Okay, hello, everybody, and welcome to the 2023 Portillo's Development Day. I am Barb Noverini. I'm the Head of Investor Relations here at Portillo's, and I'd like to welcome those of you who are joining us on the webcast, and also those of you who are here with us in person this morning. Thanks so much for taking the trip to spend time with us here in the DFW area. We're gonna have a great day planned for you. Behind me right here is a picture of our restaurant in Elmhurst, Illinois. Elmhurst is a small suburb right outside of Chicago. It's really close to O'Hare Airport, and this restaurant is the third one that we had in our system, so it's been around for a long time, for decades. It's iconic. You know, it's built to look like a jukebox.
You'll see some records in that illuminated part up at the top. This restaurant is special to me for two reasons. The first is because I spent a lot of time here as a teenager and a young adult, so it's a long time ago, not quite as long as this restaurant's been around, but it's long enough. The second reason is I actually went back here for my training when I joined Portillo's a year and a half ago. You can see a picture of me there, learning how to make a Chicago-style hot dog, the Portillo's way. It's not as easy as you might think. Some of you had a chance to try it last night, actually, but that's what makes it so delicious.
So I've had a lot of really great memories here at this restaurant, and that's what we're all about, creating lifelong memories for people in our restaurants, and you're gonna hear a lot about that in the rest of today. So moving on to the agenda, those of you who are on the webcast will be with us through Q&A, and then those of you who are here in person will proceed to the lobby after Q&A, where we get on the bus to proceed to our site tours. And then, of course, I'm going to ask you to review our cautionary note. We will be making forward-looking statements and referring to non-GAAP measures throughout our presentation today. We made the presentation available earlier this morning in filing our Form 8-K, and also to download on our website at investors.portillos.com.
With that, I'd like to pass it on to our President and CEO, Michael Osanloo. Michael?
Thank you, Barb. Good morning, everyone. Thanks for being here in Dallas. Well, the weather looks dicey outside. We're supposed to get, like, 2-inch hail. Yeah. I don't know, Derrick . It's Texas. I wanted to show one of my favorite restaurants as my cover page. This is, this is our Orlando restaurant. I think it's an example of what a beautiful-looking Port-- rendition of a Portillo's is. The other thing I bring your attention to, do you see that awning? That's something that we're doing now in all of our new restaurants, especially the restaurants that have a little bit of weather situations, like, whether it's rain in the summers, cold, et cetera. But it's, it's protection for our team members and for our guests. But we're building beautiful, beautiful, eye-catching restaurants.
You've probably heard me say this before: We think of our restaurants as balance sheet marketing. Orlando is one of my favorite examples of that. We're gonna talk about five things today. We're gonna talk about a little bit about unit growth being a key driver for us, right? You guys know this. We are a growth story. We, of course, have robust economics in our restaurants, gaudy economics in our restaurants. What makes it really powerful, though, is that we also believe that we are one of the best growth engines in this industry. We're gonna keep accelerating profitable growth through restaurant discipline. As smart as we're getting on how much money we put into the ground, they're still very expensive restaurants. You'll hear Mike Ellis, our Chief Development Officer, talk about this.
We're getting really smart about how to spend, when to spend, and where to spend, so you'll hear about that. We've done a lot of work on strategic revamp of our-- of, of which markets we're going after and why, and site selection. I will talk about it a little bit. Ellis will also give more detail on this. When we put that much capital into the ground, and we're building restaurants... Remember, we've never in our history closed a restaurant. You wanna get out of the gate strong, and so we have fine-tuned our new restaurant opening processes. We've got SWAT teams that go in there. We know exactly how we want to take care of guests. We know how to train. We can do it in, in-- now in scale. Derrick will talk about this. Derrick Pratt, our COO, will talk about this. It's exciting.
And then we're gonna talk about an optimized footprint, right? Our restaurants historically have been big. We've gotten them to a much more manageable size. We think that we can get them even to a more efficient size without risking revenue, right? What's gold for us is we don't want to do anything that puts an artificial cap on the revenue of our restaurants, but we want to get a little bit more compact. We also want the restaurant to reflect what the world wants in terms of off-premises versus in-restaurant dining. We think that we have come very close to cracking the code on that. When that happens, you're gonna hear about what we call MAM, Minimum Achievable Market. It's a little different. TAM is a fairly straightforward calculation based on population, density, how much you could have. Our TAM, Total Addressable Market, is an absurd number.
Our head of strategy, Garrett, will go through this for you. We have a MAM, which we think is the right way to think about this. It's much more precise, much more surgical. That still gets to really attractive economics for investors at Portillo's. Michelle will talk about this and conclude for us. So, it's an exciting day. These are sort of the takeaways that I want you to have. Development is going incredibly well. I wanted to give a quick update on the Class of 2023. You can see that. You know, we had four that spilled over from 2022. I call them the Class of 2022. I promise that's the last time we'll ever do this, but we had four that spilled over, and now we have eight in the Class of 2023. These are actually recent photos of construction, right?
Queen Creek is open. Allen is open. Cicero, Arlington, Algonquin, are very close to being open. You're gonna actually get to see our Kitchen 23 design in Allen. It's super exciting. You can also see our commitment to growing where the growth is, right? The bulk of our restaurants here that you see are in the Sun Belt, and I'll explain why that's such a powerful way of doing it. You'll see. And in fact, one of the things that's exciting is you can see in the red highlight, we will have opened, actually 1, 2, 3, 4 in the DFW Metroplex within a year. We actually already publicly announced the fifth one.
Remember, there was one restaurant that we just decided was—it was, it was gonna be too hard to try to open this year, so we pushed into early 2024. That's in Denton, Texas. What we will have opened is five restaurants in the Dallas, Texas, market within one calendar year. Feel great about that. That's how we achieve density and scale in a very, very attractive market where we are already crushing it, so we feel really, really good about that. Our growth trajectory. Two things I want you to pay attention to. The bottom, from 2004 to 2013, these are sort of when it was still a privately held company, it was roughly 3.5%. Growing—building a new restaurant at Portillo's was a Herculean task. It was an Amish barn raising. You would send hundreds of people to a place.
It was ridiculously expensive. I don't even wanna talk about how much pre-opening expense there was. Berkshire bought the company in 2014, got much more disciplined about growth and how we did things. But you can see, however you want to cut the numbers, we're getting faster, we're getting a better growth rate on our growth on new boxes. We committed an IPO 10%+, as part of our long-term growth algorithm. No huge surprise here. It's gonna be a little bit bigger number. I'm gonna let Ellis and Michelle highlight that for you, but we're comfortable that we can grow faster than 10% now. By the way, I do wanna highlight again, 'cause it, it's one of the things that's very unique about this concept. Founded in 1963, we're up to 84 restaurants by the end of this year.
Not once have we closed a restaurant. I love the restaurant that, you know, that Barb showed you, Elmhurst, but it's 'cause I'm a mercenary at heart. Elmhurst does ridiculous amounts of revenue, spits out a ton of cash for our investors, and that has been a fully depreciated restaurant 35 years ago. That's a really nice business model when you build a restaurant and then just collect a coupon for 35, 40 years. I wanna talk a little bit about the evolution of our growth strategy. So obviously, we have a very, very strong presence in Chicagoland, right? You will see an example. We can pretty much build anywhere in Chicagoland, and it's gonna be a home-run restaurant. Originally, the thinking was we're gonna grow in the adjacent markets, part of a cheese spill strategy. We like...
My marketing guy does all these puns, but it's, you know, it's a cheese spill, right? And the logic behind that is kind of solid. Everybody knows us. Midwesterners come to Chicago, they visit Portillo's. We can bring Portillo's back. There's a lot of merit to that strategy. There's also some limitations to that strategy, which I'll show you in a second. We have pivoted to scaling along the Sun Belt. The preponderance of our growth for the next few years will be Texas, Florida, Arizona, and you can see the next three states that we're targeting. We're already starting to look at sites in Georgia, Colorado... Atlanta, to be specific, Denver, Colorado, and Las Vegas, Nevada.
It won't surprise you to hear that those are three very fast-growing states, three states where we have a lot of latent demand for our brand, as we know that based on Shop & Ship data. We're going where the growth is. We're going where people are. We're going where people are moving. We're going where people are demanding our food. And so that is our strategy, is to go where the growth is. You can see how this plays out in population. This is the decade-long population growth across these states. Here's just one fun fact for you: The entire Midwest, if you add up all that population, is less than the population growth of Arizona, okay? I like waking up in the morning and knowing that in Texas, in Florida, and Arizona, you've got somewhere in a low single-digit comp coming just because of population growth.
That's our strategy in a nutshell. We're going to states that are growing really fast, that have population tailwind. We've opened 10 in the Sun Belt so far. We're very, very happy with those results, and we think that this is, this is where we're gonna be pushing very hard for the next decade. The other thing that we look at is Shop & Ship orders. So many of you know, we have this elegant little business where if you want Portillo's at home, which, by the way, if you haven't tried, I encourage you to try it. It's really good. Now, you have to follow the instructions, but you can make a beef sandwich, and I would tell you, it's probably 99% as good as at the restaurant, at home for events. It's a ton of fun.
People Shop & Ship Portillo's all across the country. So some of the states that have the biggest Shop & Ship, we've gone into. One of the reasons we went to Texas, huge Shop & Ship numbers. One of the reasons we're looking at Georgia next and Colorado next, huge Shop & Ship numbers.... So part of our strategy is, again, go where the growth is in terms of population. Mike will tell you how much easier that makes his life when you're looking for commercial real estate in places where there's already cranes up and developing, versus places where you've got to tear down an old building and put something new there. And don't get me wrong, for those of you, like, we will still go to the Northeast. We will ultimately go to California, because there's just a ton of revenue in those places.
For Portillo's, those are restaurants, I don't know, 500 to 700. They're not restaurants 100 to 200. The first couple hundred restaurants for us will be the low-hanging fruit. We talked about this a bit in the past. There's something special about the box that we have. It is a really profitable box. When you look at... These are some of the most high multiple restaurant concepts out there. I think they're all considered growth stocks. They do very well, and this is, this is-- these are-- you know, we, we, we don't want to compare ourselves against weak competition. We want to compare ourselves to the very best of fast casual. I think this is arguably the very best of fast casual, certainly the highest multiples in fast casual. The reality is that when you consider us, we kind of dwarf them.
You just got to adjust the slide a little bit because that's where we are. When you look at Portillo's in total, $8.8 million AUVs, 23% restaurant-level margins, which includes all the non-comp. Once they're in the comp base, and they've had a chance to mature, we're 27.5% margins. There's no other restaurant concept like this. This is doubly important at times like now, right? When you think about how skittish markets are and how carefully they're watching restaurant company performance, because you all know that marginal revenue in most restaurant companies is the difference between profitability and non-profitability. It's not a problem for us. We're really profitable. Michelle will tell you that we fund all of our own growth internally.
We're not going hat in hand to some bank and asking for 7%, 8%, 9% interest to build a new restaurant. We build our new restaurants on our operating cash flows. We're a very, very profitable company. It just doesn't compare. Now, some people say, "Well, but this is true because of Chicago." Our worst collection of restaurants, so if you just take the Chicagoland, the restaurants adjacent to Chicago, not in Chicago, and you say, "What do they look like, Michael? Let's be fair." Those are $5.7 million, 17.8% restaurant-level margins. If we were just that company, we'd be a really attractive company. We'd be a really attractive company if we were our worst restaurants.
When you start thinking about Portillo's in the Sun Belt, we're at $6.6 million, 20% margins, but this doesn't include the newest ones that we have built that are not yet in the comp base. When you added them, we go to $7 million and 19.5% margins. The message I want you to take away from that is Portillo's actually performs better farther away from its home market than at it, near to its home market, right? Our home market, obviously, Chicagoland, you got to do the chart differently to show Chicagoland, right? It's, it's, it's a, it's a ridiculous, it's a ridiculous engine that we have in Chicagoland. Now, we love it because it generates so much cash flow for us, that we get to invest that cash flow in other high-growth markets.
That's our strategy in a nutshell. But the site selection matters. This is Gurnee, Illinois. Does $11.3 million, right? Investors, you're you love this restaurant. This is a home-run restaurant. It is a home-run restaurant. Happens to be in the back end of a mall, very difficult to access, zero visibility. In any other state, this restaurant is a failure. In Chicagoland, it does $11.3 million. Here's Orlando. By the way, this is a picture of what Orlando looked like when I got there. This is the first time I looked at Orlando. Me and the real estate guy, we walked outside, and when you walk back there, it was literally a swamp. Don't quote me on this, but I think there were gators there, right? Now it is a beautiful restaurant with a development all around it. There's mixed-use tenants behind. There's retail, residential.
There's a 5,000-kid high school about 1,000 yards from our restaurant. It's two miles away from Disney, and Master Project in Orlando is rerouting Highway 4 to dump 1 mile above us so that everybody who's going to Disney with their kids, who are irate and tired and cranky and is about to go and spend $200 for lunch at Disney, is gonna have to pass Portillo's on the right side. This was a very purposeful decision. This is an example of really thinking through the details of site selection, access, visibility, co-tenancy. Ellis is going to talk to you chapter and verse about how important that is and how one of the lessons learned is we've got to be really great when it comes to site selection outside Chicago. In Chicago, candidly, we can build anywhere, and they're going to do well.
Outside Chicago, we got to be on our A game, and that's the lesson here. Great co-tenancy there, great visibility, great access. Great openings matter, okay? We've learned this the hard way. When you open a Portillo's, it's gonna be crazy volumes. You can't help it. But what we don't need to do is throw gasoline on those crazy volumes in the first couple weeks. A massive, over-the-top, big bang opening is actually negative for us because what happens is you're breaking the machine. You're doing volumes that the restaurant can't or shouldn't try to handle. You're burning out your teams. We, you know, you see in some of those crazy big openings, team members literally just walk out because they're overwhelmed. Guests have bad experiences.
