, or in some cases it may run for as little as a year or two. At the end of the day the renewals of these agreements are at the option of the franchisor, and the reasons for not renewing an agreement should be completely spelled out in the Franchise Disclosure Document (FDD) and franchise agreement.

Complying with the FTC Franchise Rule for the FDD - What You Need to Know

Jesse: Ladies and gentlemen, thank you for standing by, and welcome to the FranchiseHelp, Inc. Understanding the FDD for Franchisors Conference Call. During the participation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. If you have a question, please press the 1 followed by the 4 on your telephone. Your line will be briefly accessed from the conference to obtain the information. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Wednesday, May 7th, 2008.

Franchise Help Interviews the First Ever Eco-Friendly Car Wash Franchise

80% of business owners fail because they don’t have the skill set, education, orexperience to run a successful business. DetailXPerts provides franchisees with thetraining, support, and marketing that they need to start and run a successful business. As the first franchise to implement this type of car wash concept, we’ve spent a greatdeal of money and time developing this system and are confident that our efforts will lead to further growth in our franchise.