We're gonna go ahead and get this one kicked off. Thanks, everyone, for joining. My name is Joshua Long. I'm the restaurant and food service distribution analyst here at Stephens. Really excited to build out the afternoon segment of the restaurant panel. Everyone's favorite sandwich brand here. We've got, Bob Wright with, Steve Cirulis, the CFO of Potbelly. Amazing brand, amazing growth opportunity, really putting together quite the streak of operational results. No doubt, from a lot of the, you know, heavy lifting and hard work that you've done over the last couple of s, but, looking forward to the conversation today. We've had a really good streak here, where it's been very conversational and organic. So if we have questions here in the room, feel free to raise your hand. We've also been taking them online via email, so feel free to shoot me an email at joshua.long@stephens, and we can work those into the webcast. But with that, I'll turn it over to Bob and Steve, and maybe some introductory comments on where we came out of, off of your recent Q3 earnings, and maybe jt some starting points, and we'll go from there. Yeah, happy to, and we won't, we won't be too long-winded with that because we can get right into the chat. But, look, we're, we're really proud of the Q3. We're especially excited about the trends that we're operating under. Continue to see strong same-store sales growth. Traffic is really the big story for Potbelly. Q1 and Q2 this year, we, we were very clear about the fact that more than half of our same-store sales came from traffic growth. In Q3, it was a major contributor again, as well. Not only are we growing traffic, but when you compare us to the fast-casual segment, which, of course, we buy that data, fast casual as a category, which is the strongest category in the restaurant space, is flat to negative. So we're up in sales, we're growing traffic, and we're stealing share, which is, you know, real core health of the growth of the brand is driving that. We had another good in margin expansion, 14.6% shop level margins. We've been saying for a few years now, our long-term guidance for 2024, which is not so long-term anymore, was 16%. We're looking at finishing the year, this year at about $1.29 million. Again, our 2024 target was $1.3 million, so obviously not at all nervous about that target. And then the big one, that we continue to bring more announcements, and maybe you saw the news today, we just made another announcement this morning about a big development deal we did in Seattle. But with our Q3 earnings, we gave an update to our number of units that are under contract. We now have 150 units under our Franchise Growth Acceleration Initiative that are contracted with franchisees, in addition to the ones that we already have. So that's the big lever for growth. But, you know, since Steve and I started working together in the summer of 2020, later that year, we've formulated our five-pillar strategy. We're still leveraging that same five-pillar strategy and the unifying objectives that we started with of traffic-driven profitability. We've added unit growth to go with it, continue to service really well. The magic and the work of the brand is the strategic initiatives that underpin those five strategies, and that's where, you know, we keep layering on unit growth, margin expansion, top-line growth. Our digital business is as healthy as it's ever been. Another of 36% mix on our digital business, and one of the things we were excited to share, first time we've shared this, too, was that now a majority of that digital business is coming through our owned channels. So a lot of that traffic work that we're talking about, we believe we're driving it because of what we're doing with our marketing, but more specifically, how effective we've been with the digital marketing efforts that we have. And that mix has been very, very healthy. So... Yeah. No, that's- Yeah Super exciting. When we think about, imagine everybody here in the room and online is very familiar with the brand. I mean, you're a leader in the sandwich category, and, you know, for me personally, I've known the brand for a long time and, remember it from when it was private to then, you know, helping it come public many years ago. And so when you think about that, and obviously, that predates you know, the team currently, the brand's gone through a major overhaul- Mm-hmm And you've put together probably the best team that the brand has ever had. And, supporting that is that five-pillar plan that you mentioned. I mean, can you talk a little bit about what attracted you to the brand? I know we're maybe an extra year removed from that, but I think it's still important to kind of level-set the conversation where you, what you were excited about coming in, and then what I imagine has been, more or less, you know, in line with kind of where you would've expected it, just given the results you put up. Yeah. Thanks. Yeah, I am, I'm very proud of the team. Look, where the company went public back in 2013, and flirted with some growth and had some growth, but had some fits and starts with that as well. I've been in the restaurant business for 37 years now. I started out at, spent a number of years with Wendy's, and a couple of other brands along the way. I have loved this brand for more than 20 years. I really have. As a consumer and as an expert, in terms of operations and leadership, I just always thought Potbelly was special, it was distinct, it was unique. The numbers proved it out, too. I mean, even before the pandemic, we had the highest average unit volumes in the sandwich category and had some healthy margins as well. And yet most of what, brands our size, with our heritage, with our footprint across the U.S., would've experienced through all of those years, hadn't been done. Frankly, much of what we've been working on and what we've been mining in terms of value in the brand is related to what we believe as a strong restaurant management team should be done with a brand like ours, whether it's marketing, it's digital marketing, really boring operation stuff like labor guide implementation, allocational labor, training systems that had to be revamped, the