It has been nearly two years since Jack in the Box dealt Qdoba to Apollo Global Management for $305 million. And it might be on the move again, with management admitting in November its new private-equity parent was exploring “a potential sale,” and that it was “extremely grateful for the guidance, strategy, and resources Apollo has provided.”
Wherever the fast casual lands, or even if it stays put, the brand looks a lot different today than it did in 2017. Financially, Mergermarket said Qdoba should be able to fetch a healthy eight- to nine-times EBITDA multiple in a sale “as the company performed well under Apollo,” according to a source. Qdoba is projecting $59 million in EBITDA for fiscal 2020, another source said. A November report on the auction said Qdoba’s EBITDA was $52 million for fiscal 2019, which ended September 30 of last year.
Bloomberg’s initial forecast said Apollo could earn as much as $550 million, including debt, from a sale. In the fall, a source told the publication Qdoba’s same-store sales were up 4 percent over the same period. That sales price, if it happened, would present a valuation of roughly 11 times trailing EBITDA, or an 80 percent appreciation in value.
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It’s a quick turnaround. Qdoba came a long way under Jack in the Box, in terms of footprint growth, but it’s top line had started to lag. When the West Coast fast-food chain acquired Qdoba in 2003, it had 85 locations in 16 states, with $65 million in systemwide sales. When the sale closed in March 2018, Qdoba was the second largest fast-casual Mexican brand in the U.S. (behind Chipotle), with more than 700 locations in 47 states, the District of Columbia and Canada, and systemwide sales north of $820 million in fiscal 2017.
In Qdoba’s fourth-quarter 2017 results—the final period before the deal—same-store sales declined 4 percent across company units, while running flat, year-over-year at franchises. The corporate figured included a 6.4 percent drop in transactions. For the full year, Qdoba’s comps declined 3 percent at company-run locations and 1.4 percent systemwide. The brand began the 2017 calendar with 669 restaurants (367 company and 332 franchised) and closed with 726.
WHERE QDOBA RANKS BY SALES, AUV, and MORE
That June, Qdoba franchises also banded together to form an independent association that represented operators in charge of 340 or so locations. It was done, at the time, in light of “the uncertainty surrounding the future ownership of the Qdoba brand,” the organization’s chairman, Ron Stokes said. And to give franchisees an independent voice.
Qdoba set on making changes once the deal was struck. They revolved around establishing a stronger brand identity, expanding menu variety, and curating deeper interaction and choice for customers. The brand has also kept an eye on growth, with 25–50 new units on deck for 2020.
Qdoba was founded in 1995, first as Zuma Fresh Mexican Grill, then switching names to Z-Teca Mexican Grill before becoming Qboda Mexican Grill in 1999. “Grill” changed to “Eats” in 2015. The company’s vice president of franchise operations, Christine Willis, joined the same year, when Qdoba was still owned by Jack in the Box.
“From the sale to Apollo, we have been able to carve out the business completely from Jack in the Box, hire over 100 people here in San Diego, move into a new headquarters, and really focus on our brand being poised for growth,” Willis says. “Never has there been a time where there’s been more optimism about the trajectory of the Qdoba brand. I think there have been periods of change over the last few years.”
“I’m really proud of the hard work we’ve done—carving out the business is no easy feat,” she adds. “It really is like driving the bus while you’re changing the wheels, and keeping the business moving forward. To see where we are today is quite remarkable.”
Willis praised Jack in the Box’s handling of the brand near the end of shared ownership. In the last 18 months, though, she took over the franchise sales arm for Qdoba, hired teams, built infrastructure, and put new systems in place.
When Willis references the 100 corporate employees the brand hired, it was part of an initiative to build out internal teams it previously shared with Jack in the Box. Open positions included roles ranging from specialists to executive management in a variety of departments, such as: finance and accounting, human resources, information technology, marketing, supply chain, and restaurant development.
The company then announced, in mid-May, Keith Guilbault was officially taking the reins as chief executive officer. He previously served as Qdoba’s brand president and chief operating officer since 2016. Susan Daggett, vice president of finance since August 2016, took over as chief financial officer.
Qdoba’s new HQ, in the building formerly occupied by The San Diego Union-Tribune, was labeled, “Flavor Central,” and designed to serve as a hub for the culinary team to create and test menu innovations.
To put into perspective how big of an evolution this was, Qdoba had just 40 corporate employees two years ago. The new building houses roughly 125.
And the chain brought in a new corporate executive chef, Katy Velazquez, in July.
So, to Willis’ point, it’s been a busy time post-sale, to say the least.
