Chains on the Grow:
An in-depth look at the Top 100 Mexican Multi-Unit Restaurants
By Ed Avis
Becoming a multi-unit operator. It’s the dream many owners of Mexican restaurants share. And for good reason: Mexican and other Latin concepts are among the largest and fastest-growing multi-unit concepts, industry data shows.
Mexican chain restaurants, together with Asian and bakery concepts, experienced the highest percentage of growth among the largest 500 restaurants chains in 2012, information from food research firm Technomic shows. The growth was most evident at top-end chains such as Taco Bell, a subsidiary of Yum Brands, Inc.
“The brand [Taco Bell] definitely has mojo,” Yum Brands CEO David Novak said during an earnings conference call in October. “We know that for the U.S. to have a successful year, it’s important for our most profitable U.S. brand to do well, and we certainly have a lot going in our favor at Taco Bell.”
The trend, however, isn’t limited to the big guys.
“We will definitely open new locations,” says Erwin Ramos, co-owner of Massachusetts-based Olé Restaurant Group, which operates the upscale Olé Restaurant in Cambridge and two quick-serve ¡Olecito! locations in Cambridge and Brookline. “I’ve been looking for the next location for the past year. I think there’s still more room for this kind of food in the Northeast.”
In this first-ever el Restaurante multi-unit report, Publisher Ed Avis examines trends from both ends of the spectrum, and offers guidance to operators who would like to expand. (Click here to view the el Restaurante Top 100 Mexican Multi-Units chart.)
What’s Driving Growth
Mexican restaurants are natural candidates for chain growth.
First, Mexican food is “high-frequency” fare, meaning people who like Mexican food eat out frequently, explains Dennis Lombardi, executive vice president of foodservice strategies for WD Partners, a restaurant design and development firm in Columbus, Ohio. Operators who focus on high-frequency food can quickly build a solid base of customers who patronize the restaurant, and perhaps its subsequent locations, on a regular basis.
Second, Mexican food concepts generally require a small number of base ingredients that can be used in a wide variety of dishes. An operator can create a full menu, often including breakfast, with a relatively small investment in supplies.
Finally, demographics are driving the upsurge in chain growth. While Americans of all ethnicities enjoy Mexican food, Hispanic customers are especially important, industry experts say.
“As America’s largest minority group, Hispanic consumers currently comprise 17 percent of the total U.S. population, a proportion that is expected to increase to 31 percent by 2060,” Kelly Weikel, a senior consumer research manager at Technomic, notes in a blog post at technomic.com. “In addition, they wield strong influence in the foodservice sector. Their impact is apparent in the fact that Hispanic-inspired cuisines (most notably, Mexican fare) continue to be some of the most heavily sought out of all ethnic foods and flavors.”
A Focus on Fresh
The fast casual segment is experiencing the biggest growth among Mexican chains. Fresh fare is one of the distinguishing characteristics of these popular, reasonably priced restaurants.
Fast casual restaurants blossomed during the recession because they offered diners a more satisfying experience than fast food places, but at lower cost than traditional sit-down restaurants. Fast casual Mexican concepts occupied seven of the top ten places in el Restaurante’s list of Top 100 Chains (click here to see this chart).
Case in point: the fast casual Moe’s Southwest Grill—ranked #5 in the Top 100. Founded in 2000 in Atlanta, Moe’s is known for its fresh, handmade food. The firm reported $526 million in sales in 2013, a 12 percent increase from 2012.
Moe’s opened 54 new restaurants in 2013, and plans to expand into California in 2014. “We’ve had our eyes on California for a long time now, and we found a terrific franchise partner to help us carve a path,” says Paul Damico, president of Moe’s.
Café Rio is a slightly smaller fast casual chain that also succeeded in 2013. Based in Salt Lake City, Utah, Café Rio—which also touts fresh food as a major attraction—ranks 24th on the el Restaurante list.
“Last year we opened 12 locations,” Café Rio spokesperson, Jennifer Burns, says. “Our standards are extremely high in food quality and our teams are highly trained, so when we feel we that we can build and maintain our standards in a new market, that is when we decide to open a new location.”
Cheese grated on site, and an absence of freezers, contribute to Café Rio’s high quality, fresh food appeal. “We squeeze over 1,000 limes per day in each location, and all of our tortillas are made right there,” Burns adds.