pay mechanisms that we use for our staff, how we hire and train our managers. You get into things like the overall measurement of the experience of our customers and how we operate the shops, what we do for our people. All of those things that create a strong restaurant company and a strong restaurant chain out of a great brand, but the brand was always there... We sit right in the middle of the fast casual category with a brand that has appeal to a consumer occasion that they really don't have a lot of great other sandwich choices. Sure, there are a lot of sub shops out there, and they're all great people and great leaders in a lot of different ways, but we are a fast casual restaurant that has a sandwich-based menu. But we also have great salads, and we have these amazing cookies I was talking about earlier. We have soups that are out of this world. In fact, we have special touches of quality that appeal to that fast casual consumer. It's that stuff that drew me to the brand. You've got all this great opportunity, this potential for growth, white space out the wazoo across the U.S., and yet a national brand. 425-unit chain this morning in 32 states, that has success in a lot of those different markets. Usually, a brand that size, you know, you would look at, would be a super regional that's trying to prove that it can grow and it can travel. And when, you know, folks like us and the rest of our team stepped in and said, "That's already proven." It just didn't penetrate those markets. Best way to do that is with franchising. So yeah- Yeah Still excited. No, yeah. I hope it shows. Yeah, it does. Yeah, no, it, it's an amazing story. I mean, you see, when we think about kind of your background, also equally as impressive, great exposure across consumer restaurants and the whole nine yards. What attracted you to the brand and as you think about kind of your journey here? I imagine you, you share Bob's enthusiasm, but kind of how, how do you think about the positioning now and kind of where you're going, going forward? Sure. All the things Bob said ring true for me as well. I took the plunge just a few months before Bob did in joining this brand, but, you know, I said when I joined, in fact, one of our first conversations, I said, "Bob, you know, this is not a high wire act here. There's a line of sight into what we need to do. The brand is there, the food is there, the opportunity is there." In fact, from a CFO's perspective, you know, before the pandemic, this was a brand that had no debt. Mm Which isn't always the case in the restaurant business. And with all that white space in front of us, with a restaurant team that kind of knows the playbook and can execute the playbook, it's not easy to execute it, but the playbook is fairly straightforward, and we sell sandwiches. We sell sandwiches domestically. We sell sandwiches mostly at lunch and dinner. Not a lot of complexity to help bring the brand back into its growth mode, which is what we've been able to initiate. I think Bob described earlier, you know, as we've moved here, job one was let's fix the four-wall economics, right? Let's get top line started, let's expand the margins, and then ultimately, as we looked at the business and the way to really unlock the shareholder value, it was to pivot to a franchise growth model, right? To get the units out there as fast as we can. I always say to Bob, too, that "Once you build a business model that works, you want to replicate it as quickly and as far as you can," which is what kind of underpins the notion of the franchise model. The other piece of it was, from a market opportunity standpoint, the pandemic wasn't kind to everyone. It was rough to us, but many restaurants failed, right? Depending on the data source you look at, 18%-20% of restaurants failed in the pandemic. That's a market opportunity for us, but you've got to act quickly, right? Mm-hmm. Everyone else sees that same thing, too. So if you combine getting a healthy four-wall economics with the new growth opportunity, with a brand that's already national, but under-penetrated, all those things work for us. Yeah. No, that's super exciting. And for those that have been around the brand for a long time, I mean, you, you touched on it, Bob, but when you think back to way, way back when to its kind of emergence as a brand, I mean, originally started as an antique shop, right? Yeah. And the food was so good that they converted from selling antiques to making a restaurant. That says something right there. But then also you think about just the awareness and the category overall. I mean, you've got your largest competitor out there that's global, and there's room for them. There's also room for you all as well. You mentioned the pandemic wasn't kind to everybody, but being the size you are allowed an opportunity to be nimble and really focus on what matters and investing in the brand and in the team. It seems like we're in a little bit more of a stable environment now, at least there's still, you know, crosscurrents and challenges abound, but there's a lot of stability there as well. Could you talk about kind of, you know, where we come from the beginning of the year and as you look into 2024, I mean, some of the key pieces, again, thinking about just the underlying economic model of your company-owned stores, which really set the tone for everything else. I mean, food costs, labor, etc., they feel like they're in a better spot than they've been in prior years. Just one, because the environment's normalized, but then also your strategic plan is coming together. Yeah, absolutely. And I know Steve will augment my comments with some comments on inflation and what we have seen. 2021 was one of the most runaway labor inflation years I can remember in my career. 2022, we felt it in the food costs. 