NEWS

Potbelly assembles ingredients for IPO

Chicago Sun Times
July 14, 2005
BY ERIC HERMAN

Lunchtime customers stand in long, fast-moving lines for Potbelly's $3.79 sandwiches. Soon, investors could be standing in line for its stock.

Chicago-based Potbelly Sandwich Works is ready to go public, Chief Executive Bryant Keil said. While declining to pinpoint a date for a stock offering, Keil said recent hires give his company the management heft he wanted before going public. Meanwhile, Potbelly's revenues are soaring as it enjoys its first full year of profitability, he said.

"We can go public anytime," said Keil.

The company has come a long way from its origins as a Lincoln Park antique store whose owners decided, just for the heck of it, to sell sandwiches. Keil, 40, bought the store in 1996 with the idea of opening others. The sandwich chain's name comes from the potbelly stove that sat in the original store at 2264 N. Lincoln.

Today, Potbelly operates 84 restaurants in nine states and the District of Columbia. It employs 2,600 people, including 85 in its Merchandise Mart headquarters.

Unlike most fast-food chains pursuing growth, Potbelly owns all its outlets. Though Keil said he gets "70 franchise requests a week," the company has no plans to start franchising. "I want to make sure that every store is a great one -- that they're all operated the same way," he said.

That could grow more challenging as the company expands. Keil plans to open 20 more Potbellys in 2005, and another 40 to 45 in 2006. More than other sandwich chains, Potbelly depends on its homey atmosphere, with its wood furnishings and street musicians strumming while lunchers wolf down hot subs.

"It just doesn't feel like a chain. It feels like a neighborhood joint, and I think people find comfort in that," said Bob Kagle, a general partner in Benchmark Capital, which owns just under 10 percent of the company, and a Potbelly board member.

Keil, a Hinsdale native, started his first business when he was still in college. He later became CEO of a food delivery firm at age 22.

"I've always been entrepreneurial," he said with a shrug.

Recognizing that a company about to go public needs more than an entrepreneurial spirit, Keil brought on two industry veterans recently. Last month, William Moreton joined as president and chief financial officer, having previously been the CEO of Baja Fresh, a subsidiary of publicly traded Wendy's International.

Next week, John Bettin, former president of Morton's The Steakhouse, joins the company as senior vice president and chief operations officer. Bettin will oversee operations and management of all Potbelly's stores.

"We want to be ready. We want to make sure we have all the people in place," Keil said.

Potbelly also has a board of directors heavy with restaurant and financial experience, including Starbucks Chairman Howard Schultz, who took the coffee chain public, and Edgar Jannotta, the chairman of William Blair & Co. Whole Foods Market co-president Walter Robb recently joined the board.

Financially, things are looking up. Potbelly will log sales of $100 million this year, up 43 percent from a year earlier, Keil said. The company was profitable for one quarter last year, and it reinvested cash into "infrastructure to support growth," he said. Potbelly has been profitable this entire year, he added.

Ron Paul, president of Technomic Inc., said Potbelly has "very good growth prospects" but faces heavy competition from the Subway and Quizno's sandwich chains.

"The biggest negative that they face is that they're in a very crowded segment," Paul said.