El Pollo Loco Holdings (LOCO) Q4 2019 Earnings Call Transcript

El Pollo Loco Holdings (LOCO 5.83%)
Q4 2019 Earnings Call
Mar 05, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to El Pollo Loco's fourth-quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

[Operator instructions] Please note this conference is being recorded. I will now turn the conference over to Mr. Larry Roberts, CFO. Mr.

Roberts, you may begin.

Larry Roberts -- Chief Financial Officer

Thank you, operator, and good afternoon. By now, everyone should have access to our fourth-quarter 2019 earnings release. If not, it can be found at www.elpolloloco.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements, including statements related to our key initiatives for 2020 and beyond, plan for new store openings, and our financial outlook for 2020.

These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We expect to file our 10-K for 2019 tomorrow, and we encourage you to review the document at your earliest convenience.

During today's call, we will discuss non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. And reconciliations to comparable GAAP measures are available in our earnings release. I now like to turn the call over to president and chief executive officer, Bernard Acoca.

Bernard Acoca -- President and Chief Executive Officer

Thanks, Larry. Good afternoon, everyone, and thank you all for joining us today. We ended 2019 on a strong note, with our highest systemwide comparable restaurant sales growth result of the year at 3.9% for the quarter. Not only did this mark our sixth consecutive quarter of positive systemwide comparable restaurant sales growth, but it was also achieved against the tough industry backdrop and a challenging 4.4% sales comparison from 2018.

The successful lapping of these compares generated an impressive two-year system comp of 8.3%, which is the best we've had in four years. The results generated in the quarter, also helped propel our 2019 full-year systemwide comparable restaurant sales growth to its highest level since 2015. I'm proud of these results and even more so of the fact that the comp sales in the quarter were driven predominantly by traffic. Before discussing our key initiatives for 2020, I'd like to provide a little more detail on our successes in the fourth quarter of 2019.

Sales growth across the month was relatively consistent despite more difficult rollovers in November and December. We are pleased to report that this momentum has continued into 2020, which we believe is attributable to our differentiated LA-Mex culinary innovation, expansion of our delivery capability, sustainment of our $5 value platform, the diversification of our media strategy, strengthening operations, and the ongoing success of our Transformation Agenda. The fourth quarter was predominantly focused on our Holiday promotion. The holidays are a season we believe we are uniquely qualified to be associated with and own at El Pollo Loco.

To achieve this, we approach this year's Holiday promotion very differently from years past. Holiday 2019 was designed to create a seasonal experience for our customers as much as it was intended to deliver holiday relevant food they look forward to all year and love. For the first time ever, our restaurants turned red and we're enveloped in holiday-centric merchandizing and packaging. Our menu-boards, cups, sides packaging, and point-of-sale materials all evoke the festive spirit of the holidays.

The music played in our restaurants was a curated list of both holiday classics and Latin favorites. And an array of six beautifully designed gift cards were produced to capitalize on the gifting season. And we complemented these physical gift cards with the same array of e-gift-cards, which we offered for the first time online. Against this backdrop, we were proud to bring back, with the new innovative spin, our beloved handmade chicken tamales, which we paired with different items in our unique holiday tamale bowl.

This year, we expanded our portfolio of seasonal favorites by introducing a pozole verde soup, a Mexican staple for the holidays, and our new signature, Mexican hot chocolate, made with Abuelita chocolate. We believe this comprehensive approach to the holidays made them even more special for our customers and employees alike, and we look forward to building upon this tradition in the years to come. As we look to transition our business away from overreliance on limited time offerings, to investing in more evergreen platform, we sustained our very successful $5 Fire-Grilled Combos value lineup, which we introduced at the beginning of September and continue to promote throughout Q4. Based on its strong mix and popular following, we have continued to make it available in our restaurant and will promote it for the duration of 2020.

Also, in September, we expanded our third-party marketplace delivery portfolio, by adding Uber Eats and Postmates, which contributed to positive transaction and sales during the fourth quarter. The addition of these third-party delivery providers and the execution of our bifurcated menu strategy where we focus on a curated delivery menu, emphasizing family meals and combos, drove systemwide delivery mix of approximately 3% in the quarter. Moreover, we recently added Grubhub to our portfolio, making it the fourth marketplace on which our customers can access our food for delivery. During the fourth quarter, we continue to make excellent progress against our operation strategy.