2023, we've had some of those things come back, not to normal. We're still seeing inflation in that arena, but I think if you think about it through the unit level economic lens that Steve referenced, that's how we think about it. That's why we talk about it with such great specificity and detail, because it matters significantly to our earnings potential, because we still have so many company-owned units, and franchisees are only interested in franchising a brand. They can love the brand, and they do, and they give the f- management team a lot of respect as well, and they love the opportunity for growth. But at the end of the day, they need the investment economics and the operating economics to work well for them. So they're paying very close attention to those things. We've made headway on our occupancy costs for our company portfolio. A lot of that's leverage, a lot of it's hard work with some really detailed attention with the leases that we have. And what we've done as we've come around for renewals in many of our leases, or we've come up close to those renewals, we've gotten very aggressive. Franchisees and our new franchise growth, because it's more suburban-centric than, you know, sort of the CBD, central business districts of some of our more penetrated markets, franchisees are seeing occupancy costs coming in lower than our averages, which is great because they, they see their economic model advantaged a little bit by that. Our labor overall, the labor situation, is really the best it's been in a long time. We are enjoying top quartile performance in retention and turnover against all our fast casual competitors. Fast casual is already better than QSR, and a little bit better than what you'll find in casual dining. So to be in that top tier of that category is a great space to be. That stability means that we've got efficiency, we've certainly got better customer satisfaction scores. We're top tier in terms of client base, in terms of customer satisfaction, and, you know, we've done things for our staff to help with that. That training makes a big difference. A positioning guideline makes a big difference. You wouldn't think that a labor guide implementation would help turnover, but if you've ever worked the understaffed shift in a restaurant because another shift was overstaffed, then you know it helps. And balancing that out makes a big difference in the lives of our associates. We put in digital tipping, a little over a year and a half ago. Only about 30% of our customers tip, and the average is the lowest option on the list, but it means about $3 an hour for our associates. In addition to the wages that we pay, we pay market wages, so they've got, they've got great wages. We've got a bonus program for our managers in position that our franchisees are emulating, that allows them to participate in the success that they have. So there are a lot of things you can do to invest in those two, elements of the P&L that don't have to cost you a lot of money. It's just a good, solid, holistic view of how to run the restaurants. Yeah, the only thing I would add to that, which we started with the commodity view and inflation. The hardest part was not only having the rate of inflation to manage, but it was the lack of visibility, and it was moving fast, right? Now we're in a situation where we had a little bit of deflation, honestly, on the food and paper cost side, at least for three, and now able to have better line of sight into what it is gonna look like for the fourth and beyond. The tricky part about that period of time, and I think it's served us fairly well here, is you can't get behind raising price to outrun some of that inflation. I think we timed it fairly well there, because your, your best barometer of are you meeting, that or threading that needle correctly, is what happens to your traffic. We were raising price like a lot of people. Raising price that would make you, under normal circumstances, you know, dive under your desk 'cause you're gonna wait for that traffic to crash. It didn't for us, right? Bob mentioned earlier, we're continuing to see traffic growth even with all of the price increases that we had. So now for us, in a more stable environment, you know, this year we've talked about it, price increases only in the low, low, low, low, low... Pick the lowest single-digit number you can find. It's in that range, right, for us. And then similarly, as we look into, you know, next year, because of the visibility and the stability of it, it helps. Our basket is ranging, right? We're not a chicken-based brand, we're not a beef-based brand, but we have those proteins, cheese, and some dairy, of course. So we have a little bit of shock absorber if something spikes, you know, we don't feel the full brunt of it, which helped us, I think, quite a bit last year when we were dealing with all that inflation. Yeah, absolutely. Yeah. The only thing I'd build on that is, Josh, we have been pretty open about and consistent with the strategy on pricing, that we do believe the brand has the pricing power to offset inflation. We don't have the same philosophy that some others have, that they're using pricing to actually expand margins. We think it's our job to do the hard work on things like labor and commodities and better buying and so on, to continue to expand those margins. Obviously, top-line leverage is the number one driver of that. The longer we stick to that philosophy, the more we can protect. One of the things we did when we got here was rebuilt the menu to reinsert value into the consumer equation. And value drives traffic, and the destruction of value kills traffic, and traffic is the heartbeat of long-term health. And so we're, we're quite protective of that, and we, we will price to offset that inflation. We will not do more than that. A lot to dig into there. I mean, when we think about some of your points, restaurants aren't a complex business, but just 'cause they're not complex doesn't mean it's not hard to do day in and day out. That's right. Hundred percent. So a lot of the heavy lifting, you're in the process of, you're in a great spot there. I mean, you think about just where the consumer's at and what resonates with them, right? We can look at those long-term charts of, you know, massive share shifts in favor of food service and restaurants. Those are pretty steady over long periods of time. So whether we talk about an environment where there's a recession, a mild one, or, or not, you know, food service, value, convenience, culture, all these elements that are really, you know, top of