A lot of those guests, it's the first time they've ever heard of us, and they're visiting us to see what all the hubbub is about, and they have a bad experience. We have learned how to open restaurants incredibly effectively. We can't. We're still gonna have a big bang, but we don't want to have a $400,000 week. I want to have a $250,000 week, and then I want to have another one of those, and then another one, and then another one. I don't want this precipitous rollercoaster revenue curve when it comes to new restaurant openings. I want a nice, steady curve, and I want to build quickly. So we've learned this the hard way. We've learned experienced Portillo's general managers matter. We've learned you need to have an NRO playbook.
Can't spend millions of dollars on pre-opening expenses. You need to be disciplined about how you're doing that. You want happy guests and happy team members from day one, and that just accelerates all your financial returns. You know, Derrick is going to talk about this. We've got a brilliant playbook now, and we have a scale capacity with NROs, which I think will be very reassuring. 100% of the restaurants we open this year and next year, we have experienced GMs. We have small, agile NRO teams, dedicated people, but also some people that are like the reserve fire department, right? You can tap into in markets to say, "Hey, I need you two, you two to come help with this NRO." We're managing our openings so that we minimize the big bang effect, and we have a steady burn.
Then you'll see, the proof is in the pudding. We're already seeing improvements in how we return. Here is this proof in the pudding. These three lines represent the percent of month 1 sales in the following months, right? You always have... Your first month is going to be huge. Sales are going to dip. From 2016 to 2019, you see that by month 6, you're down 45% versus month one. So whatever you're doing in sales in month one, you've lost half of those by the sixth month. And it's not surprising, right? Because you didn't give a great experience. You have new team members, you're churning people, and you need to build that business back up. That curve is painful to experience in the restaurant industry. It takes a while to do that.
We got better, and we keep getting better. Now, by 2022, the class of 2022, we're down to a 30% decline, and some of our restaurants are really doing quite well. And I think that we have, we used the time during COVID to get good at this, to learn this, to develop our NRO playbook. Again, Derrick's going to talk to you about this in detail, but it's working really well. That matters. The box matters. The company I joined had just built Roseville, Minnesota. It's 11,300 sq ft. It has a 105-foot production line. In respect to the people watching, I'm not going to walk it out. 105 feet, you know, I'm not a tall guy, so it's like 40 steps, right?
Imagine you got to. You make a beef sandwich, you got to walk 40 steps. This room isn't 105 feet. You've got to walk 40 steps to deliver the beef sandwich to expo. That's one way. Then you got to walk back. That's ridiculous. So Derrick talks about conveyance being the death of productivity in a restaurant. That's a lot of conveyance. We've gotten our restaurants down to 7,700 sq ft, that's what we're building, with a 65-foot production line. That's exciting. Nick is going to talk about the Restaurant of the Future. We think we can get it down to 5,500-6,000 sq ft with a 47-foot production line. But what's important about that, there's two guardrails against that Restaurant of the Future that are non-negotiable for me. Nick knows them. Right, Nick? Okay.
One is, it's got to be able to do $10 million-$12 million of revenue. When our restaurants are fully grown, they've got to do $10 million-$12 million of revenue. So you can't build a box, then all of a sudden tell me it can't handle the volume. That's one. Second one is, we are an experiential brand. We cannot nickel and dime the guest experience. I want them to see food cooking. I want them to see tchotchke on the walls. I want families with kids taking selfies. It's still got to be a fun, exciting, invigorating brand. Yet, with those two constraints, Nick and Michelle, who are co-leading the Restaurant of the Future, they've got a vision for getting it down to a more manageable footprint, sub 2 acres, which opens up different real estate.
I'll let her-- I'll let them brag about how much capital they can take out of this and what the cash-on-cash returns look like, but it's really good because it's really good the way we do it currently. It just keeps getting better. I'm super excited about this. This is, this is... The other thing that I actually is important to mention is that this restaurant also pivots to how consumers are using restaurants in the future, right? Think about this: It's going to have a side door with some parking, temporary parking. If you want to go pick up your own food and you ordered via app, you go in through the side door, food's right there on a rack, you grab it, you go. Takes you a couple minutes. DoorDash, Uber, all the third-party delivery guys, that's where they go to pick up the food.
They don't traipse through the middle of our restaurant, disturbing other guests. They come in through the side, they get their food, they go. We will be a frictionless environment for guests. Guests want to order via app? No problem. Guests want to order via app and go through the drive-thru? No problem. You want to do a traditional drive-thru? No problem. You want to sit down and eat? Fantastic. You want to bring your kids and sit on a patio and enjoy nice weather? God bless. We're going to be a frictionless environment that provides very, very balanced and effective dining options for our guests. It's exciting. We told you about 600 was the... And I referred to it as a TAM several years ago when we talked about this. Garrett's gonna give you the details on this.
What we're gonna tell you, though, today is that we're gonna tell you that 800 is the right number for us. And there's full-scale U.S. restaurants, right? 800 full-scale U.S. restaurants. So, you know, if you're modeling Portillo's AUVs, it's 800 times this. That's, that's the meat. That's the reason we use the big beef graphic is 'cause it's, that's the big beef on our plates, our full-scale, beautiful restaurants. We think 800 is our revised, and we call this our minimum efficient market. And so MAM, can we use MAM? It's our MAM, and we're excited by it. We think it's fantastic. There's obviously more on top of that. It doesn't even include the pickup, walk-ups, drive-through, you know, drive, drive-through only.
It doesn't include those, and then down the road, obviously, we are a franchise. There's an international franchise element to us. There are airport locations. There are alternative formats for us. Those are undeniable. But the focus of our growth, the low-hanging fruit, because, again, we're at restaurant 76 right now. So for the next several hundred, it's full-scale U.S. restaurants. That's what we're building. High revenue, high margin, fantastic returns. So that's what I want you to take away. We are a growth concept, admittedly, with ridiculously good box economics. We are accelerating our growth, but we're doing it in a very disciplined fashion. We're not chasing growth for the sake of growth. We're still at a very early stage. We're accelerating it because we have the playbook in place now to start to accelerate.
Our site selection is driving attractive results, and by the way, and it means a lot to us because we're still cognizant of the fact that we're putting a lot of capital, a lot of investor money into the dirt. We can't. We're not building 50 restaurants. Five might fail. We'll close down 20 next year, open six. See, that's not who we are. We open restaurants. We expect them to be open forever. We don't close restaurants, so when we build a restaurant, we've got to be incredibly confident that it's gonna be a success. We feel great about de-risking our openings. We're seeing our openings perform better than they ever have. We're seeing flatter penetration curves. We're seeing happier guests, happier team members, and our NRO playbook is there, and we've built that capability ahead of need, so I feel great about that.
And then this optimized footprint, the new restaurant, the TAM, Michelle will wrap this all up for you, but... And a very, very, very attractive restaurant company investment should be even more attractive after you hear about this. So thank you very much. We will do Q&A at the end of this, but I'm gonna turn over to Mr. Ellis now. Mike?
Thank you. Does this turn on? Okay, I'm good.
Green button.
Oh, no. Okay. Good morning. I'm Mike Ellis. I'm the Chief Development Officer for Portillo's. I just celebrated my one-year anniversary with the company earlier this month. In terms of background, I've got 30+ years in restaurant growth and development, leading organizations like Fridays, Darden, Einstein Noah Restaurant Group, and more recently, Cracker Barrel. What you're seeing on the screen is a picture of Arlington, Texas, which is under construction. We'll tour that later this afternoon. This one's near and dear to my heart. When I first got married in 1985, we moved to Texas, and we were one exit away from this restaurant, and you'll see, and I'll point it out as we do the tour. When I was... Many years ago, when that was, there was a McDonald's and the bank that we tore down to put this Portillo's.
Now there's 3 million sq ft of retail. It's a totally different thing, so I'm happy and proud to show you this restaurant and what it means and what it looks like. What I want to cover for us today in development is how we're scaling the pipeline to scale the brand. How by fortifying our development cycle sets us up to be a much more national growth company than a regional growth company. That when we enter new markets, we're gonna aggressively expand in those markets so that we're at scale at 6 or more restaurants within 2 to 3 years of opening our first, and we're gonna do that by finding quality A-plus sites with great traffic generators. And then finally, we're leveraging a standardized, scalable process in construction that allows us to build multiple units at the same time.
So when Michael kind of showed you our growth trajectory a little bit earlier, you know, over the 60-year lifespan of Portillo's, we had historically been much more opportunistic and, and reactive from a growth standpoint. Over the last few years, we've evolved to be much more planful, proactive, and analytical in our approach. We know that driving growth and opening new Portillo's is the key to our valuation and that the lifeblood to do that in development is a strong pipeline. So that's been the main focus in the year that I've been here, is building that strong and robust pipeline. We've also changed how we look at our approach.
We're looking at development now as an 18-month cycle, and what I mean by that is, once a site gets through our real estate site committee approval, till it opens, I want to plan for 18 months. Historically, we've been around 12 months. We've been going quickly. Giving us that extra time, being more planful and proactive has many benefits for us. First and foremost, it gives us visibility on when we're opening. You've heard Michael speak to this, Michelle has, Derrick has, and spoiler alert, he may mention it again, on how critically important it is that we open a new Portillo's with an experienced general manager. Being 18 months out on the pipeline gives our operating teams and our HR teams clear visibility on when we're going and when, so they can fill that, that-...
human resource pipeline to have us have successful Portillo's openings. It also gives me the ability to slot restaurants, right? I can, I'm, I'm opening when I want to open in certain markets. It keeps me away from building in Chicago and in the winter, in the Midwest. I can build those in the summer. I can build the warm weather markets in the winter. It gives me flexibility from that standpoint, and it protects against delays. We talked a little bit about this last night. There was a question, are cities getting back to like they were pre-COVID? The fact is, they're not. It's a little bit better, but it's still extremely choppy in terms of getting things through the system.
The approvals, the process through permitting, the inspections at the end of the job still aren't as smooth as they were pre-COVID. So we want to allow for that extra time to protect ourselves and still protect all our openings. So while the main focus in the first year has been building that pipeline, we've also been working on professionalizing the development function at Portillo's, and over the next few slides, we'll kind of walk through that journey, tell you the progress we've made, and how it sets us up well for long-term growth. First of all, as we look at new markets, I want to use Dallas as an example. We're here today. We were at Grandscape last night. We will put together this roadmap for growth for every market that we choose to grow in. We'll have a strategic development plan.
We'll look at it and how we want to open markets, as we talked about. We want to enter a market with a bang, right? We want to, we want to have an opening that tells the world that Portillo's is here. And for us in Dallas, that was Grandscape. It is a high traffic, great retail, great office, great residential population, 200,000 cars going by it a day. It really opens up the market and, and makes a splash for us as we enter a new market. After Grandscape, we want to continue to fill in with our Tier 1 trade areas. You see Allen is now open. Denton is under construction, Fort Worth is under construction, and we talked there in the south, South Arlington, which is under construction, that you'll see a little bit later today.
Then we'll continue to fill in on our Tier One markets, and then finally, at Tier Two markets to round out the entirety of the DFW area. Now, we also talked about before, we're doing this in Chicago with Joliet. We're under construction in Rosemont. As we get to scale, 6+ restaurants, 8 restaurants, we'll start to look at opportunities to do fill-ins and where we have gaps in the market to utilize our pickup only location to fill in. We'll those. You'll typically see those in markets that are a little tighter from a real estate perspective, where it's going to be difficult to get 2 acres, where I can do a pickup only in a 1-acre site, serve an underserved market, and help fill out our real estate pipeline.
When I came on board, we really developed a market scorecard, and we're much more data-driven how we approach our growth. We use quantitative and market factors as we lay out these growth plans, and you saw that in Dallas, and not surprisingly, Houston scored well on our market scorecard. It's not surprising. It's got the same positive micro factors that Dallas does. There's great population growth, which drives retail growth, which drives site opportunities for Portillo's, and that's great. We also know we have raving fans in Houston 'cause we sold a lot of—sent a lot of our food through our Shop & Ship program. Earlier this year, in March, we released Houston for growth. We're very excited about our progress there. We anticipate by the end of 2025, we'll have at least 6 restaurants open in the Houston market.
And then because we love Texas, and we're here today, you know, we want to round out our Texas strategy. Just in June, a few months ago, we started releasing four sites in Austin and San Antonio, and you'll see those come online in 2025 and 2026 for our growth. What that does for us, it really fortifies our brand strength in Texas and provides us great efficiencies, not only in terms of operationally, but also from a supply chain standpoint. So we're extraordinarily excited about our growth in the Texas market. So while choosing the markets and having a scorecard is great, real estate is really the availability of great real estate is really the governor that kind of monitors your growth. So we need to be able to do a couple things all at once, right?
When we talked about when we enter a new market, we want to be at scale within 2-3 years. I want 6+ restaurants open and operating within 2-3 years. Michelle's talked about this many times before, and the margin benefits we get from that by having that scale in those markets. Now, we know all markets aren't created equal. If you look at Texas and Arizona, we've got those favorable macro factors that we talked about in terms of growth, both population and retail. And relatively speaking, it's easier to get through the permitting process, right? Through going through the entitlements with the city and moving through the development process. And I've got the benefit of great weather, right?
Although we'll have two-inch hail today, generally, we can build 12 months a year in those markets, and I have no weather issues. Not all markets are like that, right? We need to be out in these markets earlier than we've ever been before to release for sites. As Michael talked about earlier, we're starting our work in Colorado, Nevada, and Georgia. We're hiring local brokers with great national retail and restaurant experience to help develop those market plans, and we'll be prospecting sites in those markets before year-end, with growth in for 2026 and beyond. Let's talk about site selection. We've kind of worked about—talked about the pipeline, talked about our new market scorecard. What are the site characteristics that we look for? Michael gave a great example earlier of Gurnee, and I would...
