Potbelly Sandwich Works, Inc

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Potbelly Sandwich Works, Inc.

222 Merchandise Mart Plaza, Suite 2
Chicago, Illinois 60654-1172
Telephone: (312) 951-0600
Fax: (312) 951-0300
Web site: http://www.potbelly.com

Private Company
Employees: 450
Sales: $150 million (2006 est.)
NAIC: 722211 Limited-Service Restaurants

Potbelly Sandwich Works, Inc., is not a fast-food sandwich shop. Instead, it has a homey feel; its earliest location was full of dark wood and antiques. While newer shops may not have the exact ambience of the original, located within an antiques store in a suburb of Chicago, Potbelly maintains its distance from Formica and stainless steel. Backed by such corporate heavy hitters as Starbucks' Howard Schultz and Chicago financier Sam Zell, Potbelly is poised to take on major rivals Panera Bread and the Illinois-based Jimmy John's Gourmet Sub Shops. Potbelly, however, serves up more than a variety of inexpensive sandwiches, soups, smoothies, and desserts; it provides its customers with an eclectic atmosphere and live music to boot.


The original "Potbelly" began as a sandwich counter in the corner of an antiques store on North Lincoln Avenue in Lincoln Park, Illinois. The store, opened in 1971, featured a variety of antiques and an old cast-iron potbelly stove, which became the inspiration for the future sandwich chain. Potbelly was owned and operated by Peter Hastings who augmented his antiques business by selling cheap, freshly-made subs on Italian bread, toasted on the aforementioned potbelly stove. The sandwiches grew in popularity until the antiques were scaled back to make room for more tables and chairs. The quirky setting, complete with struggling neighborhood musicians providing background music, thrived for years, gaining praise throughout Lincoln Park and beyond.

Eventually, the popularity of Potbelly's sandwiches completely overshadowed the antiques. Hastings renamed his business Potbelly in 1977, and kept just enough of his antiques to enhance the shop's homey atmosphere. The newly christened shop continued to do well throughout the 1980s and into the 1990s. Local entrepreneur Bryant Keil had heard about Potbelly and tried one of the sandwiches himself in February 1995. Keil, too, was intrigued by Potbelly, but only after having his sandwich toasted. He had declined to have his first sandwich heated and it was just a sandwich; when he went a second time and ate the toasted versionhe was hooked.

Keil marveled not only at Potbelly's deliciously inexpensive sandwiches, but at the shop's long lines. He met Hastings and asked if he had another location or plans to open one. The two began discussing Potbelly's future in earnest and had hammered out the details by the following March. Keil bought Potbelly Sandwich Works in 1996 for $1.7 million with big plans for its future.

Keil was no stranger to Chicago or business ingenuity. As a youngster in the western suburb of Hinsdale, he turned childhood chores such as shoveling snow and cutting grass into a small but successful enterprise. After his family relocated, he graduated from high school and studied at both Cornell University and American University. He returned to Chicago and worked in the foodservice industry with stints at Vie de France, Boston Market, and Oberweis Dairy before opening Café on Grand with his wife, Pam. After selling the café several years later, Keil founded Room Service Deliveries, providing dishes from dozens of Chicago's finest eateries to homes, offices, and companies downtown and in the suburbs.

1997 TO 2000

After buying Potbelly, Keil learned every aspect of his budding sandwich business. He put together a how-to manual for employees, believing his staff was as important as the fresh ingredients that went into Potbelly's famous toasted sandwiches. In addition to people and product, Keil considered customer satisfaction as another key to building business, to exceed customer expectations and keep them coming back. Since Potbelly already had a loyal client base and a successful product, Keil decided to slowly expand Potbelly's offerings to include homemade soup, desserts, and smoothies. Potbelly also delivered its sandwiches and soups, a portion of the business Keil hoped to expand.