Highlights included completing the implementation of our new automated inventory management system, the company-operated restaurants, as well as the systemwide rollout of our new streamlined operations manual, and our simplified chicken cooking process. We are confident that these efforts to reduce back-of-house complexity will drive sales over the longer term as more time is freed up for our employees to engage with our customers. In fact, research data by NPD Group, an independent market research company, indicates that we continue to make significant progress in improving our restaurant operation. While our food satisfaction scores continue to far exceed those of our QSR and even fast casual competitors, according to NPD Group, our service scores were the best they have been in several years and are now well above both the QSR and fast casual averages.

Great food and improved service resulted in improved value scores, which we believe are reflected in our sales reports. Looking ahead to 2020, we will continue to execute against our transformation agenda, which as you'll recall, is based on four strategic pillars: one, develop a people-first culture to invest in and grow our talent; two, differentiate the brand to accentuate our strengths and build upon them; three, simplify operations, make it easier to be a franchisee and employee at El Pollo Loco; and four, grow the business responsibly and profitably for the long-term. In 2020, we will continue to make investments in our culture centered around our mission, which is to feed the love that makes us all feel like family and focus on employee recognition and community involvement or what we refer to as heart-centered leadership. We believe that creating a mission-led culture will result in a more meaningful and uplifting work experience for our employees, which in turn, will lead the better engagement and connection with our customers.

This year, we will continue to build upon our culture-defining initiatives started in 2019, which includes the implementation of a food donation program systemwide that gives leftover food at the end of every evening to local shelters. The donation of 75,000 tacos to homeless shelters in our communities through our National Taco Day, by one, feed many initiative, and our Day of Service, when 500 support center employees, restaurant general managers, franchisees and customer volunteers came together to beautify historic Theodore Roosevelt High School in East Los Angeles in honor of Cesar Chavez Day last April. A major highlight this year will be our August restaurant General Manager Conference, at which time we will celebrate our success, recognize top-performing employees and provide leadership training to company and franchised restaurant leaders. It will be our first restaurant General Manager Conference in 10 years.

In 2020, we will continue to differentiate our brand, and we believe that culinary innovation is our biggest opportunity to sustain and accelerate our momentum. Our emphasis will be on meaningful innovation that reinforces our LA-Mex positioning, which combines the culinary traditions of Mexico with the healthier lifestyle of Los Angeles. We believe that our El Pollo Loco can democratize better-for-you eating in a way that no other brand can. And you will see a greater number of healthier options in the coming months based on our customers' diverse lifestyle.

We have built a robust product pipeline and are excited about the new products we will showcase this year. Each of our marketing modules during 2020 will pivot away from focusing on a singular limited time offer, our approach of the past, to showcasing one or two truly innovative product platforms. Some products are designed to drive increased frequency among our core customers, while others are intended to recruit new users to our brand, particularly younger consumers. We call this approach, casting a wider net.

Our first promotion of this year, in which we highlighted our Pollo Fit Bowls as well as our Whole-Cut Wings is the perfect example of this approach. Our Pollo Fit Bowls delicious, better-for-you bowls made with locally sourced organic spinach that helped are more health-minded customers keep their New Year's resolutions. Two of the bowls are Keto-certified and the others, pale- friendly. These bowls deliver on taste, freshness and high-quality ingredients, targeting a younger more health-conscious consumer.

At the same time, we introduced our citrus-marinated whole-cut wings coated in either sweet tapatio sauce or a garlic croute dry rub. These delicious wings were geared toward our core Hispanic customers. We believe this two-pronged approach enables us to cast a wider net and can attract more new users to our brand while, at the same time, driving increased visit frequency from our core users. When combined with the sustainment of certain evergreen platforms, like our $5 Fire-Grilled Combos, we believe we can successfully reach multiple customer constituencies in a way that makes our brand more broadly appealing.

In addition to a focus on product innovation, during 2020, we will continue to evolve our go-to-market model, expanding our social media and digital presence with special emphasis on ramping up our loyalty program. Late last year, we added marketing resources specifically focused on social and digital media, delivery, and loyalty. For context, one year ago, 98% of our media spend was focused on television and print. This year, 60% of our media buy is focused on television and print, 20% on digital, 10% on radio, and 10% on out-of-home.

Our more diversified media approach is another way we cast a wider net, reaching more customers more often than before. As we've previously discussed, we believe that we have a huge opportunity to both increase loyalty program membership and drive incremental sales through highly segmented relevant campaign. Our goal is to make our loyalty program, local rewards, the cornerstone of our digital flywheel. While we have over 1.7 million loyalty members, up until now, we have done little to engage them on a sustained and meaningful basis.