Kindly grade that as a D minus, probably from a real estate perspective. It does not have any of the factors that you really look for, but we do incredibly well because it's Chicago, right? It's, it's our backyard, and while I love that destination aspect of our brand, I don't want to count on that in any way, shape, or form as we go into new markets outside of Chicago. I want to be in the heart of the action, where people are working, shopping, dining. I want eyes on our building, similar to what you saw in Grandscape. And an example I want to give that kind of illustrates that is from our class of 2022 in Gilbert, Arizona, that's just opened and is estimated to do about $8.4 million.
But as you look at Gilbert and its site characteristics and the things that makes it successful for us, is we're surrounded by 1.1 million sq ft of national retailers, right? So that's going to drive people, that's going to drive foot traffic. That's going to bring people to that market. We have excellent visibility from the main street. We have great building signage. We have spaces on the shopping center pylon signs. We've got great visibility from that standpoint. I've got two access and ingress and egress points. I can easily get in, and I can get out. I've also got sufficient parking for my dine-in guests, and we've got a great drive-thru stack, which helps us efficiently operate our drive-thru.
Another thing that we really liked about this market is we know through our research and our data that the national restaurants and retailers around us perform much better than their average through mass mobile data and understanding that. So all those, all things being equal, if others are outperforming in the market, we feel we can get that same performance as well. So let's talk about how we bring this to life and how a site turns into a deal. We've adjusted some of our work around how we look at leasing, how we look at construction through national contractors, and I'll talk about leasing first. I want our deals to be firm, fair, and timely, right? We, we...
Time is our most valuable resource, so it's important for us to have deals that are structured so they can—we can move these through our pipeline. We have dates that we set up for our real estate people to get leases completed in a certain timeliness because we want to move these deals along, 'cause I want to get beef sandwiches in our customers' hands as quickly as I possibly can. That does a couple things for me. One, when we look at a deal from a leasing standpoint, we'll talk about when we're there, "Hey, this is our 90% deal." There's room on the fringes, but we're not going to spend a lot of time from a negotiation standpoint. So that either gets a couple things.
That either gets me to a quick no, and it doesn't work out, so I'm not wasting valuable time on a deal that's not going anywhere. It also establishes, and I've used this, more importantly, historically, it kind of sets up a, a tempo and a cadence in how Portillo's is going to do deals, right? We'll do them fair, we'll do them fast, we'll say what we do, we do what we say, and we, we start that and build that reputation on how we are to work with as an organization. So the developers know what to expect from Portillo's when we come in and what that means to get a Portillo's in their center. We're also. This is incredibly important on leveraging a national GC base to scale our growth and expanding our vendor network.
When I first started at the end of last year, we were working on sites in Tucson and Gilbert, and I had one carpenter, one carpentry group. So I was splitting resources to kind of get those restaurants built. We cannot scale that way. At that time, at the end of last year, we were first starting our first builds with the national GCs that can help us scale. We now have multiple, more than a handful of national GCs doing work. And by way of example, kind of to draw the contrast, in Portillo's history, the most restaurants we've ever opened in a year is five.
As we sit here today, we have seven restaurants under construction in three states, and the only way that we can do that is by having a scalable process with the national GCs that can help us expand. Then on the vendor side, we've got vendors that have been with Portillo's for the length of the time we've been a company, and they're great. Most of those folks come out of Chicago, and they're great for us. A couple things with that. One, I want new eyes on the business, and let's look at where we're going and what our opportunities are. I also don't want to be single-sourced on any critical discipline from a vendor standpoint. So I want multiple vendors, whether it's architects, sign companies. I want people bringing new ideas.
What that also does for me, it helps mitigate my risk, but it also helps drive my cost down, right? Because I've got a competitive situation with other vendors bidding on my, on my work. That's critical for us. Finally, we've standardized our, our base prototype building. Historically, if you go back a couple of years ago, each Portillo's was a snowflake. You saw some of the unique builds that Barb showed in her, that it looked like a jukebox, and they're lovely, and they're wonderful, but they're each one is a snowflake. They're very expensive to design. You don't get any efficiency from a build because you're doing something different every single time. We're standardizing our base building. The bones of our, our building is going to be the same every time.
With that said, we are an experiential brand, and we can't lose that ever, right? So how we address that, and you've seen it in The Colony, you'll see it in Allen, we will use architectural embellishments on the outside to make those restaurants unique through materials that we use. We have a Southwest diner. We have a Midwest diner. We have a Southwest garage, a Midwest garage. So we have variations in theme with materials that we bolt on, if you will, from the outside. That doesn't change my core base building, so I get those efficiencies in terms of drawing, and these national GCs that we're implementing are building the same building every time, so I'll get repetition, and that will drive my costs down.
More importantly, not only from the embellishments that we'll attach to the outside of the building, each Portillo's, and you saw it in The Colony, you'll certainly see it later today in Allen and all the new Portillo's that you'll enter, we really gear the interior design to the neighborhood with which what we're in. In The Colony, you saw the Toyota pickup truck hanging from the ceiling. Toyota's North American headquarters is one site adjacent to us, is right there, so we pulled a call out to Toyota there. You'll see it in Allen. We really gear that interior design to the local markets in which we're serving.
That's gonna help us keep, stay unique and also have that element of the brand, that experiential nature that we want to have with the Portillo's brand. So what does all this mean? You know, I'm more confident than ever in the development process and the progress that we have made. It's one of the reasons we wanted to get everyone together today, to talk about our progress and what we've accomplished. So what's that mean for growth? So in 2024, we'll be at 10+ growth. That'll mainly be in the Sun Belt, and we're gonna be much more evenly spread in terms of our cadence of openings. We opened a lot at the end of last year. We're heavily back-end loaded this year.
We will be much smoother in terms of our opening as we go into next year, much more 50/50 split. In 2025, that's 12%+ growth. That's gonna be in the Sun Belt and in new markets, and we'll be in a position by 2025 that we won't open anything after Halloween. We'll have those, that pipeline filled early on, and we'll really take those last two months of the year off because, one, they're busy times for our restaurants, they're busy time for our team members, and we want to have them focused on their families and on our business. And then in 2026, we'll be growing at 12%-15%. That'll be made up of Sun Belt, continued Sun Belt growth, Sun Belt fill-ins, and new markets, and again, we'll also open everything before November.
In summary, we talked about how we're scaling the pipeline to scale the brand, how by fortifying our cycle time, we've cemented ourselves to more of a national growth brand. We're gonna aggressively site prospect in new markets that we enter so that we're efficient within 2-3 years, and we're gonna do that by having A-plus sites that really drive our business. And then we're gonna leverage standardized processes through construction, that we can build multiple restaurants in multiple states simultaneously. With that, I appreciate your time this morning. I will hand it over to Derrick Pratt, who's our Chief Operating Officer. Thank you, Derrick.
That I am. Did you forget who the heck I was? Jesus! What the heck? I had good things to say about you, too. All right. All right. Am I doing this right? The green button. All right. All right, good morning, everybody, and Mike, thank you. It was really exciting, especially that last slide, your money slide, I call it. And you said you're not gonna be opening restaurants after Halloween. Can I quote you on that?
Yes, you can.
Are we good? 'Cause we're gonna be really opening restaurants after Halloween this year. With all of the great stuff that, that Mike talked about, it's really exciting to be able to talk about... I mean, the opportunity to open our restaurants with excellence is something that really excites me. What you're looking at here. Oh, by the way, I am the Chief Operating Officer. I've been with the company for three years now, in September, and I've spent over 31.5 years between Starbucks and McDonald's, opening a lot of restaurants and coffee shops. So I've done this once or twice, and I know what great looks like. This is our Gilbert restaurant, and I think this is great, and it's not just about the palm trees, but for me, it represents our journey to continuous improvement.
The way this restaurant turned over, how it sits in the community, it looks like it's been there for years. It was built beautifully, but more importantly, more importantly, the finishes that are in this restaurant represent a partnership between operations and development that I think is gonna be accretive to our brand. I know it will be accretive to our brand because not only do we have great finishes, we have finishes that we can maintain. We don't have mosaic tiles that are white that we cannot make clean to save our lives! And this is ongoing dialogue that we have about making our buildings beautiful, but easier to maintain. All right, I'm gonna talk about a few things here. First is: how do we de-risk the opening process?
How do we make sure that we open with excellence, not just in terms of how we operate, but for how our people feel about how we're setting ourselves up for the future? I'm gonna talk about how we shape that demand curve, right? You heard Michael talk about the Big Bang. I call it a boom and then a splashdown. Not healthy for our business, not healthy for our people, certainly not healthy for our guests and our brand in the marketplace. Then we're gonna talk about how we continuously monitor that, right? Matching up capability and demand to shape that honeymoon curve in a way that is accretive financially, long-term, and experientially. I'm also gonna talk about our new restaurant opening, our NRO team, their capability. This team was built, right, to do simultaneous openings, and it's built out ahead of our pipeline.
My commitment to Michael, to our team, to our brand, to you as investors, is that we will not let people development, our capability as an operating group, to be a gating factor to our growth. We will stay one year at least out in front of his pipeline from a capability standpoint.... Almost every time in the last several years that people have called me looking for my talent in an organization, it's because they could not develop people to meet their growth aspirations. An experiential brand cannot have that. We have to be creative and maniacally focused on developing people that create the experience at Portillo's, and that's what we're gonna do. So I've talked about this before. I like to call it the sustainable, profitable growth flywheel, which is really important. Michael talked about this. Our restaurant-- We haven't closed a restaurant.
Michelle will tell you, our restaurants are profitable from day one, so making sure not only our existing restaurants, whether it be in our core in Chicagoland or outside of it, are running well and creating this flywheel effect, but our new restaurants, from day one, have to create this flywheel effect. It starts with our team members, engaged, coached, supported, and yes, loved, at the end of the day. They are the heart of Portillo's. It's about ongoing, fastidious approach to creating operational efficiencies. It cannot be harder to do our business. It has to be easier to do our business, easier to do it right. Michael talked about all those steps back and forth, conveyance, waste, not adding value, but more importantly, it creates fatigue and delay. People will walk out.
We have seen people at times look at the daunting task of operating our business and have second thoughts. We want to treat those people like gold and help them be successful, and so operational efficiency is important. It's about satisfying our guests, because when we do that, then we have the underpinning for our people to take care of our guests, right? And it's about fulfilling the obligation we have to our shareholders and the power of our brand to operate extremely high AUVs and EBITDAs, which feeds our economic engine, our ability to self-fund our own growth. That's what it's about. So our pre-opening processes are in, they're designed to instill our culture from day one. Experienced managers is important, and it's not just about years of experience. It's about getting repetitions. It's times at bat, right? Being able to open in expe...
In intense operating climates. It's about our opening process, where we train people to create efficiency, we train people to build confidence, we train people to understand who we are, what our values are, what our mission is, and as important, how can they get ahead, right? Pathways to growth and opportunity. Our post-opening process is about monitoring where we are today. It's about training and coaching folks. We call them Red Hats. Our trainers are Red Hats. Training and coaching folks to a point that they can own the restaurant. I was just at Allen recently, and our Red Hat team came in to say goodbye, right? Two weeks, and they're out. They shook hands, right? In cases, they hugged the folks and said, "We enjoyed our time with you, but you're ready. You got this." You guys are gonna see that, right?
Two weeks, we're out at the end of the day. And it's about continuously checking the operations to make sure that as it gets better and we are more capable, we can handle more demand, we can layer that on. Okay, lesson from the past. Michael talked about we've gotten better over time. Since 2020, right, we've had an opportunity to learn from some of our mistakes, and I think our learnings have created the timeline that you see here today, right? Restaurant leadership assessment, eight months in advance. Not only who's going, but what are their capabilities? When our NRO team arrives to support our opening process, our soft openings, to build that confidence and efficiency that I talked about. Practice days, right? We shut down, we stock, we get ready, we clean, we open, soft. We get better and better and better.
It's about grand openings that focus on a minimal number of channels, traditional channels, so that we look for excellence. And then I talked about that NRO team exit. Two weeks, right? Michael talked about the past, where we would stay. We would be the muscle, and our home team would stand back and go, "I wish I could do that. Oh, boy, I'm scared if you leave." Not anymore. And it's about those health checks. How are we doing at 30, at 60, at 90, at 120 and beyond? And are we ready to take on more demand and help our guests find the way they want to use us, expanding the capability to add revenue to the top line, right? And so, again, our lesson said, volume and complexity create retention challenges. Michael talked about it. We open up, it's crazy volumes, people get nervous.
They don't want to work that hard. They can do something, earn similar money for less work, not a healthy environment when our culture is fantastic, and the opportunity for career growth is even better. It's about day one grand openings with extreme volume spikes, creating that boom splash, and we're trying to recover for years in some markets. For years. People remember! They remember when the experience isn't great. It's about reliance on NRO trainers as the muscle, as the skill in the restaurant, versus pumping up the home team so that they can take care of business really from day one. The outcomes here, we staff with seasoned GMs. Soft open controls demand spikes. We grand open after six days to ensure that our teams are ready. Our NRO trainers, as I mentioned, they're out in two weeks.
We have a restaurant turnover playbook that basically says, "How are we doing in every aspect of the business? What are we ready for today, and what do we need to work on tomorrow, and how will we measure it collectively?" as a restaurant support team, as a home team, right? How do we measure all of these things, and when are we ready for more demand? So here's an example of what that looks like from a people standpoint. Pre-opening with seasoned GMs in our pipeline is, I think, the secret sauce that will unlock our growth. Yes, you gotta have a great pipeline, but if you don't open great and sustain even greater, what for? So you've heard about this before. Our Ignite Accelerated Leadership Development Program is really a curriculum. It's a curriculum development.
