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Portillo's CEO on price increases amid inflation: 'Consumers are voting with their feet'

Consumers don't seem to pushing back on the slow-rolled price increases at Portillo's (PTLO) over the last year as Americans continue to dine out despite inflation.

"We price a little bit slowly — we price behind the curve," Portillo's CEO Michael Osanloo told Yahoo Finance Live (video above), later adding: "And that's how we'll continue to do it. I think that this price laggard strategy for us has paid off."

Portillo's raised menu prices 3.4% in the fourth-quarter and saw same-store sales increase by 6.0% while revenue grew 8.6% to $150.9 million. In fiscal year 2022 overall, the Chicago-based restaurant chain — known for Italian beef sandwiches and Chicago-style hot dogs — raised menu prices by 7.5 but saw same-store sales up 5.4% and a 8.6% increase in revenue.

Osanloo said the strategy is working.

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"As I mentioned in our earnings call... we're positive traffic, positive sandwich count for 2023 so far. I think that says the consumers are voting with their feet and that great value proposition in a recessionary-like climate really works well."

In January, Portillo's increased menu prices by 2% to further buffer its margins.

William Blair analyst Sharon Zackfia recently noted that Portillo's saw commodity inflation up 14.5% in Q4, largely tied to chicken and beef supplies that make up over 40% of its commodity basket.

Osanloo added that Portillo's expects to see "mid-single digit commodity inflation for '23," later adding that "you're going to start relatively high at the beginning of the year, and you're going to slowly come down. ... there's labor inflation drives a big chunk of the inflation pressure on the cost of sales. There's also labor shortages. So we kind of need those things to taper off or improve over the course of this year to get back to a more normal inflation number."

A Portillo's restaurant in downtown Chicago on October 8, 2021.
A Portillo's restaurant in downtown Chicago on October 8, 2021. (Joe Hendrickson via Getty Images)

Labor made up 26.5% of the company's total cost and expenses in the fourth quarter, and the chain continues to recruit amid a tight labor market and new restaurant openings such as two new locations in Texas.

"At the Colony, we've been blessed," Osanloo said, referring to a location outside of Dallas that opened in January. "We hired, within two weeks, 120 fantastic people. We hire based on values. I'm not hiring you because you spent 20 years in the restaurant industry. We hire you because you want to act like you're a family member. You believe in being great. You act with urgency. You want to have fun."

The CEO also noted that the supply chain seemed to have "caught up with from a shortage standpoint" given that the restaurant has a "sufficient capacity of fries and onion rings" after facing potential shortages earlier this year.

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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