mind for you and your team, those are what matter and what really resonate with, you know, with consumers. And so a lot of that work comes down to and is, is anchored by the high-quality food. You mentioned that you kind of rebuilt the menu. Can you talk about that? I mean, I don't feel like there's ever been a case where I've ever heard anyone say, "Hey, you know, the Potbelly menu wasn't great." It was awesome. You've rebuilt it, it's even better than it was, and I'm sure you have much better or more specific data points where you can talk about that. But talk about some of the investment you've done in there, and then you know, how that's helped support the, the positive traffic trends. Yeah, it's a couple of- it's really a three-part story. It has to do with the menu, it has to do with how we've managed the pricing, ladders, tiers, and value across the menu, and then the third one is what we've done with innovation since then. But we- Bless you. We had very little money to do any extra research, but we did look for research that was on the shelf that was fresh enough when Steve and I started working together. And the consumer was telling us they had a value concern with our brand. In some cases, it was what they paid for what they got, and in some cases, it was what they got for what they paid. They'll sound like the same thing, but they're not. What we did, and this will give you an explanation of how we interpreted it, we took our original and our big sandwiches and made them bigger, and we put more meat and cheese in them. More meat and cheese per inch, even, so it was a meatier, cheesier, bigger sandwich, and we raised the price. We didn't raise it as much as we raised the cost input, so we took a little bit of margin on those two sandwiches. But then we introduced what is today the skinny size sandwich. It's a third size, didn't exist before. Brought that in. It created a lower price point, entry point for the brand. So if we were unapproachable because of our pricing, and they had used a lot of price in previous years to prop up sales. So we kind of took a page out of consumer packaged goods play, in terms of resizing and repositioning all of that, but inserted additional value for all of those three consumers, and that became the base of the new menu. We did some other things, brought in Pick Your Pair. We stripped out... We had three sizes of soups, which I guarantee you 95% of our customers didn't know. We only needed two. We did stuff like that. Took 60 SKUs out, too, by the way, mostly packaging, but a lot of SKUs. So simplified the menu and made it better for our customer. Thank goodness we did that, because that was the foundation that allowed us to be prepared for the rapid acceleration and inflation. So we took pricing, but we took pricing across that menu and did not disrupt the value relationship from size to size or from flavor to flavor. It's really important not to do that. And since then, now in the last year in particular, we brought a lot of innovation back. So, the LTO sandwiches, the Ring of Fire that's in today, you know, the Red Velvet cookie was our first new cookie that we introduced in Valentine's Day, almost two years ago now. The shakes, someone in a one-on-one earlier today was asking us, "When are we gonna see the cold brew shake come back again?" So that's now bringing innovation and quality elevation to the brand, without any promotional discounting that's going on. So, yeah, really important food, food-centric, menu-centric work that delivered a better value for the customer. Yeah. Josh, we weren't getting rid of the favorites, right? Right. A Wreck, our signature sandwich, stayed on the menu, our Italian. It was more orthopedic surgery, as Bob described, getting those relationships and the structure of the menu correct, so it could play across cost markets, right? It's different to operate in Portland as it is to, you know, operate in Kansas City, and so making sure that the menu worked across those markets, because you needed to flex. And we did flex differently, depending on how inflation went on the wage side. Yeah. No, absolutely. Any questions here in the room? I know I have some in online that I can work into, but if we have any, feel free to get those ready and work it in. So go ahead, Zach. Yeah.[in-audible] Yeah, thanks for the question. In terms of biggest progress made since mid-2020, I'd first point to our people. We have a fundamentally different team, far more talented, far more experienced, far more focused. We've got a results-oriented team that loves the culture of the company but understands that achievement and accomplishment's an important part of their responsibilities. And then, right, a close cousin to that, and it's one of our top two reasons we think it's a great investment, is the strategy. And it's not just the static nature of the strategy, but our strategic effort. Steve, in addition to being CFO, is our Chief Strategy Officer, and putting that five-pillar strategy in and then working the underpinnings of that. This team understands return on investment in a way they never did before. For an initiative to make the cut every year, it requires us to think about what's the value you're gonna extract for the investment made? And those two things together have created a bit of a, the beginning of a flywheel effect. It's being applied in marketing and in operations and in traffic generation, our digital efforts, and of course, in franchising, but the application is reflective of those people. People in our field, too, I want to. I can't say it enough, it's a different team. To district managers and regional managers and our we have people doing jobs that didn't exist then, working on franchise support and real estate support. And there's been a lot of work done on talent and organizational development, that's focused on those results. Great question. Great. Thank you. [in-audible] Yeah, that base is the company base and franchise mix, as we're growing through franchising, is really important for us. We said when we started the Franchise Growth Acceleration Initiative, that we'd be willing to sell up to about 100 company units, and we would do that to catalyze growth. The