We believe in training people before they get the job. That's novel. But I've worked in organizations where they were promoting people so fast and then trying to catch up and train them. We are disciplined enough to train people first, to give them the time and the energy, and to create seed folks who are flagged for future management. Over 300 people we have ready. This is Karina Marquez. She is our GM of The Colony, right? Many of you met her last night. Arguably, one of the best GMs in the country. Nation's Restaurant News says this, "Top 20 GM." She's fantastic. Absolutely fantastic, right? You see how busy that restaurant was. She was ready for this 'cause she opened Addison and Kimball, a restaurant that's doing crazy volume in Chicago, as an AGM. This was not by accident. This was intentional.
This was intentional that she would be the GM at The Colony, and guess what? Those folks who were wrapped around her as AGMs opened restaurants in high volume, are current GMs today, or are positioned to experience the intensity of The Colony's open because they're gonna open restaurants in Texas. And guess what? They are. Trey is opening Allen. Matt will open South Arlington. Jay is going to run our Denton restaurant, and you see Megan Quirk, a past Starbucks team member, is going to open our restaurant in Fort Worth. This is not by accident. We are not looking for people to open our restaurants. We are intentionally planning people to open our restaurants, developing them because we see potential in making sure that our talent is outstripping our pipeline from a capability to grow standpoint. All right, I talked about opening week, matching capability with demand.
What does it look like, right? So we open our restaurants with two channels, traditional channels, dine-in and drive-through. All of our new ones open this way, and as we do these health checks and assess where the business is, we then layer on additional channels, whether it be pickup, digital pickup, and direct delivery. Those are our internal channels, digital channels, or third-party delivery and catering, whether we deliver, cater, or people come and pick up. We can layer on these additional channels, all based on our capability to service them, our capability to service them, and that's what those health checks are really about. How are we doing? What are we ready for, and can we do it with greatness? All right, and you see this in practice, right?
bottom on the graph is kind of, you know, the three cheese sauce spills, as Mike Ellis talked about, first in markets, right? Aggregate 2016-2017, and then you see the effect of this in Orlando. You notice the curve is changing, the bar is bending. Five months in, right? When we did our assessment and health check, we opened up internal pickup, right? Another six or seven months down the line, we did direct delivery, right, and then we layered on third-party delivery and catering when Kissimmee opened, right? All intentionally timed at The Colony, right? In October, we will open up, activate pickup and catering, and you can see Allen opens up two weeks ago, three weeks ago, and we're gonna expand channels. We believe that that line will flatten very similar to the Orlando opening.
Again, it's about matching capability demand and intentionally giving our guests new ways to enjoy our brand. And we believe it's having an impact on... Well, we know it's having an impact on overall satisfaction, the way our people feel about our business, right, and ultimately, what we're able to do. As you can see, in 30-60 days, we're able to achieve overall satisfaction levels in our class of 2022 and beyond that took us almost a year to achieve prior, right? So we believe this approach has legs, and it's working well for us. So our NRO team is designed to open restaurants simultaneously and has tremendous capability and capacity. Why? Because we're intentionally and timely trying to stay out in front of our pipeline. We've just added an additional GM on the team. Our GMs manage each project. We have 5 GMs on the team.
They all run their own projects. We have 50 Red Hat trainers. These are people dedicated, whether they're in the Chicagoland area or beyond, to travel, go in, and train their experts. They are vetted, and they travel with us. Additionally, we've created some flexibility in market. We have people who don't travel outside of market but are in our growth markets in Arizona, Texas, and Florida. We call these flex trainers. We can call on them to help support local markets. We have over 20 of them identified, and we will be by 30+ by the end of the year. This gives us the capability of opening 3 or 4 restaurants simultaneously, or 20-30 restaurants in a year.
We will monitor to this capability, again, staying out in front of our pipeline for demand, as well as the internal talent that we have available to us to work in these emerging markets. So we are also dedicated and very committed to continuous improvement. We're watching the labor market. Less time is less money. Less money is better returns, better profitability, right? So we're seeing the labor market balance out. So maybe we don't need four weeks to hire and train and develop people, maybe three weeks. We've developed a capability to operate training centers, right? There's a lot of distance between The Colony and South Arlington, right? People fall off when you have to drive from The Colony to South Arlington for training.
It's very expensive to create shuttle systems, so we operate training centers in between so that we can get people up to speed, get them ready to go and into restaurants, and we lose less people that way, and we lose a lot less time that way. And then Kitchen 23, you'll see in Allen, and when Nick talks about this, that we're creating adjacencies and spaces where we can work more efficiently, use less people. We can literally put 2 trainers in between 4 people and train them simultaneously in a station because the adjacencies make it so. When you take 17 feet or 20 or 30 feet out of your line and you compress that, and you make these adjacencies and workspaces function, people can support people much better. Less people, less cost, better returns. This is what we do from a continuous improvement standpoint.
So I'm confident in the capability, I'm confident in your capability, I'm confident in our team's capability to match up talent with our development pipeline. We're going to do that in the marketplace. We're gonna de-risk our opens. We're gonna shape demand to create the best experiences. We're gonna make sure that that, that change and curve creates a financial accretion that is valuable to the health of our brand. And we're gonna make sure that our capability is there, both internal, to operate the restaurants and to open the restaurants with excellence, so we can grow this brand, as you've seen Michael and Mike talk about, for years to come. Thanks, everybody. Let me turn it over to Nick. He is our SVP of Marketing. I know exactly who it is.
Thank you, Derrick. It's awesome. Derrick said we are opening better than we ever have in the past. I love it. I'm the marketing guy. It's music to my ears, so thank you, Derrick. My name is Nick Scarpino. I do lead marketing and off-premise dining at Portillo's. I have been here for eight years, but that does not include the time that I was a cashier when I was in high school. I'd like to think that I have Portillo's beef gravy in my veins and Portillo's on my belt buckle. I'm thrilled that you all now have Portillo's on your belt buckle, and later in Allen, you will also have Portillo's beef gravy in your veins as well. Immediately prior to working at Portillo's, I worked at Google in digital marketing for four years.
What you see here is one of my favorite restaurants, which is in Springfield, Illinois. You've heard us talk about balance sheet marketing. It is a very real thing that we do at Portillo's. We invest in beautiful restaurants, both inside the dining rooms and outside of the restaurants as well, the exteriors, and this is a great example. Springfield, Illinois, if you are unaware, sits on Historic Route 66. Route 66 stretches from Chicago across the country, all the way out to California. I think it's a wonderful metaphor for what we're doing here at Portillo's, stretching across the country. And so the restaurant, we invested a lot of time and effort into making it dedicated to Route 66. So we have this amazing Portillo's 66 sign on the ceiling. It's awesome.
There's tons of memorabilia about Route 66 in the restaurant, and I think it's just a great example of what we do here at Portillo's. But what I'm here to talk about is two years ago, Michael asked Michelle, Derrick, and I to lead a project that we call Restaurant of the Future. The Restaurant of the Future, the overall goal has been to optimize our build. So we want to create a restaurant for how guests use Portillo's today, but also how they're using us tomorrow. We see future growth in the off-premise channels, especially, but we're not abandoning dine-in by any means. We're reinvesting in it, right? We want to optimize our footprint for national expansion while we reduce the overall build cost. Michelle will give you some exact numbers on what we're going to be doing here. It's very, very exciting.
We want to improve our efficiency. Derrick talks a lot about conveyance, where we have become masters of reducing conveyance. Derrick would say, "Nick, what is conveyance?" Derrick, "Conveyance is waste." We don't want to waste time and effort moving food when we don't have to, and we're really nailing that, and you'll see that in Allen today, and you'll see it in our Restaurant of the Future. We're forming an improved experience for our guests and our team members, and ultimately, we know that that will provide an improved experience for our shareholders. So the Restaurant of the Future has been. It's basically a three-stage process, so I wanna walk you through those different stages. We have poured time, effort, and energy. Our best minds, both internal at Portillo's and external, we have great consultants that are helping us with this as well.
This is how we're approaching this. It's a three-stage process. The first stage has been retrofits. The scope of this stage is 40 restaurants that already exist, and we'll have those 40 restaurants completed with these retrofits by the end of next year. We are simplifying and modernizing our existing restaurant base. So what does this look like? If you're familiar with the traditional Portillo's, mostly in the Chicagoland area, we've traditionally had two production lines of food, an area where we make salads. If you're standing and ordering at a Portillo's, that's often on your right-hand side, and an area where we make everything else, the beef, the hot dogs, everything else, right? We've merged those two lines. This was an efficiency, an efficiency play, right? We now produce out of one line on the back, right?
In replacement of the area that was on the right-hand side, where we were producing salads, we replaced that with what something like you see here. We call it a Grab and Go. We described this process at last year's Investor Day. Derrick actually walked through this plan, and we're putting it through fruition this year and next year. The Grab and Go is amazing. It has lots of benefits. You can also order beer up front. Instead of having to order beer at a third area of our restaurant, you can now do it all upfront from one area of the restaurant. And another benefit that we have for both guests and team members is that we've moved our beverage station.
We do a lot of dine-in business, so we moved our beverage station out from behind the counter to in front of the counter so that guests can get their own beverages. Others in the industry are going the opposite direction of this. We think that this has been awesome, and we have evidence to show it. So let me do this. Okay, here is just a very high-level results of this work so far. We have seen in our dine-in experience, a 24 percentage point incremental sales growth in desserts and bottled water. That's what we're putting first and foremost in our grab-and-go areas, right? So as people are waiting in the queue, they can grab desserts, they can grab bottled water. We have things like apparel. They can grab a stuffed Portillo's dog. His name is Pokey.
They can grab that as they're doing that, right? Lo and behold, our friend from Starbucks has taught us, Derrick Pratt, when you put items out for people to look at and to see and experience and touch, they learn about new things that they didn't know you had, right? Strawberry Shortcake is a perfect example. It's made in-house every single morning. It's amazing. You're gonna have some later today. People didn't know that we had it. Lo and behold, they see it, they buy it, right? We're seeing great lift there. And we're seeing a 9 percentage point in our dine-in experience for soft drinks, right? Again, I know it might sound crazy, but when people see it, they buy it, they touch it, they feel it, right? And they can get their own refills. The team members love it.
They can focus more on the pickup experience. They don't have to... In one example, they don't have to worry about serving beverages. They. There's also that reduced conveyance as well, and the guests love it, too. We've seen a 3 percentage point increase at the restaurants that we've already had the Grab and Go in place in their dine-in guest satisfaction. So this is a win for everybody. Stage two of this process has been what we're calling Kitchen 23, and this is really improving our kitchen efficiency in new builds. The scope of this is new restaurant openings happening this year and next year. This is kind of our bridge period to the Restaurant of the Future. Again, we've mentioned this, but for those coming to Allen, Texas, in the room, you will see this later today.
We were able to, through tons of work with the operations team, reduce our production line by 17 feet. A lot of people in the room were asking Derrick and I, and Michelle, last night, how do we do that? A very simple example was the 6 feet of the beverage line, right? So when we put that out into the dining room, there's 6 feet right there. There's been lots of things like that. Derrick talks about the adjacencies. We have become so much smarter about putting coolers and equipment in the right places, so that at the right time, our team members don't have to walk very far to do things. And we have off-premise enhancements. I'll show you a picture of that right now. On the right-hand side, you're seeing a picture of the new drive-thru door.
This might sound very simple to you, but this has actually been a huge unlock for us. Many of you have experienced Portillo's in the drive-thru, where a team member greets you at your car to take your order, and a team member, a different team member will run food to you. When I was a cashier at Portillo's, we called that... We still do. That's a food runner. That's not a food walker, so get the lead out, right? In most of our restaurants, until the Kitchen 23, we had a door around the corner from where our guests were lining up in the drive-thru queue, right? We moved and put a door there today. Again, this is a very simple example, but something that we're so excited about.
Now, our team members, and you'll see this in Allen, have direct access to the cars that they're serving in a very safe way. So it, again, it reduces conveyance and increases our speed. We've reduced the production line, we mentioned, by 17 feet. We've lowered the equipment cost through different efficiency measures by $100,000, and our staffing needs have, therefore, come down two team members per day. We have improved our production capacity. We are all very, very proud of our AUVs. I've been here a long time. I really love our AUVs. Nobody wants to sacrifice them. We've actually improved our capacity by having better equipment positioning and adjacencies. I'm hitting it. Could you please advance it? Thank you. Okay. Stage three has been our—is our Restaurant of the Future.
This is really, really important to us, and it's important to our entire community of investors, our teams, et cetera. We are reducing our costs. We're looking at everything that we've done in Kitchen 23, we're bringing all that forward, and we're also looking at the overall box size and scope. We're right-sizing the facility. We're again continuing to look at kitchen layout and processes. We think we have even more efficiencies to gain, even from Kitchen 23, and we continue to work with Derrick and the team to optimize our labor management practices. The scope of this is all new restaurant openings from 2025 and beyond. So what does that look like? All right. Kitchen 23. Michael talked earlier about how, not that long ago, we were building restaurants in Roseville, Minnesota, for example, that were in excess of 11,000 sq ft.
We got it down to 7,700 sq ft without sacrificing anything in the Kitchen 23. We have plans drawn, built up, ready to roll for restaurants that are between 5,500 and 6,000 sq ft, and they do not sacrifice anything. They're gonna still look beautiful. It's gonna be awesome. The parking spaces, we did a thorough parking space study. We looked at both restaurants inside Chicagoland and outside. We looked at restaurants that have cross parking and don't have cross parking. We do about 120 parking spots for Kitchen 23. We'll be able to, on our smaller footprint, reduce that to between 85 and 100 parking spaces. From a labor standpoint, team member standpoint, at our peak operating periods in the Kitchen 23, we use 34 team members.