We plan to change that in 2020. We just completed the behavioral segmentation of our entire loyalty database and are moving from a one to mass approach to a much more targeted personalized way to drive incremental sales and visits with our customers. The program, which currently represents 9.5% of our sales mix, will be completely relaunched in the third quarter of this year to further accelerate its growth and impact to our business. As part of this program relaunch, we've identified opportunities to attract new members and drive increased frequency by lowering the reward redemption threshold.

Currently, members get a $10 gift card for every $100 spent. This will become a $5 gift card for every $50 spent. By reducing the time it takes to redeem loyalty points, we believe we will attract more new members, incent more members to remain in the program and drive greater purchase frequency. Our team has done an incredible job in very short order, eliminating some of the friction points in this program.

We have developed this detailed roadmap for the balance of the year, and are extremely excited by the potential this program holds for our business. Our goal by the end of 2020 is for loyalty to comprise 12.5% of sales and become a more meaningful contributor of comp sales. As I mentioned earlier, we credit our transformation agenda with laying the ground work for our accelerating comparable sales performance. Simplifying operations has been a key pillar of our transformation agenda, and we are very pleased by the progress we've made in making it easier to be an El Pollo Loco employee and franchisees.

This is evidenced by the reduction and year-over-year turnover for 2019, which we experienced with every restaurant position across the board. Overall, management turnover is down three percentage points over 2018. And overall crew turnover is down 15 percentage points. This puts us 13 percentage points below the industry average, with management, and 39 percentage points below the industry average with crew.

In the fourth quarter, we began the process of reviewing labor deployment and formerly clarifying roles and responsibilities for each of our employees. This ensures the best utilization of labor, especially during peak sales period since each employee knows exactly what is expected of him or her in the restaurant. We are also rolling out a new cleaning system in the first quarter, which includes revamped processes, new tools, and cleaners. This new cleaning system works hand-in-hand with the clarified roles and responsibilities to determine exactly who is responsible for specific job on a daily, weekly, and monthly basis.

And there is a simple card system to ensure that cleaning tasks are completed. In addition to these, we continue to look at equipment, back-of-house technologies, and further process improvements. As with the previous operational improvement, these initiatives should not only drive lower turnover for both crew and management, but we also believe, they will have a positive impact on the customer experience. While there's still a lot of work to be done on this front in 2020, we're proud of the enhancements to operations we've made thus far and are thrilled with the resulting positive impact on the customer experience.

Finally, work on our new restaurant of the future design continues to progress well, and we are very excited by what it can do for our brand. We expect to complete three or four new image remodels by mid-year. If all goes as expected, all new builds and remodels will use the new design starting the second half of this year. Before I turn the call over to Larry, as always, I would like to emphasize that these results are only possible due to the hard work and dedication of our employees and our franchisee partners. They are the living embodiment of the El Pollo Loco brand, and our successes are directly attributable to them.

I'd like to thank them for the daily sacrifices they make to create memorable brand experiences with their fellow employees and customers. I'll now hand the call over to Larry to review our fourth-quarter results in detail.

Larry Roberts -- Chief Financial Officer

Thanks, Bernard. Before we get into our fourth-quarter results, I'd first like to provide update on our store development. During the quarter, we opened one new company-operated restaurant in Los Angeles. For the full year 2019, we opened two company-operated restaurants along with two franchised restaurants.

Looking ahead to 2020, we expect to open three to four company-operated and five to eight franchised restaurants. We have shifted gears somewhat and now expect to enter our next new markets with franchise development as opposed to company-operated restaurants. Consequently, we don't have as much control over the timing. And while we are currently in active negotiation for new territories, the new market entry may flip into 2021.

We continue to make progress on our remodel efforts. During the quarter, we completed two company-operated restaurant remodels. I'm pleased to report that our new asset design work is nearly complete. During the first half of 2020, we expect to remodel three to four stores using new design, which will then be used for all new builds in our next round of remodels beginning in the back half of the year.

Over the next several years, the company and franchisees are required to remodel over 300 restaurants, and we are very excited by the impact these will have using our new asset design, which better exemplifies and communicate our LA-Mex positioning. Now onto our financial results. For the fourth quarter ended, December 25, 2019, total revenue was $107.5 million as compared to $106.3 million in the fourth quarter of 2019. Company-operated restaurant revenue increased slightly to $94.8 million compared to $94.6 million in the same period last year.