As Potbelly continued to thrive, Keil scouted locations beyond Lincoln Park and talked to possible investors about Potbelly's expansion, though only as company owned and operated shops and not franchises. The second Potbelly opened in downtown Chicago in 1997, followed by another location the next year. Each unit was an average of 2,200 square feet, financed by Keil himself. The heart of each operation was the sandwich assembly line, where employees quickly assembled the inexpensive, made-to-order sandwiches while customers waited.

Within three years there were four Potbelly shops in and around Chicago, another in the works for Midway Airport, as well as a fifth location on the drawing board. In 1999 Keil sold Room Service Deliveries to finance Potbelly's expansion plans. Fortunately for Keil, most new shops quickly earned a following and were able to bring in sales of around $1 million each, beating many of their fast-food rivals in unit sales. Keil's workforce had grown to include over 120 people (from 18 to 20 at each location), all loyal to the brand and trained to give customers not only a great sandwich but superb service for under $4.

Keil began planning Potbelly's first foray outside Illinois in 2000 and considered taking his sandwich concept out west to California and east to Washington, D.C. The latter choice was simple since Keil had lived there. He initially planned three Potbelly shops for the greater D.C. area, much like in Chicago, not necessarily in the city itself but in its surrounding suburbs.

Keil was confident Potbelly would carve a niche for itself in D.C. and elsewhere because it was unlike other sandwich shops and did not have a fast-food atmosphere. He told Lisa Bertagnoli of Chain Leader magazine (September 2000), "The stores look nothing like fast food," because of what he characterized as Potbelly's "fun, funky" and "Formica-free" settings. "They're like the neighborhood corner store." Keil's words echoed both Potbelly's past and its future: it was crucial to maintain the charm and ambiance of the original Potbelly, wherever the chain expanded.


Potbelly Sandwich Works is a unique neighborhood sandwich joint with toasty-warm, made-to-order sandwiches and extra-thick, hand-dipped shakes; refreshingly quick service; and a genuine fun-filled atmosphere, complete with live music. Just step in and you're greeted with the smell of fresh baked bread, melted cheese and homemade oatmeal chocolate chip cookies. You're surrounded by a comfortable, funky atmosphere that invites you to relax and stay awhile. While all stores are unique, each holds the same charm, complete with a potbelly stove surrounded by vintage signs, old photographs, delightfully mismatched furniture and old books to browse, borrow or steal. The air is filled with the sounds of live local musicians, the whirl of the old-fashioned malt mixer and the enthusiastic chatter of staff and customers alike.


Keil hoped to take Potbelly national in the early part of the new century, and to do so he had to raise some serious capital. Several firms joined his quest in late 2001, bringing a total of $11 million in private equity into the fold. William Blair & Company, Waveland Investments, and Oxford Capital Partners, Inc. all contributed funds, as well as a lesser known venture capital firm, Maveron LLC. Maveron, based in Seattle, Washington, was headed by Howard Schultz and Dan Levitan, the men behind the staggering success of the Starbucks Corporation. For their investment, principals from each venture firm gained a seat on Potbelly's board of directors alongside Keil.

By the end of 2001 there were eight Potbellys in the Chicagoland area, four more scheduled to open soon, and Keil was ready to take the sandwich chain outside Illinois. Three leases had been secured in the Washington, D.C., area (including one in Arlington, Virginia, and another in nearby Rockville, Maryland) and plans were progressing for several Midwestern states as well. Revenues for Potbelly were steadily growing, reaching a reported $15 million for the year. In an interview with Crain's Chicago Business (November 19, 2001), Keil expressed lofty goals, hoping to have 500 Potbelly locations throughout the country within five years.

Potbelly reigned supreme in 2002 with 11 locations in and around Chicago, each one ringing up as much as $1.3 million per unit and climbing. By the following year, 2003, there were 30 Potbelly restaurants in Illinois, Washington, D.C. (including units in neighboring Virginia and Maryland), and newcomer Michigan. Sales were reportedly $40 million for the year, due in part to the hiring of Peter Tolan, who had gained fame with the Ben and Jerry's ice cream brand, and signing the Chicago-based PR21 to spearhead marketing and publicity campaigns.