In Restaurant of the Future, that number will be between 27 and 32 at our peak volume periods. We've gone from that 65-foot production line, which we are very, very proud of, and we've done a lot of work to get there, and we're taking it to 47 feet. 210 seats is about what the Kitchen 23 has today. That's both indoor and outdoor. We're moving that to 140 to 170. Again, we've done extensive studies on, table utilization, not just the number of, of seats that are being used, but how they're being used. Four tops, two tops, big groups. You saw some of that last night in The Colony. We're being very, very planful about this.
Key benefits, if you haven't figured it out yet, we're still very proud of our AUVs, that we are absolutely maintaining our capacity. But as Mike mentioned, we have much greater site availability when we go to a box that looks like this, right? We today, or in the yesteryear of Portillo's, we used to say that we needed a two-acre site. We really needed more than two acres to get our entire building on there, right? In the future, we need under two acres, right? And that's what opens us up to much more possibilities, and it's another reason why when Garrett talks about that MAM, the minimum achievable market, the number can go up, right? We're lowering the build cost. Again, Michelle will run through the numbers.
We know that we will be increasing our operating speed and guest satisfaction. We're proving it, and we think we'll have a more efficient labor deployment. So if I could leave you with a few thoughts, I hope you're as excited about this as we are. We do think that we are creating the Restaurant of the Future for how guests use us both today and will use us in the future. We are optimizing our footprint for national expansion, and we are reducing our build costs. We are working very, very closely with the operations team. They're leading us in an effort to improve our efficiency, of course, without constraining sales, and we know that ultimately this will be an improved experience for our guests, our team members, and our shareholders.
Thank you very much, and I'm going to bring up Garrett Kern, who leads Strategy and Culinary here. There you go, sir.
Thank you, Nick. Hi, everybody. My name is Garrett. I've been at Portillo's for four years, but as a Chicago area native, I've been a guest and a fan for my whole life. So I... As Nick mentioned, I run Strategy and Culinary at Portillo's, two very different functions. I actually got into the business because I wanted to be a chef. I trained and worked as one for many years, but I also have a strategic brain on me. I worked in very strategic and operational roles in the restaurant business. Prior to Portillo's, I was doing some management consulting at Bain & Company for a few years. But I'm really proud to be here. Portillo's is one of the reasons that I wanted to get into the restaurant business, having those magical experiences growing up in the Chicago are.
What you see here is one of our restaurants in Chicago, Addison and Kimball. It's on the northwest side of Chicago. This is my favorite restaurant for a number of reasons. Probably chief among them is that I used to live in this neighborhood when I was younger. I have great memories there. I lived about three blocks away. I always thought, "This area, this neighborhood needs a better dining option." So when I joined Portillo's, I found out they were building this, and I said, "Well, that restaurant is gonna kill it there." And it has been one of our best units. I go there all the time. I love the decor, I love the ambiance, and the team always does a fantastic job there.
So, I got to talk to some of you last night about one side of my role, hot dogs, cheese fries, all of that. But I'm gonna talk to you about our addressable market today. Before I dig into it too much, there's a question of, you know, why are we re-looking at this? We talked a couple of years ago about 600 restaurants, and the answer is because of what you just heard from Mike, how we have a better development and construction process and timeline, from Derrick about how we're gonna open those restaurants with a lot of foresight and efficiency, and from Nick about how that improved footprint gives us a lot more opportunity in terms of real estate. So what I'm gonna walk you through today are a few things.
First of all, looking at our total addressable market and then comparing that to an approach that I call our minimum achievable market, which I think is tailor-made to our strategies, our needs as an organization. We're gonna talk about that expanded opportunity for our full-scale Portillo's restaurant. That's the meat of our strategy, the meat of our opportunity out there, but then also the additional, headroom for growth that pickup, walk up, and alternate formats give us. And then we'll look on a page, very, very simple way of how we achieve that over the next couple of decades, what that looks like. So let me walk you through the total addressable market calculation, right? This is actually very straightforward, totally rational calculation that a lot of other restaurant and retail brands will do. Look at our market in Chicagoland, our historical market.
When we are at full scale there, we'll have one restaurant for approximately every 190,000 people. If you just scale that across the U.S., you get to a number of 1,700, actually a little bit above. So it's a really gaudy number for the number of Portillo's that you could open up in the U.S. But what we wanted to do was be a little bit more specific and targeted and do something that aligns to all the things you just heard, and what we want to achieve in our markets. So we adopted an approach called our Minimum Achievable Market, that solves for a few shortcomings that TAM has. And the first one is that TAM is just strictly population-based.
Our approach, it identifies and prioritizes markets based on some of that macroeconomic data, like population growth that Michael shared, and some of our internal data, such as Shop & Ship. TAM doesn't account for population density. This is really important because there are plenty of groupings of 190,000 people across the U.S. that are stretched over huge swaths of land. We take that into account, and then we also look at our eventual market maturity in certain MSAs to understand what restaurants we're going to build there, what type they'll be. And then, most importantly, TAM doesn't restrict your ability to build restaurants right next to one another. We don't want to open up a fantastic restaurant like Addison and Kimball, and then open one up three blocks away where I used to live.
Because we're owned and operated, we wanna optimize the top line and the bottom line. Our approach pinpoints specific addresses and optimizes those trade areas, and I'm gonna talk to you more about this because this is a really important piece of it. Now, the result is 920 locations in the U.S., and what that represents to me is the minimum number of restaurants that I believe we'll be able to open up. We've got 78 today, which means that we are 8.5% penetrated in the U.S. right now. So that's the minimum achievable market. Let's look at what that looks like on the map. So I'm gonna put up all of our current locations, all 78 of them across 10 states. Those are those red Ps on the page, and then I'm gonna show you what that MAM looks like.
These are the black dots. Right? These are specific locations. Now, these aren't the exact locations of every single restaurant that we're gonna open up, but they're approximate, right? Over time, trade areas will shift, populations will move, et cetera, and our goal, as we go forward, is to convert as many of these as possible to those red Ps. I want to talk to you about those different restaurant types that have been mentioned, and I'm gonna spend a good bit of time here because this is really the meat of our beef sandwich. This is where we are focusing almost all of our resources, time, and attention, the full-scale Portillo's restaurant, like the one we were at last night in The Colony. These have everything.
So they have those multi-lane drive-thrus, the team members taking your orders and delivering your food, the dine-in experience that engages all five senses. If you're a guest, you can walk in, order takeout, as convenience play. You can also order ahead for pickup and delivery. These are restaurants that are designed to do between $8 million-$12 million or more in capacity, and as Nick mentioned, starting in 2025, these will be between 5,500-6,000 sq ft. So two years ago, we told you we can build 600 of these full-scale restaurants, and today we're saying that we can build 800. So what is the source of that increase? A few key inputs I want to walk you through. The first is very simple. We want to make sure that these restaurants can meet our unit economic thresholds.
So we look for specific sites that will do $7 million or more on average in year three onward. That's in today's dollars. So we want to make sure that these are producing for us. The second one is really key. We create site-specific trade areas. So a lot of models, including ones we used in the past, they'll put a point on the map, they'll draw a circle around it. That's really... It's fine for approximations, but people don't travel in circles. People drive, they walk, take the bus. We use massive mobile data, essentially cell phone data, to understand where do a lot of people in the market live and work, and where do they dine and shop. And you create trade areas around a point that have an amorphous shape to them.
It's actually a true representation of where majority of people in that market are moving. Then this is where the magic comes in and we get to select those 800. We actually put a pretty restrictive input in here, which is to say that we don't want more than 3% overlap between any two of those trade areas. And what that does is it selects the optimum number of sites that kind of fits those puzzle pieces together across the U.S., which in this case is 800 full-scale restaurants. So that's how we get to that number. I do want to talk next about the opportunity for 120 additional restaurants that are in pickup and walk-up locations. We've talked about pickup a bit. This is already part of our strategy.
We have this beautiful restaurant in Joliet, Illinois, that we opened last year. It does not have a drive-thru. Sorry, it doesn't have a dining room. Definitely has a drive-thru. It's... We refer to these as drive-thru only, but honestly, you can, they're off-premise only. So you can do drive-thru, you can do takeout, delivery, and pickup. Joliet does extremely well. I'm not gonna give you the specific number, but it's in that range shown on the page. We target to build these to do $6 million-$8 million in revenue, and they're in a tight footprint between 3,000-3,500 sq ft. We have one additional under construction right now. It's gonna be part of our pipeline moving forward. A very key element of this is that this is a mature market strategy.
This is a fill-in strategy. So we want to make sure that people understand the magic of Portillo's, that they're using the Portillo's pickup as more of a convenience play when it's already part of their normal routine. So one of the restrictions we've put in place is that we only want to look at these for markets where we're gonna have scale. 6 to 8 or more full-scale Portillo's, and we want to make sure that these hurdle specific financial targets of $4 million or more in today's dollars. Added benefit of these, you can build this on an acre. So in those sites where you have some restrictions in terms of what's available, this opens up the funnel. Urban walk-ups make up the additional part of the 120. Think of restaurants in the most dense urban centers.
They might have a small dining room, but the majority of their business is delivery, pickup, and takeout. They actually can do a ton of sales in a relatively tight footprint. There's great opportunities for this across the U.S., there's just not a ton of them. You're probably familiar with something like this. If you think about Times Square, there's a Raising Cane's, there's a Chick-fil-A there. These are brands similar to ours, drive-through, suburban heavy. These are some of their best, if not their best, performing units. So plenty of opportunity there. And then finally, there's a whole world of alternate formats. We're not going to give you a specific number on this, but someday we will have Portillo's in an airport. Think of a Portillo's in a college campus, like Chick-fil-A has done.
In the student union, you can use your meal card, or expanding internationally via an operating or franchise partner in the future. These have to be really brand-enhancing and opportunistic, and we'll tackle them at a later point in the future. Now, what does that look like? Here it is on a page. Again, our full-scale restaurants are the big beef here. We have 77 of those today, very focused on those. If you scale that at 12%-15% unit growth per year, you'd get to the 800 restaurants in about 20 years. What we're looking to do is exactly what we're doing in Dallas, launch and efficiently scale new markets. Rinse and repeat that. Portillo's pickup and those walk-up restaurants are follow-on strategies in those markets to fill in. We already have the one today, we're building more in the Chicago area.
This will be a part of our strategy moving forward. That comes after the completion of 800 restaurants. Those alternate formats will be opportunistic, will be brand enhancing when it makes sense for us in the future. In summary, we have a minimum achievable market in the U.S. of 920 Portillo's restaurants, and the bulk of that is that expanded opportunity, going from 600 to 800 in our full-scale restaurants. We have additional headroom, from, especially from pickup and walk-up, and a very simple focus strategy to get to that 920. Thank you very much. I'm going to hand it off to my colleague, Michelle, who's going to walk you through what that means and take us home. There you are.
Great. Thank you, Garrett. So my name is Michelle Hook. Good morning, everyone. I'm our Chief Financial Officer here at Portillo's. I joined the brand, celebrating my three-year anniversary in December. Prior to that, I spent the bulk of my career at Domino's. I'm excited to bring everything home for you today, everything that you heard from my colleagues, and share some financial information with you. But first, what you see here on the side is my favorite restaurant, which is in my home state of Michigan. So this is our restaurant in Sterling Heights, Michigan. It's our first restaurant, and only in the state of Michigan today. It's in a suburb, just north of Detroit. A couple of things I love about this restaurant. One, it's our garage-style theme, so I love that.
Mike mentioned all the different formats that we have, but I love the natural light that comes into the garage-style theme. Second, I love how it pays homage to the local Detroit community and culture. So you see a picture here of an old Ford Model T hanging from the ceiling. If you walk into this restaurant, you're going to feel Detroit, you're going to see Motown memorabilia on the wall, you're going to see decor that's specific to Michiganders, like myself. So I just love this restaurant, and I'm excited to continue the cheese sauce build, Mike, into Michigan as we continue to scale in my home state. So with that, what I want to share with you today is a couple of things.
So again, this is Development Day for a reason, because those new restaurants that we're opening are key to the growth, as we talked about, in that compounding revenue growth, which I'll show in just a minute. And we self-fund our growth, right? We cash flow immediately, and we have those attractive returns that allows us to take those existing restaurants and that cash flow and reinvest that back into the business. I'm going to share with you an early look at what that class of 22 is doing and how it's performing, so we're very excited about that. I know, we've seen the honeymoon curve, but I'll give some financial data around that. And really, what does this Restaurant of the Future mean for our returns as we move forward? And we'll take a look at that as well.
So this next slide is going to look very familiar to you all. This is what I shared with you and what we shared with you during the IPO process in terms of our long range and our long-term outlooks a couple of years ago. So given that the world has changed, not just the environment that we live in, but Portillo's has changed and we've continued to evolve, we obviously felt that it was necessary to update these numbers. And so this next slide, what you see here are the new targets. And so Mike talked about that development pipeline, which is really going to be the key to unlocking growth for us.
Garrett, you just heard from, talked about our minimum achievable market, our MAM, and other things that we believe are possible as we go from that 600 full-size Portillo's, to 800 in the future. So all the things that you heard about today, those reasons are why we feel comfortable taking that unit growth, number up from that 10%+ to that 12%-15% in the future. You'll notice that comp remains the same. We're not getting overly aggressive on our same-restaurant sales growth. That remains in that low single digits, so that unit growth is going to drive that revenue growth number up into the mid-teens. Now, when we look at the Adjusted EBITDA growth, we still feel very comfortable that we can achieve over the long term, low teens from an Adjusted EBITDA growth metric.