The slight increase in company-operated restaurant sales was driven by strong company-operated comparable restaurant sales growth of 4.3% as well as by the contribution from the four new restaurants opened during and subsequent to the fourth quarter of 2018. This increase was partially offset by the sale of 16 company-operated restaurants to franchisees during 2019 and the closure of five restaurants during and subsequent to the fourth quarter of 2018. The increase and company-operated comparable restaurant sales was comprised of a 2.5% increase in transaction and a 1.8% increase in average checks. As Bernard noted, we're pleased with the consistency of sales growth throughout the quarter as well as with our current first-quarter momentum.

Franchise revenue increased 11.4% in the fourth quarter to $7.2 million compared to $6.4 million in the prior-year period. The increase was driven by 3.6% increase in comparable restaurant sales, the transfer of the 16 company-operated restaurants to franchisees, as mentioned earlier, and the contribution from four new franchised restaurants opened during and subsequent to the fourth quarter of 2018. The increase was partially offset by four restaurant closures during the same period. Turning to expenses.

Food and paper costs, as a percentage of the company-restaurant sales, decreased 20 basis points year-over-year to 28.2%. The improvement was predominantly due to higher menu prices, which were partially offset by higher weight and unfavorable sales mix as a result of our holiday promotional calendar. For 2020, we expect commodity inflation of approximately 1% to 2%. Labor and related expenses as a percentage of company restaurant sales increased 80 basis points year-over-year to 30.1%.

The increase of labor expenses was due primarily to: higher hourly wage of California, especially Los Angeles; higher workers' compensation expense; and lapping the reversal of an accrual for federal unemployment taxes in the fourth quarter of 2018. These are partially offset by increased menu prices and the transfer of lower-performing restaurants to franchisees during 2019. We continue to expect labor inflation at 6% to 6.5% in 2020, reflecting the tight labor market and minimum wage increases. Occupancy and other operating expenses as percentage of company restaurant sales decreased 50 basis points year over year to 23.1%, as higher prices, lower advertising costs and the sale of our claim to proceeds of Visa Mastercard interchange fee class action lawsuit offset increases in occupancy costs and marketplace delivery fees.

General and administrative expenses decreased by $2.2 million year over year to $10.2 million or approximately 230 basis points to 9.4% of total revenue. Included in G&A are approximately $370,000 of legal expenses associated with securities litigation compared to approximately $3 million of securities litigation, legal expenses and executive transition costs incurred in the fourth quarter of 2018. Excluding the costs associated with securities litigation and executive transition costs, G&A expenses in the fourth quarter of 2019 were $9.8 million, compared to $9.4 million in 2018, an increase of approximately $413,000 year over year or approximately 30 basis points to 9.1% of total revenue. The increase in G&A expenses was primarily due to higher stock option expense, and increase in project spending and our year-end bonus accrual.

Depreciation and amortization expense decreased to $4.3 million from $4.8 million in the fourth quarter of last year or 50 basis points year over year as a percentage of company revenue, primarily as a result of the sale of restaurant to franchisee. As a reminder, during last year's fourth quarter, we incurred a total of $36.3 million of pre-tax expense related to two agreements in principle to settle several class action lawsuits. The settlement agreement and associated legal expenses have been adjusted out of our pro forma net income calculation. Additionally, in last year's fourth quarter, we received $2.3 million related to the reimbursement of legal costs associated with the legal class action lawsuits.

We recorded a provision for income taxes of $728,000 in the fourth quarter of 2019 for an effective tax rate of 17.2%. This compares to an income tax benefit of $8.4 million and an effective tax rate of 26.4% in the prior-year fourth quarter. We reported GAAP net income of $3.5 million or $0.10 per diluted share in the fourth quarter, compared to a net loss of $23.4 million or $0.60 per diluted share in the prior-year period. Pro forma net income for the quarter was $6.2 million as compared to pro forma net income of $6.1 million in the fourth quarter of last year.

Pro forma diluted earnings per share were $0.18 for the fourth quarter of 2019, compared to $0.16 in the prior-year period. For reconciliation of pro forma net income and earnings per share to the comparable GAAP measures, please refer to our earnings release available in the Investor Relations section of our website. In terms of our liquidity and balance sheet, we had $8.1 million in cash and equivalents as of December 25, 2019, and $97 million in debt outstanding. For the foreseeable future, we expect to finance our operations, including new restaurant developments and maintenance capital, through available cash, cash from operations, and borrowings under our credit facility.

