Rotary switch alternative using a led driver

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Could you elaborate on this? I think I get it, but it's all quite new to me...
Can you point me to a specific part / pic? Or a data sheet maybe?
You can use, for example, PIC12F1571. This is an 8-pin chip that has enough I/o pins for what you want to do. I used it to make a relay based DPDT switch. PIC read the encoder data, switched relays via shift registers and displayed a corresponding LED with another shift register and LED driver.
It’s possible that you don’t need any shift registers for your task, and you can drive your circuit with 3 different PIC pins. You’ll need 2 more pins to sense the encoder. So, 5 I/o pins and you’re set.
Being on vacation, I don’t have any schematic at hand right now. I can dig it out at the end of the month if you need it.

EDIT. Given current chip shortages, 4017 may be the easiest, fastest and cheapest solution indeed.
 
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Ok, let me translate this into my own laymans terms...
The encoder basically supplies the pulse which makes the 4017 advance trough the set amount of steps. Do I understand this correctly?
 
I’m not sure if you can interface rotary encoder to the 4017 directly.
However, you can pulse 4017 with a simple push button and it will cycle through any number of options of your choice.
So, if you have 3 options, you can configure 4017 to cycle through 1-2-3-1-2-3-1 etc. And you don’t need any programming environment to do that. Just don’t forget to debounce your button.
 
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