Seattle announcement this morning included some refranchising of our units in Seattle. That's a very distant market for us, and we knew we weren't gonna put the capital in to finish developing that market. A great example of that - pardon me. A great example of that is what we did with the Royal Restaurant Group announcement a few weeks ago. We sold 4 units in central Ohio, and that group signed up for 36 new units to be developed over eight years. So we will, we will refranchise some, but only for the purposes of growth. We think that company portfolio is important to us for a number of reasons. We had all of that insight data. We're leveraging what it means to be a successful shop as we're helping choose real estate. We've got the people production that goes with it. And look, the basis of our company's adjusted EBITDA today is primarily coming from those company units, and the basis of the valuation of the company comes from that, too, so... But we'll grow primarily through franchising. I think it's also important, too, I mean, we think about the leading- Franchised or franchised brands over time, I mean, you also have some skin in the game, too. I mean, in addition to data, I mean, you're aligned with those, franchise operating partners, which is, which is key, right? I mean, we were, at a conference earlier this week, and we got to hear about from some of your peers who are also in the franchising game, and, I mean, being aligned and being able to, kind of have everyone rowing in the same direction, I mean, there's a lot of power in that as we start, you know, getting going. And to that point, I mean, can you talk about some of the initial conversations you've had with franchisees? I mean, I imagine there's a lot to like in terms of sales, traffic-driven sales, the really strong operating model, but I also get questions on, you know, concerns around the macroeconomy, and these aren't Potbelly specific, but just, you know, rates are now higher than they've been. And so when you think about the franchisee mindset, what are some of those conversations like, and how are they balancing the pushes and pulls of what could be a long-term opportunity with just maybe some near-term pressures in terms of, you know, 20- to 30+ year decisions for, you know, building restaurants? Yeah. Franchisees are really comforted when they know that you have to eat your own dog food with these decisions. It's a phrase a coworker of mine coined, and I still love it. But we walk the talk, right? We have to live with those same decisions. One of the things Steve and I discussed early on was, look, we restructured our company unit PNL at the unit level to reflect what it would be like as a franchise unit. There are costs that weren't carried properly or properly allocated to the shop. So, you know, that 16% goal that we have for 2024 includes a burden of variable costs that used to be covered elsewhere in the company. That's not how a franchisee thinks about a PNL. They love the fact that we're operating the same PNL at the unit level that they operate. So they're really grateful for that. And yeah, they look at some of those consumer concerns, but when the majority of the shops that are operating under the brand are ours, and we're showing the way that we can be successful, it makes them a lot more comfortable. Yeah, and I would add, I think, given the economic environment, we've guided to a 1.29 AUV for the year. If you look at our FDD, to put up a new unit is $650,000, so it's nearly a 2-to-1 sales to investment ratio, which is really hard to find in the restaurant business. It's also really hard to find a fast casual with the prospects that we have that's available for franchising. There's plenty of markets that we're under-penetrated in, as we just described. Seattle was one of those, but there's also markets that we're not in. We're not in Atlanta, believe it or not, and we're a national brand. We're in 12+ airports, so our brand is out there. We were founded in 1977, so we're also a brand, I think, that has, you know, some staying power. We've proven that regardless of West Coast, East Coast, North, South, that the model works, the offer works, the value proposition resonates with customers. That's helpful. I mean, and I think the other piece sometimes I hear is, you go, "Oh, man, sandwiches, what a competitive category." Yeah, but also, a lot of sandwiches are sold, right? There's a lot of white space for these brands, your peers, your brand in particular, and at the end of the day, going back to that complexity point, just 'cause there's white space or just 'cause there's a lot of brands out there, not all created equal. I mean, it takes day in and day out, you have to have that model, that realigned human capital team, the focus, all these elements that you're really putting together and emphasizing on a day-to-day basis, because you don't just turn it, you know, one time, it's every day you have to go back out and really get that. You've done some incredible work in terms of driving sales across channel, whether that's in-store, you know, to-go, hitting all these elements where the consumer- Yeah Wants to and is telling you and voting with their dollars that they want to engage with your brand. Can you talk about sales by channel, digital catering, kind of where you are in that journey and where the kind of next steps might be? Yeah, absolutely. And I think you're right when you ask about the consumer occasion. Look, this is one of the things I love about this business, is that it's a very human business. It's very emotional for people, more so than they want to admit and more so than they typically think about. So when we make meal occasion decisions, we start with some amorphous kind of thought about the type of meal that I may wanna have. And then you start going through your mental Rolodex of what those brands are that might satisfy that desire. We don't do this consciously. It happens in a few seconds, but it's the reason that awareness matters, the reason that the last bite of the last experience you had really feeds whether or not you may come back. Not that you answered the survey question, that you will, but that you feel like