For 2020, we expect our capital expenditures to total $20 million to $25 million. During the quarter, we've purchased 10,872 shares for approximately $118,000 or an average price of $10.89, excluding brokerage fees. These purchases completed our $30 million 2019 stock repurchase plan. Turning to our outlook, we are providing the following guidance for 2020, which is a 53-week fiscal year.

We expect pro forma diluted net income per share of $0.75 to $0.80. Our pro forma net income per share guidance for 2020 is based in part on the following annual assumptions. We expect systemwide comparable restaurant sales growth to be approximately 2% to 4%. As I noted, we expect to open three to four new company-owned restaurants and expect our franchisees to open five to eight new restaurants.We expect restaurant contribution margin of between 18% and 18.7%.

We expect G&A expenses of between 8.5% and 8.8% of total revenue, excluding legal fees related to securities class action litigation. We expect adjusted EBITDA of between $61 million and $64 million. And we're using a pro forma income tax rate of 26.5%. This concludes our prepared remarks.

We'd like to thank you again for joining us on the call today, and we are now happy to answer any questions that you may have.

Questions & Answers:

Operator

Thank you. At this time, we will be conducting a question-and-answer session. [Operator instructions] Thank you. The first question is coming from the line of Jake Bartlett with SunTrust.

Please proceed with your question.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks for taking the question. Yeah, my first is really on the 800 pound of virus in the room. And the question is whether your guidance for 2020 for same-store sales is contemplating much of an impact from the coronavirus and the kind of the spread and the concern about it from consumers.

But also whether – what you're seeing now, I think investors would be curious to see what the near-term experience has been, especially as your – you have a fairly dense concentration in the LA market?

Bernard Acoca -- President and Chief Executive Officer

Yeah, Jake. So our guidance does not include any impact from the coronavirus. We've left that out of our guidance. I'd also highlight that even as of up to the day, we have not seen any impact on our sales or transactions in our restaurants.

So again, no impact that we've seen yet in our restaurants, and our guidance does not include anything on the coronavirus.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

OK. Then that's really helpful. And then, on the comments about the momentum into 2020. I know weather was a bit difficult early part of the first quarter last year.

Can you provide some just context as to maybe quantify where you stand right now quarter to date, and maybe what you were comparing against, so we can get a better sense of that momentum?

Bernard Acoca -- President and Chief Executive Officer

Yeah. So, again, quarter to date, we feel really good about the momentum we have in the business. I'd highlight that we are continually positive in transactions this quarter. So, we feel good.

I don't want to get into any more detail than that. But I would say, last year, the impact of the weather was somewhere probably around 50 to 100 basis points as of now. That would decline as we move through the quarter because March -- the weather last year was good. But the overall quarter impact will decline.

I'd also highlight that while we did have that kind of weather upside this year that, even now in the business, we're seeing the good levels of momentum. And now we're lapping good weather versus good weather last year.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Got it. And then, last question is really on menu pricing and then the impact on margin. So if you could – I know you gave us what the check was in the fourth quarter. If you could break out what the menu pricing was in the fourth quarter, and then also what you expect for menu pricing in 2020.

Bernard Acoca -- President and Chief Executive Officer

Yeah. So the fourth quarter, we had pricing of around 3.7% on our business. And as we head into 2020, obviously, it could vary as we work through the year. But right now, the target, it will be somewhere around 3.5%.

That could go up or down depending on how we see the reaction. We just took pricing up about 1.8% just a couple of weeks ago. So, we'll see what the reaction is to that. The other thing I'd highlight is we actually could lean in a little bit on pricing depending on what we see, because as we look at the last round of pricing we took, which is November last year, which is about 0.8%, and looking at our value scores through the fourth quarter of last year, we actually saw an important in value.

And I think that's all that has to do with service and probably the menu offerings. So again, we'll assess where we are right now. Targeting around 3.5%. It could go up or down depending on the reaction of what we see from consumers, but feeling good about where our value scores are.

And the fact – despite the fact that we took probably somewhere around 3.5% of pricing last year, still the value scores are strong. It actually improves a little bit in the fourth quarter.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great.

Larry Roberts -- Chief Financial Officer

And the transactions.

Bernard Acoca -- President and Chief Executive Officer

And the transactions stayed positive, yeah.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. Thank you very much.

Operator

The next question is from the line of Matthew DiFrisco with Guggenheim. Please proceed with your question.

