NEWS

Potbelly's leader: People stoke growth

While every detail is important, chief executive says, the customers' experience comes down to the `smiling, happy' workers who serve them

Chicago Tribune
May 9, 2005
Ann Meyer

Bryant Keil wants every customer who walks into a Potbelly Sandwich Works to share the same enthusiasm he had when he was a regular at the original Potbelly in Lincoln Park.

"I was a big fan," said Keil, chairman and chief executive of Chicago-based Potbelly.

But ensuring that same customer experience in 78 company-owned locations spread over eight states plus the District of Columbia can be challenging.

Back in 1996, when Keil bought the single antique-store-turned-sandwich-shop from its founders, the place truly was an original concept. The eclectic decor--including the namesake potbelly stove--coupled with live strumming from local musicians drew in customers, as did the restaurant's toasted deli sandwiches and hand-dipped ice cream shakes.

Keil spent the first year learning every position in the business and refining the system. Over time, Keil found the company's success "has as much to do with people as product," he said. While every Potbelly detail is important--and compiled in a thick manual--ultimately the customers' experience comes down to the "smiling, happy" workers who serve them at any moment in time, Keil said.

"We have a book as big as anybody else's book that delineates every microcomponent of our business. But the reality is, you don't refer back to the book very often," Keil said. "If you train people to make good choices, and the choice is ultimately to exceed customer expectations, you end up making the right decisions."

Keil, originally from Hinsdale, never owned a restaurant before he bought Potbelly, though he was the principal owner of Room Service Deliveries, a delivery service for Chicago-area restaurants that he sold in 1999 to a dot-com company.

But by attracting knowledgeable people to Potbelly's board and management team, Keil has been able to speed up growth. With financial backing from Starbucks Corp. Chairman Howard Schultz and investment firms Maveron, William Blair & Co., Oak Investment Partners, Oxford Capital Partners and Benchmark Capital Management Co., Potbelly has raised more than $50 million to fund its expansion, closing its latest $15 million round in March, Keil said. The company has signed leases on more than 30 new locations and is targeting sales of $100 million this year, up from $70 million in 2004.

Keil's ability to attract venture capital "puts him in a different category than the typical Subway shop," said Ron Paul, president of Technomic Inc., a Chicago-based restaurant consultancy. "He's been extremely fortunate."

Good feel for consumers

But it's not blind luck, experts say. Keil "has a very good eye for what the consumer is drawn to and how to provide a great product and do it at a great price," said Potbelly director Vann Avedisian, managing director at Oxford Capital Partners in Chicago. "What attracted the investors and the board was seeing the way he runs the operation and seeing how the formula translates to great financial results," he said.

By keeping sandwich prices below $4--they are $3.79 in the Chicago area--"Potbelly has a great value proposition to the consumer," Avedisian said. Equally important is finding quality workers and training them to care more about the customer than the typical fast-food worker does.

Early on, Keil thought it would be best to empower store managers by allowing them to do their own hiring. But that was a mistake, he said. "They were hiring bodies, not souls," he said. "We ended up changing how we hire so you hire the right people for the company."

Employees are cross-trained so they can pitch in where they're most needed. All managers rise from the ranks. You can't start higher than an assistant manager, Keil said, because managers need experience with Potbelly's service-oriented culture as well as its systems.

"We have specific ways to make our sandwiches, but if someone wants peanut butter, banana and turkey on their sandwich, we're going to do it," Keil said.

Benefits for hourly workers

In return, Potbelly offers free meals to all employees, and after 12 months, full-time hourly employees are eligible for full medical benefits, a 401(k) retirement plan and private stock options. In addition, store managers can earn a monthly bonus based on their store's performance.

Filling hourly jobs, with wages starting at $7 an hour, has been an ongoing task as the company expands, now employing more than 2,000 workers, said Art Sanders, Potbelly's senior vice president of human resources. But the better-than-usual benefits give the company an edge. "A lot of chains don't offer anything to hourlies," Sanders said. As a result, he noted, "People are staying with us."

Keil's goal of building a strong workforce is one reason he has resisted the idea of franchises, preferring instead to open company-owned locations staffed with "our people," he said. "We know they understand what we're trying to do, and it allows us to operate better."

Meantime, Keil continues to add experience at the highest levels. In April, the company announced William Moreton, chief executive of the Wendy's International Baja Fresh chain, will join Potbelly as president and chief financial officer in June. Moreton served as chief financial officer at publicly traded Panera Bread Co., fueling speculation Potbelly may be preparing to go public. Keil didn't rule it out: "I think our options and opportunities are limitless."

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Restaurant finds an ally at Starbucks

Starbucks Chairman Howard Schultz sees the potential for Chicago-based Potbelly Sandwich Works to grow into the next Starbucks.

"Potbelly has the opportunity to build a national brand and a national company," Schultz said. "What they do will be universally accepted."

But don't expect it to happen overnight, because Schultz, a Potbelly investor and director, has encouraged Potbelly Chairman Bryant Keil to grow slowly for now.

"Growth covers up a lot of mistakes. You have to invest in the system and infrastructure and most importantly the people before you start growing," said Schultz, who joined Starbucks in 1982 as head of marketing.

He bought the company for $4 million in 1987 when it had 17 stores and fewer than 100 employees. Today Seattle-based Starbucks has 5,500 company-owned stores, plus about 3,700 licensed locations, and employs 93,000 workers.

Already, Potbelly and Starbucks share important characteristics, Schultz said.

"Both companies have demonstrated a very unique ability to establish an emotional connection with their respective customers beyond the products they sell," he said.

Just as the Starbucks brand stands for more than coffee, the Potbelly experience, complete with ambiance, music and service, is distinct in the marketplace, Schultz said.

"When I walked into Potbelly for the first time, my imagination was immediately captured," he said.

Potbelly has adopted Starbucks' strategy of company-owned and operated stores instead of franchises, and both companies say people are as important as the product.

Happy workers make for happy customers, said Keil, who has trained Potbelly workers to seek out ways to help customers.

"Whether it's someone on crutches or a mom with a bunch of kids, if you see someone who looks like they need help, just go help them," Keil said.

Schultz encourages the same philosophy at Starbucks. "As customers, we all want the same thing--to be respected and valued," Schultz said. "For whatever reason, that's not commonplace in business today."

Both companies are making an investment in their workers, through training, medical and retirement benefits and stock options.

It's the key to competitiveness, Schultz said.