it. "You know, that was great. I want to do that again." We're a very kind of predictable species that way. This is kind of what we like and what we want to do. Well, with that in mind, reducing it to comparing us to other competitors that sell sandwiches that are in the same shape as ours, is not at all how customers think about restaurant choices. Unless they're just looking for satiety of some kind. It's this. And we are a fast casual restaurant concept with a sandwich-centric menu. I know it sounds like I'm overemphasizing that, but we're a fast casual restaurant concept with a sandwich-centric menu. That is unusual, actually. When you look at the consumer mindset for that occasion, they're thinking, "Okay, I want high quality. I might want to meet someone there. I definitely want some flavor. I want some uniqueness. I want to remember the meal, but I don't want to spend forever doing it. I have 30, 40 minutes, maybe. Compared to fast food, I'll drop another couple bucks on a per person average unit to do that, but don't overcharge me for it, and don't make me wait when I'm done eating to leave because I can't pay the bill or whatever. It's, "You know what? Let's go to Potbelly." "I don't like sandwiches." That's okay. They have soups, they have Pick Your Pair. You can do all that stuff. All of this gets processed. There's a reason that our brand has outpaced a lot of these sandwich competitors forever in terms of average unit volume. There's also a reason when we got here that we believed that we could accelerate that pace and pick up a whole bunch more traffic because we always thought we saw that kind of difference in there. And that's, I mean, I think that's what can really drive that continuation of that flywheel, is leaning into that difference, and by the way, protecting it. You know, we talk about oyster crackers... with our supply chain team. Because we got the best oyster crackers you can put in your soup, and we're not gonna compromise that to a slightly cheaper one. The fact that you get a custom-made shortbread cookie on the straw of your shake, which was a hand-dipped ice cream shake, yes, it takes a little more. We charge for it, but it's that good. And that cookie is something people play back for us. "I love that you put a cookie on the straw." I love it too. We make pie crust every morning in the shop that we crumble on top of your chicken pot pie soup, if you order chicken pot pie soup. It's not that hard, but it's the little things that make the difference. And our hot peppers, if you've been to Potbelly, I mean, they're award-winning giardiniera peppers for a reason. So that's not a sandwich choice. That's a meal choice. It's an occasion choice. It's the type of stuff that people... You know, fresh-baked cookies. I know I've said it before, absolutely, hands down, best sugar cookie on the planet. I dare you to give me one that's better. So that's what, that's what we lean into. I would just add, just that, you know, we talk about channels. We get asked a lot by investors and analysts: "Hey, how high do you want your digital penetration to go?" Right? And it's been in that sort of mid-30s%-high 30s% for a while. It kind of accelerated there. It was 10%, slightly less than 10% before the pandemic. And we answer it this way, which is: We don't have a target because it's the customer that's gonna tell us how they want to use the brand, and we're gonna make it as easy as possible for them to use it, whether they wanna order on their phone and then go pick it up, or whether they want it delivered to them 'cause they don't wanna go out, or whether they wanna have this, you know, unique and differentiated dine-in experience, or share it, you know, at a meeting in their office. That's what we're in the business of doing, is meeting the occasions with the Potbelly version of how to create that experience. We talk often about how do you take that in-shop experience that you have with you know, our great associates and that Potbelly way, and bring it to a digital, you know, to bring it to your laptop or your handheld, right? It's on our minds all the time, and we bring it to life, and I think we do a nice job. One of the big secret weapons that we like to talk about is our Potbelly Perks loyalty program, right? Like, the world needs a loyalty pro- another loyalty program like they need a hole in the head. We've had a loyalty program for a while, but the point is, how do you make it more than just an earn-and-burn situation? Because of the great growth we've seen in it, 60%, you know, new customer acquisition of that loyalty program, third this year to third last year, that's rapid growth. It allows us to continue to have one-on-one dialogue with our customers. It continues to allow us to provide them with the right kind of offers that get them to come back to our shops or our channels. And there's room to grow for us there. It is... It's a fantastic weapon for us that we believe, you know, is gonna serve us well as we continue to build the business. That's great. We had a question in the back. So, some of the last Yeah, I think if you take Steve's comments into account and my comments about the consumer occasion, look, the headline is: We think we can build smaller shops and still deliver that experience. Potbelly shops have been pretty large for a long time, and some of the legacy shops I believe are just plain too big. It shows up in the occupancy costs. It certainly shows up in the operating costs, the maintenance, and the challenge to operate it. But more than, you know, well, more than half of our business still crosses that threshold. We even have people that, you know, think they've outsmarted the system. We love that they do. I do it. I order for a to-go order digitally. I walk in, grab it off the shelf, and then sit down and eat it. So it's the best version of Potbelly for me. And that in-shop experience is still very important. We do have... You know, we've got a hospital location in Chicago. There's no dining room in that hospital location. Obviously, a lot of our special sites, airports and things, there's no dining room there, and we can bring the brand to life really well without it. But, you know, the real