Matthew DiFrisco -- Guggenheim Partners -- Analyst

Thank you very much, guys. Just a question. I think you talked a little bit there about -- and you threw out a number there about 300 in the remodels, can you go over that a little bit as far as the timeline of that. And then, if you look at sort of almost 500 stores in the system, two -- or nearly 300 franchise, 200 companies, how should we think about 300 breaking out? Is it assumed that company is going to lead? And then maybe so the majority of your company, so two-thirds of that 300 is going to be company, and then maybe the remainder is going to be franchised and you expect the rest of the franchise to follow? How should we think about that?

Larry Roberts -- Chief Financial Officer

Yeah, Matt. It's early days and the thing I would say is, is that based on last – we have a seven-year remodel cycle. And we actually finished that cycle really last year. So, we are now at the point where we're starting it overdue on remodels.

Now, we've told everybody to hold of,f including ourselves until we work through the new asset design. And yeah, once we worked that through the first-half of this year and then start building more remodels second half of this year, then we'll start ramping up the program. And so, I think, from there, it will be fairly even over the next several years. And probably, I would expect a 60-40 split franchise company.

I think it's going to be fairly even. Everybody has remodels due. And as an obligation in our franchise agreement. And we think with the options we'll be providing with the new asset design that people will want to sign up for them.

Bernard Acoca -- President and Chief Executive Officer

Yeah, I also want to provide a little strategic context for really where we are in the journey in regards to the new restaurant design. So quite -- ironically or coincidentally, we're really at the two-year mark of our transformation agenda, which we've always said is a three-year transformation. And what we've managed, I think, over the course of the past two years, to successfully demonstrate, is the consistency and comparable restaurant sales, which now we've indicated we're six consecutive quarters of that, the improvement in the simplification of our operations. And again, the back half of 2019, certainly with increasing strength in the fourth quarter, demonstrated that our operations are improving and continue to improve.

And that has resulted in a much stronger value proposition for the consumer, which makes us feel a bit confident that should this continue. We can command a bit more pricing power. And now, we find ourselves as we're about to embark in year three, at a really exciting juncture in the company history because we have all these remodels in front of us. And the thing that has, quite frankly, been holding the brand back a bit, if you take a look at again independent research is our environment scores.

So, the ability to remodel these stores over the course of the new few years, we'll take that anchor off our necks, if you will, modernize the brand. And I think at that point, we'll have all guns blazing in terms of how we want to present ourselves to the world and the potential upside that can present.

Matthew DiFrisco -- Guggenheim Partners -- Analyst

Excellent. I appreciate that color. Just then the last point, you mentioned also that the new market is probably going to be more timelined around 2021 and that's going to be a franchise risk company market. So your 2020 development plan of three to four company and five to eight franchise, I'd assume -- is it correct then to assume that 2021 and beyond with that new market being a franchise market that, in theory, you would grow more franchise stores, maybe three to four company, but maybe that five to eight goes higher? So your percentage of future growth is going to be even more skewed toward franchise than what your current store base is?

Larry Roberts -- Chief Financial Officer

Yeah. That would be the correct assumption.

Matthew DiFrisco -- Guggenheim Partners -- Analyst

Excellent. Thank you so much.

Operator

Our next question is from the line of David Tarantino with Robert W. Baird. Please proceed with your question.

David Tarantino -- Robert W. Baird and Company -- Analyst

Hi. Good afternoon, and congrats on a strong finish to 2019. It sounds like a good start to this year. So, my question is a follow-up on the unit growth.

And I think, you've mentioned that you've now pivoted to focusing on franchisees entering the new market instead of company. And I was just wondering if you could talk about why you made that change. That's my first question.

Bernard Acoca -- President and Chief Executive Officer

Yeah. So, David. This is Bernard. I think for a few reasons.

One, we are right on track, where we expected to be with our new restaurant design of the future. And as we mentioned earlier, we are also on track to start building that new design in our core market of Los Angeles in a few different formats here. And what we really wanted to do is to vet that out. We're very, very excited about what that new design holds for the brand and holds for the company.

But we want to test that out in a company environment first. See the returns that that new asset can bring us. And then once we do that and start to build that out in the core market and prove the model out, then unleash it, if you will, in new markets with franchisees, local franchisees, who we believe, quite frankly, know their local markets better, can take full advantage of this proven asset that we'll be building in the second half of this year, and can probably gain greater traction in speed with that model on a go forward basis. So those are primary reasons for the change.