Okay, so we all know that comp's important. Comp's extremely important to us. That gives us the right to grow. So as we continue our growth and we continue to generate those cash flows, we're going to put those back into the business, and that revenue is going to continue to compound. So what you see on the chart here is you're going to see our restaurant growth numbers on the right side and then the revenue growth that grows with that. You're going to notice there was definitely a pause in 2020 during that COVID year, but then, as Michael shared in his slide, we continue to accelerate growth to meet that 10% growth target. What you expect from us and what you will see from us, not just historically, but in the future, is really that steady and predictable growth.
The best thing about our growth is it's profitable growth. Now, I know I've shared this slide with you before, so there's no new information on this chart, but I think it's an important point to continue to hammer home that our growth is self-funded. What you don't see on this chart is we do have a $100 million revolver facility at our disposal that we can tap into as needed to continue to fund growth. We don't expect to do that as we continue to grow restaurants that are profitable from day one. Now, when we look at 2023, which is not on the chart, what are we expecting? Well, we're expecting a very similar trajectory. I've given a range and a guide for our CapEx in 2023 of $70 million-$75 million we expect to spend this year.
We expect about 80% of that, $70 million-$75 million, will go back into our new restaurant openings. About 10% this year, we do expect to invest in maintenance CapEx, and then the other 10% in other discretionary CapEx. So think about things like technology investments in our restaurants. A lot of you saw the new digital menu boards at The Colony last night. We've been putting in those into all of our restaurants over the last year and a half, so that's in that other discretionary CapEx bucket. Michael shared this, Derrick talked about this, but this is such an important point that I want to make sure everyone understands, which is why I'm putting it up here again, to continue to hammer home the point that our strategies are working.
So when you think about the things that Mike Ellis talked about in terms of how we approach markets, how we select sites, Derrick talked about the NRO teams, the operating improvements, right? All those things have helped to smooth that honeymoon curve. And as a reminder to everyone, Portillo's restaurants don't enter our comp base until after 24 months, right? Because traditionally, we open strong, we see a dip in that year 2, and then it starts to build back up in that year 3 and beyond. What I love is that we've learned to de-risk that NRO process, as Derrick talked about, and you really see that difference come through for me as we look at that honeymoon curve. And it's really encouraging to know that the very deliberate changes that we have made are working. So how is our current class doing?
So what you're going to see on the left-hand side of this chart here is exactly what we shared with you a couple of years ago, which is our year three targets for a class of restaurants. Again, all these numbers are for a class of restaurants, so keep that in mind. So you'll see targeting that 25% cash-on-cash returns, and then on the right, you're going to see how that—those seven restaurants in the class of 2022 are projected for that first year. And you see, obviously, how we've gotten there has changed. We feel very comfortable that we're on pace and on track to hit those year three targets, but you can see, again, the math has changed.
So you look at the top line, tracking to $8 million AUVs, and we've talked about some of the rationale for what's driven that. And we knew, and I've talked to you all about how build costs have changed, and it's no secret that that's been a dynamic in the industry, and so those came in higher, and I'm going to talk about that here on the next slide. So when we look at the build costs going from the IPO target, this is going to walk you from that target to where we were for the class of 2022 and to what we're building at today. So going from the $5 million to the $7 million number, primarily inflation. So that 30% inflation that we've seen is not abnormal in our industry.
That's what we saw as we moved from those costs, five to seven million. We did experience some site-specific costs within the class of '22. You know, we had The Colony, a flagship restaurant, so think about costs that were very specific to what we were building. You can see that comes right back out as we're building these restaurants in the class of '23, so we do not expect those costs to recur. Now, you heard Nick talk through the stages for restaurant in the future, and where we are today is we're building those Kitchen 23s, which we're excited to showcase when you see Allen today.
So he talked about really the efficiencies that we're getting and not just the building materials, but really those equipment costs as well, which is where you see us pick up some ground for those class 2023 restaurants. So we feel really confident that we're going to hit the $6.2 million-$6.5 million build cost for this class. 1, because we already have 2 open, and 2, the other 6 are already well under construction. So we have a good handle on those build costs for the class of 2023. Now, where are we going? So this next one is what really excites not just myself, but the rest of our team here today, is what that Restaurant of the Future, what that Stage Three, where that can take us.
You can see here, we believe that that smaller box format, going from that 7,700 sq ft to the 5,500-6,000 sq ft, can get us some savings. We know that we're already working on equipment optimization. We're working on optimization in those build cost materials. All those things are going to contribute to us lowering the build cost, and it's why we feel those three points are going to lead to at least a minimum of $1 million savings on the build cost as we build out that restaurant in the future. Okay, so given the data that you've seen today, all the information that we have, all the things that we know, we feel extremely comfortable about updating our underwriting expectations. On the left, those are the old targets that we shared a couple of years ago.
The middle column is what we currently expect today. Those are our underwriting expectations today. Now, I will say, you've heard about all the work that we've gone through to get to the AUVs that you see there. So the targets that we set during the IPO process, that $5.8 million target, remember, that was based on historical builds that we have, right, which were primarily targeted right in that cheese sauce spill strategy. So as we've evolved our development strategy, as you heard today, that's why we feel very comfortable with updating the AUVs and the performance. You've seen where the class of '22 is tracking at $8 million, so we feel comfortable at the top line. Then when you go down, you'll see we're not getting overly aggressive on the margins that we're expecting in year three.
We feel very comfortable with continuing to target 22% restaurant level margins by year three, and getting those build costs down currently gets us back to that 25% cash-on-cash return target that we feel comfortable. But again, what's exciting about this is what this next phase can really lead to. So as we talk about the restaurant in the future, nothing, and you look at the far right column on the chart, nothing in the first three rows has changed, right? And so really, driving those build costs down is what's going to bolster and enhance those cash-on-cash returns. And I included a... We have a slice of cake there because those enhanced returns really are just icing on the cake for Portillo's. Back one.
Okay, so we do get this question a lot, so I wanted to make sure you all saw a comparison of our cash-on-cash returns versus those fast casual competitors that Michael mentioned at the beginning. And really, it gives you a comparison on a like-for-like basis, whether you're looking at how we build today versus how we could build in the future. So let me just level set for you here. So for Portillo's, this is all the information is based on the class of 2022. So if you look at the build cost, you'll see the current build-out cost for the class of 2022 at $7 million. We have our restaurant level adjusted EBITDA target, and you get to that 23% year one cash-on-cash return number. Well, what if, unlike we do today, we pay to build the building and we lease the land?
So what if we had the landlord build the building and we leased the building and the land? How would that look, right? And so you look at the build-out costs, would go down from that $7 million to we'd have $1.5 million to put leasehold improvements into the facility, to put the equipment into the facility. That'd be about $1.5 million. You can see our rent or occupancy costs would double, thus lowering our restaurant level adjusted EBITDA, and then you do the simple math. Our EBITDA over our build-out cost gets you to the 80% cash-on-cash returns. This allows you all to compare to whatever competitor you're looking at.
If you look at a Cheesecake or a Roadhouse, you know, who might put more capital into the ground like we do, or you look at other concepts like Chipotle, Cava, et cetera, that lease the building as well. It gives you what... However, you slice and dice the information in apples-to-apples comparison of us versus the competition. And we feel very, very good about our returns, not just today, but again, excited about what that restaurant in the future can deliver for us in the future.... So just to round us out, new growth, building those new restaurants is the story for Portillo's. That's going to continue to compound that revenue growth. We expect to continue to self-fund that growth. We expect the returns to continue to generate substantial cash flow for us as we move forward.
Super excited about the early returns of the class of 2023 and continuing to validate that development strategy that you've all heard about today. As we look towards the Restaurant of the Future, this isn't us, you know, thinking about pie-in-the-sky things. Nick mentioned we have drawings, we have plans, we have architectural designs for this Restaurant of the Future that gives us comfort that we will be building these in 2025 and beyond. Mike mentioned the 18-month pipeline, so it takes time to get these things into the pipeline, but we feel extremely confident that we're going to continue to deliver that future value for our shareholders. I want to thank you for your time today. This does conclude our prepared remarks. We're going to take a quick 5-minute break, and then we're going to go into Q&A after that. Thank you.
Barb's a tight ship, so we have to get started.
Hello? Okay. All right, we are ready to get started. So now we're going to start the Q&A session. If you are on the webcast and you would like to submit a question, you can do so in the chat box. And also, we'll have a mic, sort of roaming around the room. So if anyone has a question, please raise your hand.
Thank you. Katherine Griffin with BofA. So first, I just wanted to ask how we should be thinking about the higher unit growth targets when same-store traffic and mix are negative. I guess, what gives you confidence that new markets are still under-penetrated?
Well, a couple thoughts on that. One is the actual experience we're having in our new markets. I think we've bragged about The Colony before. It's on pace to do $14 million this year. We have restaurants that are just knocking the roof off of our expectations, especially in the new markets. We're seeing-- I think what she also showed is that the existing class of 2022 was trending at $8 million, which is substantially above our expectations and our history in new markets. We feel really strong about our new restaurants and new markets. Barbara, if it's easier, too, they can just say it, and we can repeat the question so that people can catch it. Yeah.
Hey, thanks. Brian Mullan, Piper Sandler. You know, it's exciting to hear about the Restaurant of the Future. If I had to summarize at a high level, you're going to reduce the size of the building, reduce the cost, maybe run with less labor, but the targeted AUVs are the same. So I think a lot of restaurant companies would love to, love to do that. Could you just maybe elaborate on your confidence on how you're going to be able to pull this off without any kind of revenue degradation? Is it just the size of the dining room doesn't make sense for today's mix of sales? Are there still inefficiencies inside what was a private company for a really long ? Just-
Yeah.
How do you want investors to build confidence in that?
Well, I appreciate the question, Brian, because you answered your own question, which is that there's just a different way consumers are using restaurant companies. We've seen it, right? Our mix, our channel mix fundamentally shifted. There was a long-term trend towards people eating off-premises versus dining in restaurant. COVID accelerated that, and while there's been some correction, it hasn't gone back to pre-COVID times. So you're seeing more off-premises, and that's really it, is that in order to still do the fulsome volumes that you do, your off-premises portion of the business has to be better, more on point, frictionless. And the team has been sweating the details on that.
Yeah, and I'd say, Brian, the chart that Michael showed at the beginning, when you look at the AUV performance, so let's talk about the top line first, and then we can talk about build costs. Outside of the core Midwest performs better, right, in those Sunbelt markets. And then we looked at the class of 2022, which is primarily outside the Midwest. And so that gives us confidence, right, as we look at that new range of AUV targets by that year three that we can perform that. So we feel really good about that. When I look at the build costs, and we look at the build costs, again, we already know where we're at today with the class of 2023. And the restaurant in the future isn't something that we hope will happen.
Again, we have drawings, we have plans, we've done studies, as Nick mentioned-
to feel very comfortable that shrinking the size of the footprint is not going to degradate the brand, number one, or allow us not to perform at those AUV levels. And Derrick will tell you from an operator standpoint, he's been very involved in terms of us getting that production line shrunk, creating better adjacencies, and feeling comfortable that we've done the testing that we need to do to allow us to perform at those AUV levels.
Yeah, and I, I would say that, you know, at the end of the day, the engine has to perform irregardless of the channel that people decide to use. Our pressure test up to this point has been our Allen restaurant that you'll see today. I think it topped out at $190,000. I talked to the team as early as yesterday about their experience. I visited during their experiences in the kitchen from three to two lines, the improved adjacencies, the less conveyance, right? The 17 feet we've already taken out is not inhibiting our capacity at all. In fact, the work together structure of that is allowing us even better efficiency. Just something as simple as the door, where we have interchangeable jobs between someone who's at expo or coordination versus running.
All three of those jobs can simultaneously interchange, right? We feel really good about what that engine can produce in terms of this, this test so far.
We're, we're responding heavily to this question 'cause it's really sensitive for us as well, right?
We don't want to build a restaurant that can't do the volumes that we expect. And just for our edification, I want Nick to talk about, we have an innovation center- .
And we've actually laid this kitchen out, and we're testing it in a production-capable setting to make sure we're not gonna screw this up.
Yeah. We actually built an innovation center, like Michael said, in Aurora, Illinois. It's connected to one of our production plants, where we produce our Italian Beef, right? We've laid it all out. We've brought the team in. Again, the best minds at Portillo's have walked through this time and time again to say, "Here's what we can do. Here's what we can't do." Just to everybody's point, we have no intention on decreasing those AUVs. The one other thing I would add is just that we are intent... We, we did it in stages on purpose, right? We're talking about this. Derrick's talking about this. We knew we couldn't rip the Band-Aid all at once. We had to be very planful about this, and that's exactly what we're doing.
Dennis Geiger, UBS. Thanks to the team for your remarks and for the event. It's been a great event so far. Wanted to ask Michelle. Michelle, you touched on, and then the team has touched on the increase in unit development, the increase in the revenue growth targets. Keeping that EBITDA growth unchanged, can you talk a little bit... Still a good, a very good level-
Yeah.
But just a little bit more about maybe what keeps you from getting more aggressive with, with that EBITDA growth target?
Yeah. No, Dennis, it's a great question, a question I knew was coming.
And when we look at the restaurants, and I know we've talked about this a lot, when we look at growing the restaurants, adding those new restaurants into the portfolio, right, you have to remember that they're coming in at a lower AUV than, right, we're averaging today, and we know that Chicagoland bolsters that. But then they also come in at a lower margin profile, right, to start. So as you continue to look at, you know, building in a higher number of those new units coming in at a lower margin profile to start, right, you naturally are going to get that mix starting to shift.
That's why we still feel very comfortable at the low teens. I don't feel comfortable getting in over our skis and promising targets that Michael and I and the rest of the team don't feel are achievable, but that's the rationale with why we didn't change that specifically. Yeah.
Sharon, I think, was-
Hi, guys.
Hi.
It has been a great event. Learned a lot. So my first question is for Mike. I think there was a slide, I want to say it was slide 28, that showed how the company plans to build out the Dallas market, and some of the stores' trade areas were overlapping. I'm just curious, what's the company's tolerance for cannibalization, and is it something that you expect to maybe have a bigger impact over the next couple of years as you accelerate development?
