Qdoba’s Post-COVID Transformation is Underway

The Mexican fast-casual segment isn’t a fad, says Tim Welsh, Qdoba’s chief development officer.

Not only is it an industry force, he explains, but it has been for a long time, and it will remain that way for the foreseeable future.

Qdoba is one of the largest players in that space with roughly 730 units—half of which are franchised. And because of its performance during the pandemic, the 25-year-old brand put itself in a position to launch an aggressive multi-unit franchising growth strategy that Welsh believes will lead to 1,000 units and potentially north of 2,000.

“We suffered with the rest of the restaurant industry. But we've been able to recover sales pretty well,” says Welsh, describing why now is the best time for growth. “We actually have a unit economic model that is stable and is able to drive forward, and we also believe what we did during that time was really work with all of our partners and get our build-out costs finely tuned and work through new formats. … The agility that we had that we’re able to do this during COVID, and the work we're doing behind the scenes, puts us right now in a situation where we're a really great investment. There is a ton of opportunity to grow across the country. We have some really pretty phenomenal markets that we want to build out.”

Although no one foresaw COVID’s true impact on the U.S., Qdoba underwent key digital changes shortly before the pandemic that aided in its performance. In January, the brand relaunched its digital suite, including enhancements of its website, app, and loyalty program and integration of third-party delivery providers. The improvements allowed Qdoba to quickly pivot to curbside pickup amid the crisis.

Emphasis on the digital business not only impacted sales, but it’s also informing how Qdoba intends to grow. Welsh says the brand developed a whole suite of new footprints and floor plans, including drive-thrus, pickup windows, and smaller boxes.

Qdoba currently has 14 open drive-thru units, and Welsh anticipates that number reaching 24 before the end of 2020. The restaurant is also interested in 1,000-square-foot takeout units in urban areas and ghost kitchens.

“I would say that is definitely the focus of the business. We have done a few things,” Welsh says. “A lot of the stores that were in the pipeline, we quickly converted those to drive-thru locations. Next year that is clearly a huge opportunity that we’ll be investing in. So we've developed a new footprint, new format or prototype around the drive-thru, but we've also developed some smaller footprints. … I mentioned we redeveloped our app last year and that has given us the ability to convert a lot of our customers over to the app and lean into the digital platform. That will continue to be a big piece of business, both from in-store pickup, and also adding walkup pickup windows to many of our locations. It’s just really focusing on the quality of our food and accelerating convenience.”

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Qdoba is plotting mobile in-store pickup locations.

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What a ghost kitchen could look like for Qdoba in the future.

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Walk-up windows are in the works for Qdoba as well.

Welsh says development slowed during the pandemic, but only momentarily. Since March, Qdoba has opened 15 restaurants, and it’s planning to open more than 15 before the end of the year. There’s about 40 in the pipeline for 2021, but as the brand brings on new partners and investments, Welsh says that number may grow. Ultimately, Qdoba wants to reach a pace of more than 100 units per year.

Target markets include Arizona, Southern California, Florida, Georgia, Ohio, Nevada, New Jersey, New York, Texas, New England, and Pennsylvania. Welsh expects real estate to be favorable as COVID continues to desaturate the restaurant industry.

“We take a three-pronged approach to everything we do, whether it's in the restaurants or how we're looking at strategic hospitality, positivity, and performance,” Welsh says. “So we take that approach also to our real estate partners. The landlord community was a great partner. We think we treated each other really well through the pandemic and as a result of that, we have deep relationships. And we do believe there will be opportunities, and the fact that we have now a suite of footprints that offer flexibility—we're not just a one size fits all. That allows us to look in more places and partner and go into smaller locations, drive-thru locations, endcap locations. So we think we're positioned to take advantage of real estate opportunities.”

Welsh says that in many ways, Qdoba thinks of itself as a startup company. In 2017, it was carved out of Jack in the Box and sold to Apollo Global Management, LLC for $305 million.

He notes that since then, Qdoba has reestablished itself as a sole company. In doing so, it found and designed a new office space that’s modern, open, and collaborative—a mentality that has a startup energy to it. Welsh says CEO Keith Guilbault has infused a culture that’s unlike anywhere else in the industry.

The restaurant vet says the culture provides an energy and passion for the brand, starting from the corporate headquarters, all the way to the restaurants. It enables Qdoba to pivot quickly without being bogged down in bureaucracies.

All of that momentum has led to this point, and Qdoba is prepared to take advantage of the opportunity.

“We've done lots of different modeling and looking at what saturation and growth could look like,” Welsh says. “We believe that there's a long runway to continue to expand. Even with our current markets in the national footprint, there's plenty of new markets to invest in. There's plenty of new opportunities to grow and for franchisees to build out a territory. And then really, we believe that there's international appeal. We have partners in Canada currently, and we think that there's ability to grow from beyond there. The foundation that we've been able to set over the last two years, the research and passionate we bring to the segments, and I think the strength of our food—and really at the end of day it's about the food and the flavors that we offer, bringing people together—we really think that there's tremendous amount of opportunity both short and long term.”