David Tarantino -- Robert W. Baird and Company -- Analyst

Great. And then, Bernard, maybe the second part of the question is just the overall interest you're seeing among franchisees to build new units. The five to eight would be a nice stepup from what you did in 2019, but just – if you could talk about the overall interest you're seeing among your existing base, and then also with potential new franchisees to enter these new markets at this point?

Bernard Acoca -- President and Chief Executive Officer

Yeah. Well, I think, we always have strong franchisee interest to build new stores, new restaurants. I think, we have kind of tempered that or held them back a bit with that because we've been playing catchup with this new restaurant design that we want to provide them to be able to open up these new restaurants at a greater pace. So that's really, you know, why I am so excited about what we have in front of us, certainly in the back of this year and beyond.

So in regards to franchisees wanting to open up with us in new markets, certainly, we're always in discussions with our franchisees to do that, but we are going to really start to more actively recruit new franchisees, bring some new franchisees into the system, which quite candidly, we haven't been very aggressive with over the past few years. And so, we've managed to successfully grow the brand with some very well-established, very, very talented, and -- franchisees that have been with us a long time; but we're in the process of actively recruiting new franchisees to coincide with the development of this new restaurant design in the future.

Larry Roberts -- Chief Financial Officer

Yeah. I'd just add that there are a few discussions going on right now, fairly preliminary, but there are discussions with franchisees -- our new franchisees in and -- at our markets.

David Tarantino -- Robert W. Baird and Company -- Analyst

Great. And then last question on this front. So, I think, last year – maybe first half of last year, you talked about a goal to get to 5% system unit growth. And I just wanted to confirm, is that still the plan? And then how long do you think it will take to adjust to that, if that is still the plan?

Larry Roberts -- Chief Financial Officer

That is still the goal. I think, as we talked about that ICR, realistically, we're probably looking two to three years out to be at that. Again, this year is a little bit of step up, we're going to put a lot of efforts around, as Bernard just highlighted, both in our current franchisees and recruiting new franchisees to get that ramped up. But we're probably two to three years out from getting to a 5% new build number.

David Tarantino -- Robert W. Baird and Company -- Analyst

Great. Thank you very much.

Larry Roberts -- Chief Financial Officer

Thanks.

Operator

Thank you. [Operator instructions] The next question is from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Sharon Zackfia -- William Blair & Company -- Analyst

Hi. Good afternoon. I was hoping to talk through average ticket, because I think you've had some negative mix there that's kind of blunted a little bit of the price flow-through. So, hoping you can give some color on if that's been really the value dynamic that you've been introducing to the menu and when we would expect that to kind of neutralize or maybe turn more positive in 2020? And kind of as a corollary to that, how you view balancing kind of premiumization versus value on the menu today.

Bernard Acoca -- President and Chief Executive Officer

Yeah. Sharon, this is Bernard. I'll let Larry go into a little bit more detail on some things, but I think, I just want to setup the strategy for you, because I think it's important for everyone to understand. So, our menu is evolving.

And you know, if I look back on 2019, you know, in full transparency, I'm not as happy as I would have liked to have been based on the products we had coming out of our pipeline. It took us a little bit of time to play catch-up. And now, as I mentioned earlier, I'm extremely excited about the robust product pipeline that we have that is fully consumer-vetted, that we are either have tested or in the process of testing, or will test shortly. And the reason why I bring that up is, in the past, there was a tremendous amount of reliance on a single LTO to carry today.

You know, our $5 Fire-Grilled Combos that we've launched in Q3 of last year is a pretty example of that. It was a one-trick pony. And we sustained it as a layer, a value layer, a permanent value layer in our business, because it got such strong traction. And quite frankly, we attributed it at that time and are still attributing a good portion of our positive transactions right now to that value platform.

Since then, we've managed to really ramp up the pipeline. You know, the first promotion of the year was a good example of that. We talked about our Pollo fit bowls and our wings. If you take a look at what's going on right now, where we launched our new Mix & Match street taco promotion, we've got a few things going on simultaneously that make us a very different brand than we were even a year ago.

You know, we've got a whole lineup, a whole platform of Street Tacos, seven tacos, whereas we were selling one before. We're simultaneously sustaining our value platform, our $5 Fire-Grilled Combos. We're out there with our $20 high-end family value meal or family dinner meal. So, what I have articulated ICR and at other occasions is that we do have a barbell strategy.