Yeah, I mean, I think as you look at it, that's a snapshot in time. It'll evolve over time, right, as we look at it, and we're not in a hurry to put restaurants really close to one another. We'll. You know, that's how we put together the MAM, minimal overlap. So that's how we want to look at it, 'cause we've got a lot of green space there, and that's. That Dallas market will be built out over, you know, the next 10 years before we're fully built in all those restaurants. So they'll continue to have that 5% growth every year, and those markets will continue to grow and gain population, so that'll become less of a concern.
Yeah. Really, and Chris, the only place that we'll experience any cannibalization as we build for the foreseeable future is really in Chicagoland, right? 'Cause we will continue to build in Chicagoland. We open a restaurant in Chicagoland, it's gonna do absurdly high volumes with fantastic margins, and there's just demand there. And so we will see a little bit, a teensy bit, of short-term cannibalization in Chicagoland that fixes itself up within 18 months, two years. And so in Chicagoland, yes, a little bit. Outside Chicagoland, we're really not worried about it.
Good. And then, Michelle, can, can you provide a bit more color on the distribution of the 40 retrofits between 2023 and 2024, and then maybe what the CapEx per unit would be, and how should we be thinking about the impact to CapEx next year?
Yeah, Chris, I would say that they're fairly evenly split year-over-year. I think, we have, like, 15-20 coming online this year, with the remainder in 2024.
I won't. I'm not gonna get into specifics for each restaurant, but I will say that we continue to target that 10%-15% of overall CapEx. It's within that maintenance CapEx number that you see there, and that will continue in 2024. So you're not generally going to see a lot of incremental CapEx coming in 2024 for the retrofits because they're fairly evenly split.
I'm actually gonna take -
Oh, I think Sharon had a, has had her hand up for quite a while.
Thanks, Mike.
Yeah.
Thanks. So a question on the restaurant level margins, Michelle, you had 22%, and the unit economics has been that way for a long time.
Mm-hmm.
But you raised AUVs a lot.
Mm-hmm.
We heard a lot about labor efficiencies. Are you basically just kind of keeping pace with some of the inflationary elements on labor and occupancy and so on? Is that why we're not seeing that-
Yeah
-that margin go up?
Yeah, and what we've seen, Sharon, even from the IPO targets to the new targets, that we've seen a lot of labor inflation, as you know.
That's my expectation as we move forward, is that those forecasts assume that we're not going to, you know, see any sort of relief from that end, and it stays pretty steady state, you know, with continued increases, you know, from an inflationary standpoint on labor and commodities, et cetera. Again, you saw the targets for the class of 2022, right, in terms of where the margins are today at that 23%. I feel very comfortable at the 22, and I don't want to get, again, overly aggressive because we still have to play out the hand. Labor is the primary component that's kind of kept that flat with the growing AUVs.
Can I be greedy and ask another question? So, I mean, I know every day you wake up in Chicago, and you're looking at, like, $11 million AUVs, and the population's going down, so you're just, like, fighting to hold it. And it's also hard to comp on $11 million because the math is hard, right?
Yeah.
Is there any way to talk about kind of non-Chicagoland and how the traffic comp is growing in those areas relative to Chicago?
I don't want to get into specifics on that, but here it is exactly what we said at our IPO, which is: think of us as almost two distinct businesses. This ridiculously high AUV, phenomenal margin business with low growth in Chicagoland, right? Negative population. We're happy to compete. We will take share in Chicagoland.
But for us to have positive comp really means you're taking share from other fast casual and QSR concepts. Fine, we can do that in Chicagoland. Outside Chicagoland, it's a much growthier story, right? It's a much growthier story because we are not as well known, and while we start off strong, we don't start off Chicago strong. So it's a cash flow business in the center of the country that generates a ton of cash flow, but low growth. In the Sun Belt, we are a high-growth business that will get to audacious numbers.
That's exactly our strategy.
Yeah, I had two questions. The first was I just when I look at through year one, how this class is performing, $8 million AUVs, 20% margins, and the path to maybe seven... like, a year three, $7.3-$7.5 with 22% margins, does that just mean 300, 200, 300 basis points of margin just comes from the fact that you get past the year one opening year and how much cost you put up, 25 workers or GMs maybe initially? Is it just that simple in terms of that's the drag right now on the margins year one, and that kind of goes away 2 or 3 do you have to get an AUV uplift to get there or-
No, pretty much, Greg, that's what you said.
Yeah.
It's on the cost line, right? When you first start out with the restaurants, you're going to layer in more labor, right, into those restaurants, particularly in that first year. In year two, right, you see that dip in the AUVs that we've talked about, but you pretty much keep your margins flat or slightly up in that, in that second year, because, right, you're then getting more efficient with the labor, you're layering off some of the NRO support, et cetera. And so that's what you see generally in year two, and by year three, you should be humming at a normal run rate so to speak, for labor. But that's the dynamic that you see within those first couple of years.
Yeah, and Derrick, can you talk a little bit about our philosophy on food costs and labor costs in the early stages of an NRO? Because we don't really worry about those, right?
Yeah. I mean, if you take Allen, for instance, right? It opened up a little slower versus The Colony, right? There was a tragic shooting, as you know, in Texas. The traffic was down quite a bit, and the folks were asking, they were like: "Well, you know, what do you want us to do?" And I was like: It's all about the experience, and let's train up our people, right? I remember texting Michael, "It's a little slower. I'm worried." He's like: "I'm not worried." You know, by the weekend, our investment met the demand, and it was a crazy... It was a fantastic week, right? We did $190,000 in that week because we believe that for the first eight weeks, we are going to invest in our people.
We're going to invest in labor, we're going to invest in management, we're going to invest in the experience, right? Because we know long term, on the minds of our guests, if we don't take care of them experientially, they're not going to be back. They're not gonna, they're not gonna tell people positive stories-
... who are coming from all parts of the Midwest. So that's important. From a cost control standpoint, I mean, we had really, really tight measures, and this is not necessarily about controlling costs as much, as much as it is about quality, right? Our standards for beef and dips and hamburgers and dogs, they're exacting, right? Because we want the highest level of quality. What it's turning out to be is some of the tightest controls on waste that I've seen. Less fries, more often, perfectly salted, you sell more, et cetera. So I think our investment initially drives revenue, ultimately gets our labor in control faster, and our exacting standards around quality really helps us, over time, control cost from an overall expense standpoint.
And maybe one other... Thank you for that. And, Michael, you talked a little about just the difference in terms of off-prem and on-prem from a few years ago. Do you feel like you're at a normalized level where that's not continuing to drift or change? And can you remind us where you are versus maybe pre-COVID or a few years ago, or however you want to frame it?
Yeah.
Thanks.
I'll let her give the details on where we are. But look, whether I think it's normal or not, it has stabilized over the last six months, so I think it's a new normal. And I think that we just have to acknowledge that there's been a fundamental shift, that people want to consume food on their terms, which means that off-premises is a bigger portion of what it used to be. It's bigger in 2023 than it was in 2019. And I think we've gone from, like, 50% dine-in to 35%.
Yeah, we're raing anywhere between 35% and 40% dine-in today, and so it's fairly stable-
Yeah
... to Michael's point. We're not seeing-
Right
significant shifts, Greg, in terms of dine-in. But, you know, I think Michael and I and the rest of the team all believe we don't believe we're getting back up to that 50%.
Right.
Which is why, as we continue to iterate on Restaurant of the Future, we know that we're able to remove some of that space inside.
Think of it as that Restaurant of the Future, so just use as a frame of reference, a $10 million box. I want it to be a $10 million box, right? Historically, it was doing $5 million inside, $5 million off-premise. .
Now, it's gonna do $4 million inside, $6 million off-premise. The manufacturing capacity, food production, still $10 million. But it means we can be smaller 'cause I don't need 240 seats and 120 parks. I need 160 seats, and I need 80 parks, 'cause that's what inside is. But I still need double-lane drive-thrus with a really good stack. I need a fantastic execution of off-premise. We have to be even better on digital and in allowing guests to access the thing because that's the difference. So we... And that's one of the reasons. I think that's one of the big unlocks for us in how we build the Restaurant of the Future to reflect that reality, and I don't think that's going back the other way.
I don't think all of a sudden you're gonna see this renaissance of dine-in. I think you're gonna continue to see consumers saying, "We want off-premises." So, you know, our strategy is to go where the puck is going, not where the puck was. Drew?
Drew North from Baird. Michelle, I just wanted to circle back to the EBITDA margin target.
Mm-hmm.
I guess, could you just quickly touch on the role G&A leverage has in the low teens EBITDA growth target and how you're thinking about that G&A line going forward?
Yeah, Drew, I'd say, you know, I... There's no real shifts for me in terms of how we're thinking about, you know, the G&A growth number in terms of... You know, when we put out the target, we said, generally, we're targeting 75% of that revenue growth number. So as, you know, revenue continues to grow, as we continue to, you know, accelerate that growth, the need for investments, right, doesn't go away on the other side of the equation. So for me, do I think that we have an opportunity to get slightly below that and start to leverage that top line a little more in the future? I do. Right, we got to continue to see how that plays out, right? But generally speaking, that's, you know, our target as we move forward.
Thanks for that. And then one more quick one, just on the 920 total restaurant opportunity. I guess, what % of that target is expected to come from existing markets that Portillo's is currently operating in versus new markets? And then maybe just touch on the Chicagoland area. Michael, I know you mentioned continuing to grow there. I think previously you had targeted one potential unit a year. Is that still the expectation in that 12%-15% growth algorithm?
It's a good question. The first part of your question, I don't think we've actually looked at it that specifically to say, "Here's what's coming from the existing markets." Rest assured that if we just said we're gonna grow in the states we've showed you, Texas, Florida, Arizona, and then add Georgia, Colorado, and Nevada, my back of the envelope is that's like a decade of growth for us. That's like, it's. I don't feel the need, like we got to add a ton more. And so it is a long. That is a long tail of growth for a company that's at 76 restaurants today, right? Chicagoland continues to be a home. We build. Every time we open a restaurant in Chicagoland, it's a home run. And so we will continue to be very selective and thoughtful about adding restaurants in Chicagoland.
I can imagine us putting a bunch more of the pickup locations, the drive-through only.
Mm-hmm.
I can see us potentially doing some other big boxes in more of the outskirts of the city, call it Chicagoland Metro. But I think, you know, one to two a year is a very reasonable growth pattern in Chicagoland for the foreseeable future.
Yeah, I mean, we know our holes. It's just when the availability is gonna come, and we have an opportunity, that the site's available, that we can take advantage of.
Malcolm, you-
We take a look.
Yeah, you had your hand up for a while.
So I'll just pre-
You project, and I'll repeat it for the... Yeah.
This is... I mean, historically, when you have a high-growth company, the G&A is much higher-
Yeah
than normal. But that is normal for a high-growth company. But I'm a little confused as to where you're assigning the costs when it's open, and you have extra people to do the, uh-
Training
-the work.
Yeah.
As opposed to the months of carrying and training people-
Yeah
-which I'm sure goes to your place.
Right. So for those online, what Malcolm Knapp is asking is, He's saying our G&A is relatively low compared to other high-growth companies. He's trying to understand where does the cost go for all of the training that we do, the people, the NRO costs, et cetera. And so thank you for noting that, that our G&A is low, Malcolm.
Yeah.
That's because we believe we need to be exceptionally disciplined in how we spend money. Michelle has talked about how we think about G&A leverage on a go-forward basis. We expect to, you know, G&A to be a fraction of what our revenue growth is. That allows us to grow G&A in prudent ways, right? Like, there's areas that you need to grow G&A. We, we are going to add... You know, Mike's gonna need help.... Development is really important to us. We will continue to add G&A. Otherwise, I prefer, and Michelle prefers, and my team prefers, for us to be a lean, agile organization. We don't want to get bureaucratic and huge and have an army of people, where it takes you a week to make any decision. Let's be lean and agile.
Then all of those costs that you're seeing get basically either in. The NRO cost is a pre-opening expense that hits.
Yep.
So-
Then as you look at, Malcolm, right, as Derrick talked about that NRO team, right, those are operators, right? Those trainers are operators within our restaurants, right, that are coming, and when needed, right, pulled out into that NRO team. Yes, we have dedicated resources, right, that are on the NRO team. But as Derrick talked about, right, we built that scale to be able to handle 20-30 restaurants annually, right? 3-4 simultaneous. So I feel like, right, we have the capabilities that we built, but it's not something where if we're not opening restaurants, right, those folks are just sitting around, right? They're actually out there in restaurants and.
Yeah
working. So, you know
Yeah
I don't see, as Drew just asked the question on G&A, I don't see that we're gonna continue to have the need to make significant investments in G&A capabilities, right? As Michael mentioned, yes, development might have some needs. We might have some needs in some other spots, but we do run fairly lean today-
Right
And we're comfortable with that.
What was the guidance we gave, 75%?
75% of our revenue growth.
Right. So when you're thinking of, you know, 10%, then G&A should at worst grow 7.5%.
That's at worst.
At worst.
Now, as I just mentioned with Drew, I do expect, as we continue to grow the top line, we're gonna get more leverage.
Right.
'Cause I've seen high-growth companies,
Yeah
... usually run closer to 15%.
Yeah.
And it's
Yeah
... we're blessed, 'cause I keep, I'm a broken record about this. We're blessed with ridiculously high AUVs. So, you know, even in a place like Texas, where we have invested so many people to make sure that Texas opens strong, we've had effectively five GMs working in The Colony. We have deployed resources there. Derrick talked about how important it was to us to train those people, so we rented a facility to train. You can do all of that, but when you're doing a $14 million run rate, you're still gonna make a lot of money. And it's that incremental revenue. Our, our volumes are so attractive, that it allows us to not be, you know, like, sort of penny-pinching when it comes to training, development, and people. We have the benefit of being able to invest heavily in that and still have great margins.