short answer is, we don't need that sort of unique, discrete version of ourselves to continue to grow with because we have so much white space for more traditional locations. A 1,800-2,000-sq-ft Potbelly can have a moderate amount of seating, still have the brand essence that brings it to life, still be digital forward and allow us to be flexible. It still has two lines. We can keep that two-line setup. That's something we don't talk about a lot anymore because I think we educated the public on it, but all of our shops have two lines. All our digital business goes through a separate line, and we didn't have to install that. We repurposed the line that was on the back line. It was used for catering when we got here. We can keep that. You know, the prep is still minimal, so the shop works really well in a smaller footprint. That's great. And one of the questions that came in, I mean, we've spent a lot of time talking about the unit growth opportunity, but then we'd be remiss to not kind of address the overall environment, right? So whether it's supply chain, permitting, those are issues that are facing everybody. Still some headwinds. They've gotten better, but maybe there's still some lag to get back to where we were pre-pandemic. I would imagine that your model being a little bit more, you know, a tighter footprint and just being able to again hit those $600,000 build-out costs, that gives you a little bit more flexibility and maybe some insulation. But can you talk about unit development environment, what you're seeing, and then how that translates to franchisees being able to get units open and hit your targets? Yeah, absolutely. I think the joke is it takes a year to build a mailbox in some neighborhoods, you know? So it is a difficult construction environment. We recognize that. We've embraced it. On the cost side, we do think that the smaller footprint actually allows us to absorb most of what we see in inflationary costs and yet keep our historical build cost at about that $650,000 range. We haven't guided to that, but if you take square footage out and you get more efficient with how you build, you can be much more efficient on the investment side, and that keeps that 2:1 sales to investment ratio. But the other things that people are dealing with that can be delays, we're actually candidly trying to outrun that through execution. We've structured our senior team to have two leaders that help us with development. Most recent announcement we made about the recent leader was Lynette McKee, who came on board as our Senior Vice President of Franchising. She reports to me. She doesn't have the entire responsibility of development. She is all about franchising, market planning, recruitment, franchise selection, and deal making, and she's our closer, with her sales team, of course, and the recruiters. All the execution-centric stuff reports to our Chief Operating Officer because he's an operations and execution expert. And so think things like engineering, architecture, construction support, franchise real estate selection. Those things are treated as execution responsibilities. One of the reasons you get in trouble with permitting is you didn't do the hard work of evaluating the site the right way before you started. We actually have a requirement to do that even before you sign the lease. So we don't get surprised by finding out I didn't have the right power feed, or I couldn't put a grease trap in where I thought I could put a grease trap in. Not only do we know it, so we don't get delays, we know it so that the franchisee can negotiate a better lease with the landlord because of those barriers, right? We have two engineering firms that are essentially our in-house engineering firms. Franchisee uses one, one of those two. They will get drawings we will approve. They will get drawings that are gonna make the permitting process easier, and they'll have an architect that's gonna partner with them on that. So, you know, we've outrun those potential barriers by out-operating them, if you will. Yeah. No, that's helpful. I mean, there's still a lot of elements that are gonna be outside of your control- Absolutely But doing all the work ahead of time, like you said, Control what you can control. There's not gonna be an oops, where, "Oh, we don't have the right electrical panel," which we hear still happens across the- Across the board. It does. Yep. That, that's definitely helpful. Any questions here in the room? We've got one kind of. It touches on, so what you, what you talked about earlier in terms of just obviously great brand following. You leverage that across channels with digital. You know, I think we've heard you talk about strategic marketing in the past. Mm-hmm. There's obviously a strong level of brand awareness among your core guests in the following there, but how do you get the brand awareness out, and how do you help communicate that, you know, across channels and, you know, across the markets? Yeah. Thank you. One of the things that historically the brand hasn't really spent very much on marketing. Well, today we're spending about 3% of our sales on marketing. We collect that from our franchisees too, so they contribute. Almost all of those dollars are reinvested in digital assets. Much of it is brand building. There's paid social, and there's other vehicles that we use and media that we use to buy that. We've done a lot of our own production, and we've learned a lot. Because we have a test-and-learn mentality internally, we didn't just go from zero to 3%. We've taken 0.75 percentage point incremental investments in that marketing, and we've tested for the return on that investment by putting it in certain shops, holding it out of other shops, adding the variable, whether it's additional spend or it's an additional vehicle, or it's additional creative, and said, "Sure enough, we're getting $3, $4, $5 to one on the top line. Now we'll roll that out across the system." We do measure awareness, we do measure the frequency of our impact using those vehicles, and we measure return on invested ad spend across the various media that we use, and we continue to be thrilled. Look, it's an important note, I think, for us and