AUGUST 26, 2024
Activist investor wants change at Portillo’s
Amethyst Davis
Largest shareholder wants the chain to shrink new restaurants as it continues to expand By Jack Grieve
See PORTILLO’S on Page 26
GEOFFREY BLACK
When word got out Aug. 16 of an activist investor taking a nearly 10% stake in Portillo’s, questions surfaced around what the Newport Beach, Calif.-based investment firm had cooking for Chicago’s favorite fast-casual chain. Now we have some answers. Engaged Capital, which has a track record of targeting restaurant operators, believes Portillo’s is in the early stages of successful national expansion and has the ability to generate industryleading cash-on-cash returns — but only if its restaurants keep getting smaller, according to a source familiar with the activist investor’s vision. Engaged Capital wants Portillo’s to aggressively shrink the square footage of its new restaurants as it continues to expand. The brand’s longstanding Chicago-area spaces tend to be vast, some spanning two floors and up to 11,000 square feet, which is uncharacteristically
large for a fast-casual chain. Portillo’s here can justify those large spaces because the margins in Chicago remain so strong. Nationally, though, Engaged thinks less is more. The chain has been shrinking its new storefronts for years. The company in 2023 teased a prototype, dubbed the “restaurant of the future,” calling for new spaces to be between 5,500 and 6,000 square feet. Engaged wants Portillo’s to double down on those efforts and shrink new spaces even further. Doing so would allow the chain to save on both build-out and operating costs, the source said. And if Engaged doesn’t get what it wants, it could push for a sale. As Portillo’s expands, cutting back on the physical footprint is in line with broader trends in the fast-casual market, particularly as dining habits have changed since the pandemic.
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Portillo’s longstanding Chicago-area spaces tend to be vast, some spanning two floors and up to 11,000 square feet. | BLOOMBERG
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