Our difference compared to everybody else is we have a 100-pound weight on the premium side of innovation and a 20-pound weight on the value side of things. And so, on a go-forward basis, we're always going to put more focus on the premium side than we are on the value side, although we recognize that value is important. The second thing you're going to see come from us, and you're seeing it right now, is a lot more health-focused products that, quite honestly, we're going to introduce at a pretty rapid clip. What's going on right now is a good example of that.

So, we introduced, for instance, the world's first Keto taco. That came on the heels of our promotion at the beginning of the year, where we had two pollo fit bowls that were keto-certified. We just were the first brand to introduce systemwide, first brand to introduce a meatless chicken alternative, our plant-based chicken-less pollo, which you can now get in both the taco and a burrito. And we've been quite pleased by the reaction we've gotten there.

And that's just the start. So, value is important. Yes, it did lead to a little bit of check degradation. We expect that to mitigate as the year progresses because we are going to have a lot more premium and varied offerings that will lessen our reliance on that value platform itself.

Although, we do recognize that we do have a segment of customers looking for value, which is why we've decided to keep it in. You have something else to add?

Larry Roberts -- Chief Financial Officer

No, I think you hit the nail on the head in terms of, you know, the check that. The mix decline was really driven by the $5 Combo menu, which basically we doubled the mix of that and it sustained very well. And it's been our highlight. I'd expect to see -- you know, the first half of the year, you're going to still see that, because we continue to talk about it.

It still continues to mix well. And then, I expect as we lap it the negative impact on check should decline back-half of the year.

Sharon Zackfia -- William Blair & Company -- Analyst

Yeah. Thank you very much.

Operator

Thank you. Our next question is coming from the line of Jake Bartlett with SunTrust. Please proceed with your question.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. I had a question on delivery. And I believe that you mentioned it was about 3% of mix in the quarter. And if you could remind us what it was in the fourth quarter last year, that'd be helpful.

I think it was under 1%. And in that context, how much of the delivery increase in sales has been incremental, do you think? How much do you think it's been – it contributed to the same-store sales in the quarter?

Bernard Acoca -- President and Chief Executive Officer

Yeah, so delivery mix a year ago, I think, was around 1%, if I'm not mistaken.

Larry Roberts -- Chief Financial Officer

It's slightly below.

Bernard Acoca -- President and Chief Executive Officer

It's slightly below 1%.

Larry Roberts -- Chief Financial Officer

Yeah, right.

Bernard Acoca -- President and Chief Executive Officer

So, yeah. We've grown it, we've grown it to 3%. We managed – we just added Grubhub about a week ago, so we expect that mix to continue to increase. To answer the other part of your question, how incremental is it, you know, that's always the tough question to answer.

You know, I think we're definitely seeing some incrementality for it -- from it we believe. But it's hard to really ascribe a specific number to it. I don't know, Larry, if you had anymore commentary there.

Larry Roberts -- Chief Financial Officer

Well, the other thing, I think the -- we talked a little bit about this on our last call, because we're talking about September a little bit last time, was the one thing we have seen is, as we've grown on the additional marketplace delivery providers, you know, fourth quarter we saw good transaction growth. Certainly, I think a chunk of that was attributed to the addition of the two more marketplace delivery providers. So, I think, if you'd ask me, I think a good portion of it has been incremental to the business.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

OK. And then, as we think the potential risk from the virus and then the reaction from consumers, can you remind us what percentage of your business is off-premise? And then also what percentage goes through the drive-through?

Bernard Acoca -- President and Chief Executive Officer

Yeah. So about 30% of our business is takeaway or off-premise. We are less reliant than some other kind of typical QSR brands on our drive-through, but -- so we do about 40% of our business through that channe,l and then the rest is dine-in.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Got it. So just to confirm, so 30% of people who walk in and take the food out, 40% through the drive through, and then the rest is dine-in?

Bernard Acoca -- President and Chief Executive Officer

30%, yeah, dine-in. Correct.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

OK, yeah. Got it. OK, thank you.

Operator

Thank you. At this time, we've reached the end of the question-and-answer session and I'll now turn the call over to Bernard Acoca for his closing remarks.

Bernard Acoca -- President and Chief Executive Officer

Well, thank you for everyone for joining us this evening. We were excited to share our results with you today. And we look forward to sharing future quarterly results with you soon. So, thank you.

Have a good evening.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Larry Roberts -- Chief Financial Officer

Bernard Acoca -- President and Chief Executive Officer

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Matthew DiFrisco -- Guggenheim Partners -- Analyst

David Tarantino -- Robert W. Baird and Company -- Analyst

Sharon Zackfia -- William Blair & Company -- Analyst

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