COVID is Tough, but Velvet Taco's Growth Plan is Better

Velvet Taco began 2021 with fewer than 20 locations. In the nearly two years since, the fast casual has not only faced unprecedented inflation, but also an ownership change.

Still though, the brand now sits at 35 restaurants nationwide, with two more to go before the year is over, meaning the company doubled its footprint. Velvet Taco’s reached new markets and AUVs continue to surpass $4 million.

CEO Clay Dover says the perseverance starts at the top, with private-equity firm Leonard Green & Partners, which purchased a majority share in 2021. He describes the transition as smooth for multiple reasons. One being that L Catteron, the previous majority owner, and FB Society, the group that founded the taco chain in 2011, are both still invested in Velvet Taco as minority owners. The other is the fact that Leonard Green & Partners has doled out a host of resources for the restaurant. The firm even connected Velvet Taco to other brands in its portfolio, giving Dover the opportunity to speak with Shake Shack CEO Randy Garutti on how to navigate the early stages of fast-casual expansion.

“They've been great partners and have provided us additional resources to help us continue to scale and grow,” Dover says.

In 2022 so far, Velvet Taco’s opened restaurants in Charlotte, Houston, Dallas, Nashville, and Oklahoma. Later this year, stores will open in Grapevine and Rockwall, Texas, suburbs of Dallas. In 2023, the company will break ground in Florida.

Completing these objectives hasn’t been easy, Dover says, with building costs, supply chain, and commodity inflation all creating noise. The pressures have extended the time needed to build a restaurant, which has stretched some of Velvet Taco’s aggressive growth plans. The chain actually purchased five kitchen packages ahead of time and placed them in storage just so it could be ready to open stores.

“It's hard in an industry where we already have pretty, pretty thin margins,” Dover says. "I've learned more about electric panels than I ever thought that I would want to, and getting glass and steel and wood—some of those actual durable goods—and having that supply has been challenging. I don't think it's anything that anyone else within the industry hasn’t experienced as well.”

With that said, the chain isn’t too far off from the expectations it set for itself. Last year, Velvet Taco was calling for 40 locations by the end of 2022. It’ll be at 37 instead. The remainders were pushed back to 2023. Also, the chain was able to lease its first restaurant support office in the Dallas-Forth Worth area, taking over 10,625 square feet of space on the second floor of a 90,000-square-foot office building. And for customers, Velvet Taco launched both an online merchandise store, a recipe contest for a weekly taco feature, and its first loyalty program.

In terms of leadership, Lee Evans, after past stops at Raising Cane’s, Rock Bottom Restaurants, and Good Smoke Restaurant Group, was added as the chain’s first CFO in February. Robb Cherne, who began as director of operations in March 2019, was promoted to regional vice president. In September, Michael Pereira, with experience from The Cheesecake Factory and Snooze an A.M. Eatery (which Dover calls the Velvet Taco of breakfast), became the brand’s first COO. Dover says he interviewed more than 100 candidates before landing on Pereira, whose wisdom will allow the CEO to focus on other elements of the business, like international growth and new cities.

Velvet Taco

Dover says Leonard Green & Partners supported each of those investment plans.

“There were a variety of things that were in the plan that despite some of the challenges of the industry and the macroeconomic views and inflation and consumer perceptions, they've continued to stand by us and support us in that long-term plan,” Dover says. “While you go OK, that was the plan. The fact that we've been able to stick to the plan in this year, which has been up and down with all kinds of curves being thrown at it, I think that says a lot to both the new partners as well as the existing sponsors.”

Velvet Taco, with a presence in six states from Texas to North Carolina, explores cities that align with its brand vision. More specifically, the fast casual is culinary-driven and offers global taco flavors, so it prefers to enter markets where consumers are adventurous and innovation is accepted. Although Velvet Taco doesn’t limit itself geographically, Dover still wants to be judicious about where the brand grows, so it’s not going to stretch from New York to Los Angeles any time soon. Instead, the company chooses to expand where it can best manage the business, find synergies, and take advantage of distribution opportunities. And when Velvet Taco pierces a market, it’s not looking for one-offs; in every state it’s based, there are at least two locations.

In each restaurant, the kitchen size remains standard for operational reasons, but beyond that, stores are quite unique, whether it’s a converted gas station or housed inline or as an endcap. Nowadays, off-premises is now on the same level as the dine-in experience, with a 50/50 mix split. That’s why one-third of the system features a drive-thru pickup lane after testing prior to the pandemic. Dover says it’s not a must-have, but it has worked well in suburbs and other high-traffic areas. Outlets also maximize space with dual prep lines and dedicated pickup windows for digital pre-orders. Catering, launched this year, is proving incremental, as well.

Dover recognizes that macroeconomic headwinds remain, like a potential recession, but he’s keeping a sense of optimism that’s rooted in rising sales and one successful restaurant opening after the other.

“We're still only 35 restaurants, and there's a ton of things that we can still implement from a restaurant operation standpoint, and truly our goal is to be an industry leader within fast casual,” Dover says. “What other things can we do? We've got the brand that would allow us to do that. We have high restaurant volumes. The food is amazing. We’ve won several awards. It's just how do you scale that and grow it without missing out on what the original founding of the brand was all about? And that's great tacos, good quality food.”