One more question.
Yeah.
The 40% drop from the first 8 weeks-
Yeah
... that's higher than most companies I know.
Yep.
Almost double.
Yep.
Why is that?
Why is our honeymoon curve so steep? It's because every time we open in a market, our pent-up demand is so high, and our draw is so high. Like, the stories that you hear from when we first opened in Florida, first restaurant in Florida, you had people driving up to Tampa from Miami, from Naples to go visit us. And so you do. Our volumes, those first few weeks in a new restaurant, is the catchment for a Portillo's isn't five to 10 mi; it's 200 mi. And so-
You're getting tourists.
We're getting, we're getting tourists. We're getting Chicagoans.
Many people are familiar to tourists.
Exactly. So we're getting this pent-up huge demand, and, and so you see a more dynamic curve. Now, there's things that we did that made it a little bit bigger than it is, but, but that's, that's the genesis of it.
Mm-hmm. But if, if you took out those people. I'm sure you've got market research on it. What would be the discount?
I think what you're seeing from it, my hope is that what you're seeing from The Colony is exactly a much more replicable model for us, which is, I think, those numbers were, like, sub 30%, which is-
We're still... When Portillo's comes into a place, like, we had a Facebook page with how many thousands of people?
Many, many thousands.
Signed up in Dallas. When we open new in market, it's sort of unavoidable that we're gonna have a big bang opening. We can tamp it down, we can be careful and we try, but you're still gonna have people driving hours to come to visit Portillo's those first few weeks, and so there's always an elevated, our curve is more elevated than any other restaurant company I've seen. So the good news is, even at the bottom of the curve, it's still a really great AUV
And so we just need to make sure that the curve is mitigated, and it gets back to a steady state as quickly as possible. Thank you. Yes?
Great. Joshua Long with Stephens. We talked a lot about the efficiency of the new box, and getting to see it last night was super helpful. When you think about the prior conversations we've had, where efficiency and what you've been able to do at the volumes that you deliver, I think particularly we've talked about that in terms of items per labor hour. Can you contextualize the new box and the Restaurant of the Future, and maybe how that might compare to some of the older prototypes that we've seen?
I mean, you've nailed it, and it's like... There's this constant dynamic for us, which is labor wages keep going up, right? I mean, it's just, it has slowed down, but not by a lot. The demand for labor is very high, and then our relative positioning in the labor market, in terms of, like, how attractive Portillo's is to an hourly team member looking for a job, has improved dramatically. We pay above market now almost everywhere, right? Our starting wages in Texas are $17 an hour, right?
Yeah.
I mean, so we are a really great employer for hourly team members. With that, we have to be very purposeful in thinking about labor efficiency, making our team members more productive. This isn't about, like, squeezing them or anything like that. This is what Derrick keeps talking about. When you ask a team member to take 42 steps this way—drop off a beef sandwich 42 steps back way, you have made them inefficient, and it's on you, it's not on them. When you ask team members to: "Oh, I'm out of fries. I got to go to the cooler that's down there," as opposed to now, "I got fries right here. I just pull them up here, and I get ready." I work the fry station, I can help it set up.
I go from here, I walk over here, and I help over here. A fry station is here, I can go outside this way, I can go inside this way. All of that has dramatically improved the labor productivity. We're not, we're not gonna specifically say what the number is, but the hedge for us against better wages, labor inflation, and those are fine things 'cause I want—you want people to be happy to work at Portillo's, you want them thrilled, has to be in efficiency and productivity. And, you know, you've got to be mindful of how you think about this. It's not look over someone's shoulder and say: "Work faster." That doesn't work, right? What it is, is I'm removing hurdles for you so that you can be efficient and have a sustainable path here.
That's helpful. Thank you.
I think, Josh, just one quick example to tie it into what you're gonna see today with Kitchen 23 is the... A very simple example is what Nick talked about with self-serve drinks.
We don't have team members now, right? Remember, I just said 35%-40% of the business is still dine-in, so we don't have a team member that's making and serving drinks to the dine-in. The guest does that, which, by the way, is a better guest experience and leads to higher sales. So you'll see that in Kitchen 23 today. That's just one example that reduces team member labor.
I know, and, and it's interesting to think that, you know, the titan in our industry is going away from self-serve drinks
Here's what it does for us. We are not a drive-through only business. We have a very big dine-in business .
Guests are happier when they... Well, think about yourself. When does your dining experience start when you go to a restaurant? It doesn't go when you sit down or when you order. It's when you get the first beverage in your hand. In casual dining, there's a rule, like, you got to get a beverage in a guest's hand within a certain number of minutes because then they're starting to relax and enjoy themselves, right? So what we have seen is that our guests in the self-server drink place actually view the time they wait for their foods has gotten shorter. It hasn't, but they think it's gotten shorter because. They got a drink in their hand.
Yeah.
Now they're relaxing, and you can see it.
Yeah.
They're, like, sitting at a table, and they're happy, as opposed to queuing in front of expo, waiting for their drink, waiting for this. And then, you've got guests who are like: "Hey, I like a certain amount of ice in my drink, and you guys screw it up," or, "I want less ice. I want more ice. I want a refill." We've empowered guests. They're happier.
They view this as speed of service, and they're relaxing. Our team members love it because now I'm not queuing up a bunch of drinks. The quality of the drinks has actually improved because you don't have, at busy times, drinks sitting there waiting for the food and the ice melting. So for us, this is a perfect example of labor efficiency, guest satisfaction-
It's a win-win-win.
Okay, very helpful. And then maybe one quick one, again, when we think about those retrofits that you identified, is there any opportunity over time to leverage some of the smaller production line of the newer units? I realize that kind of your classic, you know, store markets might be a little bit constrained in terms of just size or, you know, framework, but it seems like you're starting with a larger box in general. Is there an opportunity to maybe optimize that over time, too?
Well, the Grab and Go is planned for every new restaurant.
So that Grab and Go is in its design. It's part of our design for all of our new restaurants. And I think we've made strides, we've made strides in how we merchandise the Grab and Go, but, you know, as retail merchants, we're really good restaurateurs. And so we will keep getting better and better, and you can think about, you know, we're talking to, like, some of our beverage partners of, "Hey, we need, like, energy drinks." Okay? Energy drink is an incremental sale. It's a different demographic. It's not something that's gonna compete with our fountain beverage business or a tap. And so we can get smarter and better with what's in the Grab and Go.
Yeah.
Right? I mean, it's an evolution for-
Yeah, to the efficiencies in our existing restaurants, I mean, the entire universe is probably around 46 restaurants, but we believe we can do 40. Like 15-20 this year. We'll do another 23 next year. Some of those same line reduction changes that we've made in the current retrofits, we're able to make in our existing restaurants. We're able to bring our shake machines back online, bring our salad production area in line, put the grab and go in, right? Remove drink makers because we're self-serve beverage. That is FTE reduction in those existing units going forward, right? To your point, yes, we are moving some of those efficiencies into our retrofits.
Great. Thank you. Ivan Yu from Jefferies. Just thinking about some of the newer markets that are beginning to scale now, such as Arizona, Florida, and of course, Texas over the next couple of years, you know, could you remind us what you typically see when you reach that 6-8-unit mark? You know, is it benefits on procurement? Is it labor being able to leverage a market manager or some of the flex trainers you talked about? And, you know, what do you, what do you expect to see kind of going forward as it pertains to Kitchen 23 and Restaurant of the Future?
Yeah, I think the best example I gave was this time last year when we weren't even at scale in Arizona, but we went from 2 to 4 restaurants in that Phoenix market, and we saw 370 basis points of margin expansion. Again, not being at scale yet in that market. Now we have 7 restaurants in that market. So it goes to your point of us being able to leverage that multi-unit manager. So a lot of you met Lisline tonight, who's our market manager in Texas. Well, she's got 2 restaurants today in The Colony in Allen, like leveraging her capabilities across six state restaurants. The distribution, right, to get your product into Texas.
We still make all of our beef, peppers, and gravies in Chicago and ship it across the country, so leveraging full truckloads as we distribute down there. As Nick and his team do their local field marketing, leveraging that across not just 2 restaurants here in Texas today, but, you know, as we're on the path to 5 by Q1 of 2024, being all those things come into account. But when you think about where we're at in our life cycle today, right? The only market that we're really at scale today is in Chicagoland, right? We just opened our seventh in Arizona. We're at 2 today in Texas. I would argue, even though we have 8 in Indiana, it's very dispersed across different markets within the Indiana--the state of Indiana.
And then you look at where, again, we have pockets of restaurant in the Midwest, so we're really just learning this over time.
Yeah.
But I think that Arizona example is the one I have that's closest to a proof point that we have today.
And then, you know, just from an efficiency standpoint, I mean, conveyance on a grand scale is flying people all over the place, right? You know, flying people from Chicago to come in and run restaurants, et cetera. When you look at Texas alone, we are actually creating a kind of self-generating from a talent perspective, both management and our team member. You know, team members who will be trainers, who will be a part of that flex team, who will be moving around Texas, helping to support restaurants, as opposed to us bringing what I call Red Hats in from the Chicagoland market. So self-generating talent is really a key component. It's both more efficient, right? And it provides people kind of hope in the market. They're starting something. I can grow. I can prove I have an opportunity for growth, right?
And so I think that's as important as anything else. People get deflated, right, when they don't see additional growth and opportunity in their marketplace, when they feel that this is one restaurant or two restaurants. So I think it's really important to creating that motivation, that energy.
Mm-hmm. That's helpful. Thank you.
Mm-hmm.
Thank you. I just wanted to follow up on the unit growth outlook. I wanna make sure I heard correctly that I think CapEx is expected to exceed operating cash flow in 2023. If that's the case-
No. No.
No?
No, I just wanted to say the point being that we expect the same trajectory in 2023 in terms of continuing to self-fund the CapEx, and the CapEx range of 70-75. So I expect, therefore, cash flows to be higher so that we can fund that CapEx growth, and then obviously, as we go into next year, continuing along that path as we continue to bring new restaurants online, that again continue to contribute to that cash flow pot.
Okay. Thank you.
Mm-hmm.
We've got time for one more question. Mm-hmm.
Can you go to the next slide for us? I'm just gonna wrap up.
Let me see.
What's that?
Oh, sorry. Go ahead. Get out of here.
I'm good. So look, hope everyone's enjoyed this part of it. For those of you going, you're gonna get to see Allen. I mean, it's super exciting. There's a couple takeaways that I just wanna make sure that you all leave with. So we are a growth concept. We're a 60-year-old growth concept, which sounds oxymoronic to say it that way, but we're a 60-year-old growth concept, and we're at 76 restaurants. However you wanna calculate what our full potential looks like, it's an absurdly high number, and we've only—we're not even at the tip of the iceberg. So that's point one. We have the benefit of robust unit economics. Robust unit economics. We can nitpick all you want about, hey, current. You know, you didn't have the best quarter last quarter in terms of transactions. Fine.
The reason people worry about that in the restaurant industry is because there's a lot of restaurant companies that don't make much money, and when transactions soften, those restaurant companies are in a lot of trouble. We, we have never been in trouble financially. We're building new restaurants. We're funding all of our growth. We're self-funded, and that's not gonna change for the foreseeable future. We're super excited about our growth. So hopefully, one of your takeaways is gonna be: Wow! Ellis, who's got 35 years of experience in doing development, kind of knows what he's doing. You know, I have my days when I'm not sure, but mostly, I kind of feel he knows what he's doing. And so they're getting much more rigorous and scientific about site selection, which de-risks what we do. Mr.
Pratt, who's been opening restaurants for pretty good companies, McDonald's and Starbucks, 30+ years, has an NRO playbook. We're gonna open really strong. We're not gonna open restaurants, have them implode on us, take five years to get back to year one. We're gonna open strong. We know what we're doing. We have NRO teams in place. We know what we're doing. We're operating our restaurants really well. Restaurant of the Future, candidly, we're a little bit nervous sharing that because sometimes people think, oh, this is all just smoke and mirrors. It's real. You know, you heard our CFO, you heard Nick talk about it. It's real. We already have implemented a big chunk of the improvements in Allen, Texas. You're gonna see Allen, Texas. Allen, Texas, is 50% smaller than restaurants we were building in 2016, 2017, 2018.
The kitchen line is 50 ft smaller. The productivity of that restaurant is going to blow away all of the restaurants we were building before. And then the next generation of Restaurant of the Future just gets better and better. And then you saw the updated guidance, where we think that in a very short period of time, we're gonna be growing new restaurants at 12%-15%. We think that we can generate cash-on-cash returns of 28%-31% on a like-for-like basis. If you think about how... You know, if you think about, do you build the restaurant yourself? Do you lease it? That's financing. The actual return on our investment is the best in the industry. So I'd love for you to take that away. Please enjoy yourselves. Right, Barb, we're off to Allen. Ask us questions.
You know, I wanted you to hear more from the team than just from me, 'cause they're the ones doing all the heavy lifting. And so please ask questions, engage, and have fun. Thank you.
Thank you, Michael. Thank you. To those on the webcast who submitted questions, much like we do at the annual shareholder meeting, we will address those questions after the event and publish the answers on our website. This concludes the webcasted portion of the event. Thank you very much for joining, and for those of you who are with us, we are going to be gathering in the lobby. So if you are planning to take the bus to the airport, take your things with you. We will leave them on the bus. If not, you know, you are welcome to leave at any point throughout the way, you know, on your own, right?
We plan to get going by about 10:45, so if you need to gather your things, go ahead and do that, and then just meet in the lobby. We'll gather there, and then we'll all board the bus together. If anyone has any questions, you know where to find me. Thank you all for coming today.