By Ed Avis
What does the independent Mexican restaurant industry in the United States look like these days? In a nutshell, check sizes and annual sales are up, but fewer restaurants are reporting growth. More specifically, data from el Restaurante surveys and CHD Expert reveal these facts:
There are about 46,000 independent Mexican restaurant locations in the country, not counting companies with 50 or more locations. The vast majority of these independent restaurant locations – 44,000 – are in companies that have fewer than 10 locations.
Average check size appears to have grown since last year. In 2015, 12 percent of independent Mexican restaurants’ average check size was under $7; in 2016 that number dropped dramatically to only 6 percent. On the other end of the spectrum, independent Mexican restaurants with average check sizes about $20 grew from 5 percent in 2015 to 7 percent in 2016.
Annual sales also appear to have grown. In 2015, 34 percent of independent Mexican restaurants reported sales under a half million dollars; in 2016 only 30 percent fall in that category. On the top end, in 2016 about 8 percent of these restaurants report sales greater than a million dollars, compared to 6 percent in 2015.
Our research shows many other interesting facts about the industry, and some insightful subjective information. The overall picture painted by our data and interviews with Mexican restaurant owners is one of a growing and optimistic industry that is worried about labor issues.
“This year our sales are up 16 percent. It’s fantastic,” reports Noe Baiz, owner of Taco Loco Mexican Restaurant in Shelby Township, Michigan, in the Detroit Metro area. Taco Loco is a 20-year-old full service Mexican restaurant with a liquor license.
Baiz can’t quite figure out why sales have climbed so much this year, but he credits some innovative tinkering with his menu and an increased social media marketing strategy.
“We changed the menu design and added some dishes to focus more on our homemade, authentic Mexican items, like homemade tamales and some new dishes,” Baiz says. “My chef and I spend a lot of time together. We take a glass of wine or tequila and we brainstorm new dishes almost every day.”
On the marketing side, Baiz says he hired a firm to help improve his social media strategy and reply to any negative Yelp! reviews. He also introduced a “2 for $20” and “2 for $25” concept that offers couples a good deal on a shared appetizer, two entrees, and a shared dessert.
“That has increased our business substantially,” he says. “Those deals represent almost 50 percent of our sales.”
Miguel Zagal, owner of Taqueria La Hacienda, which has three locations in and near Minneapolis, also says sales are better this year.
“Last year, 2015, sales were good for our business, and this year they look much better,” Zagal says. “I think the reason is that the economy of the country is good.”
Baiz and Zagal are not alone. The el Restaurante reader survey showed that 46 percent of readers reported overall greater sales in 2016 than 2015. Only 11 percent showed lower sales. However, in 2015, 58 percent of readers reported greater sales that year compared to the year earlier. So for some restaurants, at least, growth has leveled off in the past year.
Liquor sales are an important and growing part of many el Restaurante readers’ restaurants. Forty-two percent said liquor sales are up in 2016 over 2015, and only 9 percent have seen a decrease in sales.
Labor Costs Up
Despite the optimism, Mexican restaurant owners have some worries. Labor tops the list.
“A few years ago in Michigan they created a graduated minimum wage increase, so every year it’s going up,” says Ray Tejada, owner of Matador Restaurant in Taylor, Michigan, near the Detroit Metro Airport. “It’s $8.50 now and going up to $10 in January. That’s a substantial jump, something that we’re worried about.”
Indeed, the el Restaurante reader survey showed that 83 percent of our readers have had higher labor costs in 2016 than in 2015; only 5 percent showed a decrease. Last year our survey showed similar results – 86 percent reported growing labor costs.
However, labor issues affect restaurants in different ways. Baiz says the growing minimum wage doesn’t affect him nearly as much as the tight labor market. He simply can’t find enough employees!
“There are not enough people to go around,” Baiz says. “We have stability in our staff, but because business has increased our staff is stretched. I’m constantly looking for someone to add to the kitchen, and servers.”
Zagal has the same problem: “The main worry at the moment is a lack of personnel,” he says. “We’re currently working with two temporary agencies to get enough people.”
Food Costs Less of a Concern
The concern with growing food costs has shrunk a bit this year. Last year, the el Restaurante survey showed that 69 percent of readers saw food costs go up; in this year’s survey only 60 percent of readers reported food cost increases.
Tejada is among readers who say food costs are down; he attributes the drop to falling protein prices.
“Just a couple of years ago beef was a dollar or two more a pound,” Tejada says. “Chicken is also falling, and pork is down. However, avocado prices are through the roof, which doesn’t help!”
To control food costs, Baiz says he’s focusing on portion control. In addition, he tries to limit the number of free chips and salsa customers receive.
“We make the chips and salsa from scratch, so we have to put in some rules to keep us profitable,” he says. “I tell the servers to procrastinate a little in bringing more chips, and give them a little less each time. And the chips are complimentary only with a lunch or dinner purchase, not just drinks.”
Mexican restaurant owners are optimistic about the future, despite the challenges they all face.
“We are working hard to improve every day, to be better than we were yesterday,” says Raul Rodriguez, owner of Caliente Grill in Annapolis, Maryland. This year Rodriguez expanded his restaurant with a new dining room that seats 86 people and an outside area that seats 38. “It is a pleasure to be able to delight our customers and our friends.”
Ed Avis is the publisher of el Restaurante magazine. He welcomes questions about the Mexican/Latin restaurant industry via email at firstname.lastname@example.org. Avis was assisted in reporting for this article by Jorge Rennella, who is el Restaurante’s advertising representative for Spanish-speaking accounts. Jorge can be reached at Jorge@restmex.com. Much of the data for this article and the accompanying charts came from CHD Expert, which provides deep data about the restaurant industry. Contact CHD Expert at http://www.chd-expert.com/.