Some of the leading quick serve restaurants also have adopted the “fresh” concept. Taco Bell, the #1 overall chain on the list with 5,908 locations, has made a big splash with its Cantina Bell menu, which trades the standard refried beans, taco sauce and Mexican rice that dominate other Taco Bell dishes for black beans, fresh pico de gallo and “premium Latin rice.”
Del Taco, #4 on the el Restaurante list, promoted freshness in 2013 with a new advertising campaign titled “Un- Freshing Believeable.” In keeping with that concept, Del Taco launched tacos made with turkey in early 2014.
“Turkey Tacos reinforce our promise to serve quality, made-to-order menu items created with freshly prepared ingredients at an unbelievable price,” said John Cappasola, the company’s executive vice president and chief brand officer, in a press release.
Smaller Operators Growing
Giant operators like Taco Bell and Moe’s dominate the multi-unit landscape, but there is constant activity on the other end of the spectrum. In fact, in the el Restaurante Top 100 list, only the 15 largest restaurants have more than 100 locations. To break into the ranks of the 50 largest quick serve Mexican chains (click here to see that list), an operator would need just three units—precisely the number Ramos of Olé Restaurant Group currently owns.
After debuting Olé Restaurant in 1996, he remained a single-unit operator until he opened the first ¡Olecito! in 2008.
“I opened my second location [¡Olecito!] right across the street from my [first] restaurant,” he recalls. “I had a premonition that the economy was going to get bad, so I wanted to open a taqueria. It has the same flavors as my other restaurant, but more on the lower end.”
¡Olecito! became a success—customers who couldn’t swing a nice family-style dinner at the main restaurant during the recession could get the same flavors across the street. In 2009, with the recession still in full bloom, Ramos opened another ¡Olecito! in nearby Brookline.
The temptation for a small operator to open new locations, as Ramos has, is strong. Many operators assume that success with their first restaurant means success in subsequent locations is likely. But the restaurant world is littered with small and large operators alike who spread themselves too thin or otherwise failed.
And that’s a fact Ramos, who is currently scouting for his next spot, understands well. “I’m not going to open it just for the sake of opening it,” he says of his pending venture. “It has to be the right time and the right location.”
Sidebar: #17 Tijuana Flats
by Freddy Monares
The idea for Tijuana Flats Burrito Company didn’t come overnight. Owner Brian Wheeler was fresh out of college in 1995 and tired of the night scene that had become all too familiar. With no prior restaurant ownership experience and a loan from his parents, he started Tijuana Flats in Winter Park, Fla.
Success followed. And in 2007, Tijuana Flats created the Just in Queso Foundation to give back to the community. To date, the restaurant has given over $2.1 million to help those in need.
What has propelled this Mexican concept’s success? According to CEO Brad Kaemmer, the answer is a combination of exceptional customer service, a “world famous hot bar,” a variety of menu options and fresh ingredients.
Kaemmer predicts the Mexican/Latin restaurant segment will see an increasing number of flavor profiles and more diversity in menu offerings in the year ahead. Tijuana Flats plans to lead the way.
“We are always coming up with new innovative menu items to keep our concept fresh,” he says. “Keep an eye out for new menu items and 10 to 15 new locations in 2014.”
Sidebar: #50 Chronic Tacos
by Freddy Monares
Tired of uninspired options from local Mexican joints, Randall L. Wyner and Daniel A. Biello—armed with authentic, third-generation recipes from a family friend—opened Chronic Tacos in Newport Beach, Calif. in 2002. Their idea was simple: Made-to-order Mexican food that was fast and fresh.
Today that idea has spread to 29 locations throughout California, Nevada, and Canada.
“We are revolutionizing the local taco shop,” Wyner says when asked what sets Chronic Tacos apart. “We use recipes people would expect from a quality taco shop, but have created a laid back place with TVs, music and an overall great vibe. There really is no experience like the Chronic Tacos’ experience.”
Convinced the fast casual segment is primed for continued growth, Chronic Tacos will debut new California locations this year. Plans also call for expansion into new territories in the western U.S. and Canada. “Everyone loves the flavor of Mexican/Latin food and it provides many options. Restaurants like ours have healthy items like salads and grilled fish, but we also allow for indulgence with items like slow-cooked carnitas or beer-battered fish tacos,” Wyner explains. “In 2013 we added salads as well as handheld burritos, and we will continue to innovate with menu items to meet the changing needs of consumers.”