for anybody investing in the brand, that 3% number is still 1-2 basis points—sorry, 1-2 percentage points below the industry average. Right There's a reason that most food chains have settled in at about 4%-5% of their revenue at the shop level, invested into marketing, 'cause that's about where you hit sort of diminishing returns. In other words, there's more gas in the tank. We're stepping our way towards it, but there's more we can do. I think an important point there is also just thinking about, you know, some of this gets masked with all the price that everyone's taken over the last couple of years, but, I mean, that million-dollar mark for an AUV perspective always kind of been the sweet spot, right? And you've been there for a long time. Yeah. We talk about your maybe your larger global peers that are half that on a good day, and so, I mean, amazing starting point there within... You know, allows you to leverage some of that and, you know, still maintain that overall unit level profitability. Right. Keep cash in the hands of franchisees, which is obviously, you know, very important to make sure those dollars are going a long way. Absolutely. Would you set out some solid margin targets, and it seems like you've got great line of sight there. I imagine some of that's gonna be driven by sales leverage, just given- Mm The strong AUVs, but, can we maybe just recap where you've seen those particular points? I mean, you mentioned, commodity inflation may be normalizing a bit- Yep Balanced against a, you know, broad basket. Do you have some of that contracted? What level of visibility do you have in terms of the, you know, key layers to get to those margin targets? Sure. Well, top line helps, right? And we believe, as Bob said, we can fuel some more top line with, certainly with marketing, and then that Perks program is gonna be a big component of that. But related, would be some components that we still have, I think, opportunity in. So our Central Business District locations, they were a big drag on the business, as you can imagine, in the early days of COVID. They're a tailwind for us, still continue to be, and you can't read anything online or you'll hear anything about business without hearing back to work. Companies are coming back to work. That helps us. Our catering business is a big opportunity that continues to grow, right? Sub-10%, going into the pandemic, and we have aspirations, you know, well beyond that. So those are top line related things which help. You talked about the commodity and food cost piece. We also have a fairly maniacal supply chain team that goes after big seven-digit bogeys to pull cost out, costs that the customer doesn't see, but the costs that are just sort of inefficient, right? And we've made great progress there, and we'll continue. That's just gonna be sort of business as usual, but savings every year. Bob has talked about before our Potbelly Digital Kitchen, right? Which certainly helps us with throughput, but it also, I think, helps us with labor. So we pull hours out of the shop because it's easier to do the work, right? The Potbelly Digital Kitchen allows us to, you know, take digital orders in, allocate them better. It's a kitchen display system, right, as well. And frankly, the folks who work in the shops who have a PDK, they don't wanna leave. "Don't take this away from me," right? They don't wanna work in a shop that doesn't have it. So there's labor savings there. In addition, Bob mentioned earlier at the beginning, you know, when we first took the job, there was no labor guide, no hours-based labor guide. We have that in place now, but, you know, frankly, there's still optimization that we have to wring out of that as well, to extend those labor savings. As you get down further into the P&L, the occupancy costs, you know, we were able to move on from 30 shops during the pandemic that weren't working for us and that landlords were willing to let us get out of, so that helped quite a bit, kind of optimize our portfolio. But even so, we know we're in a softer real estate market here, and we're gonna continue to work with our landlords and partner with them, to gain some occupancy cost savings where we can, right? We do see some opportunity there as well. And then on our other OpEx line, half of that's variable. That's where our marketing and our brand fund hits, right? That's three percent of sales hits into there, as do our third-party delivery fees and credit card fees, and those other things are also variable. But we will get some leverage. You know, we talked about inflation on the commodity side, on the labor side, but there's also inflation that we had seen bake into that other OpEx line in terms of maintenance costs for the restaurant and/or utilities costs, and those things are moderating as well, so we will get a little bit of leverage there. So, you know, we get the question quite a bit, right? And I'd like to be able to say, "You know, there's one thing, and it's gonna answer all the margin problems." Frankly, you have to work all levers for us. Yeah. But we're, you know, our 14, high 14s in Q3, in terms of margin, give us a lot of confidence that 16% target that we set for ourselves for next year is certainly within reach, given all the activity and strategic initiatives that we've got to expand margin. No, absolutely, and I feel like the other piece to that, too, is you have the strong five-point or five-pillar plan, and each, you know, each day, each month, each year, you have working at that. There's additional layers of just execution and throughput that come out of that. Right. I mean, that's the beauty of a strategic plan. People might say, "Hey, we've heard about this before," but we wouldn't expect you to be revamping a strategic plan that's working, right? Right. You, you drill deeper, you drive execution, and all that, kind of flows through. So really appreciate you both being here today and help tell the story. We'll have the team up here, for a couple of minutes before the next meeting, so, would love to make an introduction when and where you have interest. So thanks so much for joining us, and thanks, Bob. Thanks, Steve. Yeah, thank you. Appreciate it. Thank you.