By 2004 Potbellys were popping up in Illinois, Indiana, Michigan, Wisconsin, Washington, D.C., and the Lone Star state. Keil had toured Texas and decided to take the Dallas metropolitan area by storm. The first shop opened in June, followed quickly by two others as Texans flocked to the state's newest sandwich sensation. Back in the Midwest, Keil and his growing management team were trying different products at select locations. The Midway Airport Potbelly, opened in 2001, had previously been the only unit to serve coffee (Starbucks), but two other Chicago units put java on the menu and began serving breakfast items, while salads were under consideration as well. Sales for 2004 had risen to a reported $64 million.


Paramount to Potbelly's continuing success was Keil's presence; he traveled from store to store in the Chicago-land area, helping out during busy times, chatting up customers, training employees, and always looking for ways to improve the business. It was not Potbelly's folksy feel, however, that gained the attention of Wall Street. The chain was frequently the object of speculation, as Keil was asked time and again if he had plans to go public. He denied any such timetable, but made several moves in 2005 to position the company for a possible trading debut. William Moreton, former chief executive of Baja Fresh, was hired as Potbelly's new president and chief financial officer, while John Bettin, of Morton's Steakhouse, joined Potbelly as senior vice president and chief operations officer.

By 2006 Potbelly had grown to more than 110 outlets and estimated sales of $150 million. While Potbelly could not compete with the size of Subway, which controlled a third of the nationwide sandwich market, the small chain continued to grow in both stature and sales by carving its own niche in the foodservice industry. To keep its competitive edge and fund further expansion, Keil and Potbelly's board secured a new round of private financing in the summer of 2006. Though the move temporarily stayed rumors of an impending public offering, Potbelly's future was wide open.

Nelson Rhodes


The future Potbelly opens as a sandwich bar in an antiques shop.
Entrepreneur Bryant Keil acquires Potbelly Sandwich Works.
The second Potbelly Sandwich Works opens in downtown Chicago.
Keil secures $11 million in venture capital to grow Potbelly.
Potbelly shops open in the Washington, D.C., area.
Potbelly ventures into Dallas, Texas.
Rumors swirl of a possible public offering as Potbelly surpasses 100 locations nationwide.


Doctor's Associates Inc. (Subway); Jimmy John's Gourmet Sub Shops; Kahala Corporation; Panera Bread Company; Quizno's Corporation.


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Bertagnoli, Lisa, "Bellying Up," Chain Leader, September 2000, p. 24.

Chamis, Eleni, "Chicago Chain to Open 10 Local Eateries," Washington Business Journal, January 26, 2001, p. 7.

Greenfield, Jimmy, "Mr. Potbelly," Chicago Tribune, March 15, 2006, p. 10.

Jargon, Julie, "Drowning in Subs," Crain's Chicago Business, September 20, 2004, p. 3.

, "Potbelly Prepares to Open Wide," Crain's Chicago Business, January 17, 2005, p. 1.

Kelly, John, "Sandwiches with a Side of Song," Washington Post, January 24, 2006, p. C10.

Littman, Margaret, "Fire in the Belly," Chain Leader, March 2002, p. 71.

Meyer, Ann, "Potbelly's Leader: People Stoke Growth," Chicago Tribune, May 9, 2005, p. 3.

Meyer, Gregory, "Potbelly Aims to Expand but Retain Character," Crain's Chicago Business, July 10, 2006, p. 6.

Ruggless, Ron, "Potbelly Sandwiches in Another Store Location for Dallas," Nation's Restaurant News, October 18, 2004, p. 8.

Sachdev, Ammet, "Old-Style Décor," Chicago Tribune, February 14, 2001, p. 1.

Sheridan, Margaret, "Developing a Potbelly," Restaurants & Institutions, November 1, 2000, p. 93.

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