“I’m really proud that we’ve been able to bring three new franchise groups into the system,” she adds. “We’ve got a lot of interest in Qdoba. … When you look at the trends in the industry as it relates to lifestyle and as it relates to all premises, and then you marry that up with our offering, we definitely have the proposition for a franchisee looking to diversify their portfolio. We’ve got a great track record.”
Willis says Qdoba’s veteran franchisees have an open dialogue now with new operators. “We have testimonials of our franchisees on our website because we’re so proud of the relationship and what we’ve been able to accomplish together with them,” Willis says.
From a guest-facing standpoint, she stresses how Qdoba addresses customers’ desire to customize their needs, including healthier choices, vegan ingredients, (plant-based) Impossible menu items launched last year, and fresh food cooked in the restaurant. Qdoba employees grill chicken and steak and hand smash guacamole. “When you look at how the industry is evolving and how the consumer set is the defining what dining is—and Mexican has become very mainstream—we’ve got a lot of diversity on our menu. We’re definitely poised for franchisees to come in, and they can accelerate growth quickly.”
“Our guests really know us and love us for our queso,” adds Jill Adams, Qdoba’s vice president of marketing, who has been with the company for two-and-a-half years. “Impossible has now become a new product to the lineup where we’re seeing that customer affinity and even attracting new guests. Last year that was a big innovation, and we expect to see more product innovation as we go into this year.” The brand introduced Impossible fajita and burrito bowls in October. And it also added Impossible to its catering menu.
Adams says Qdoba looks at product innovation as something it wants to bring in more as a permanent offering rather than a limited-time one. It also sees hospitality as another key ingredient. Qdoba rolled out its new hospitality program last summer to all restaurants.
“It’s an area in the fast-casual space that’s incredibly important, and not just through services that you offer such as catering or a rewards program, but really the level of service being elevated,” Adams says. “It’s all about this focus of when a guest comes in. Are we serving them with positivity, and are we ultimately doing what it takes to earn that next visit? Whether it’s noticing they’re in their baseball team uniform coming from a game and asking them how it went, or inviting them back for the next visit to come try a new product, it’s an area where we can differentiate. When we look at our competitors in the space, we tend to see that service be a little more sterile, a little more robotic.”
“We’ve been able to accomplish [a lot] with carving out the business while really changing the trajectory and growing the momentum of the brand,” says Christine Willis, vice president of franchise operations.
Qdoba’s cultural pillars are hospitality, positivity, and performance. “Hospitality is treating each other with care and respect,” Adams says. “That’s how we treat each other internally. That’s how we treat our customers. Positivity is all about coming to the table. That ultimately has led to our performance where we’ve been incredibly successful in this space and very much a leader in the category.”
The company’s recent digital platform launch was also crucial. Adams recalls how Qdoba expanded its first foray into online ordering and mobile application back in 2016. The chain has actually featured a loyalty program since the start (remember those punch cards?) but four years ago it went digital.
“On January 14, we launched a new website and new mobile app, and they very much align on our flavor positioning, and underlying that, we brought in some new technology for both online ordering and for our Qdoba rewards programs,” Adams says. “For our online ordering we are working with Olo, and for our rewards we are working with Paytronix, so really some best in industry solutions that we believe are going to be great partners for us moving forward.”
Adams elaborates on their Qdoba’s program, which is a “really fun and engaging,” tier-based program where the more one frequents the brand, or the more they spend, they move up in tiers. “With each tier you unlock additional perks, rewards, and special surprise and delight offers,” Adams says. “It’s got this great gamification feel to it, similar to what you’d see with a hotel or an airline. It’s very differentiated. Our guests have a lot of fun interacting with it in that platform. It’s amazing how you can really make someone’s day when they make our highest status as champ status. We actually had someone [recently] send a tweet to our social media manager saying, ‘I’ve arrived, I’m a champ now.’”
A big annual event for Qdoba is its Valentine’s Day promotion called “Qdoba For A Kiss.” “Essentially, on Valentine’s Day at Qdoba, guests can kiss someone or something, anything from a text to your partner or a kiss on your child’s head—we’ve even seen individuals kiss a burrito—and you’ll get a free entree,” Adams says. “It’s turned into a day our fans look forward to. This is our 10th year, and guests comment on the fact that they look forward to spending Valentine’s Day with Qdoba, whether it’s with friends, family, or significant others.”
“Our value is bringing flavor to people’s lives,” Willis adds. “We’ve been able to accomplish [a lot] with carving out the business while really changing the trajectory and growing the momentum of the brand. At this point in time, we have to be open and be agile because the industry is changing so fast, and we’ve created this culture and created partnerships with our franchisees where we’re learning together. We’re trying things out. We want to sail fast and be able to really continue to evolve. I think it’s an exciting time because what dining is continues to be very dynamic.”
