With dine-in accounting for 26 percent of sales, Fiesta Restaurant Group, the parent of fast casuals Pollo Tropical and Taco Cabana, has pushed itself to find new and better ways to drive profitable growth amid the pandemic.
So it shouldn't be a surprise that drive-thrus have been a source of much investment. At Pollo, average drive-thru sales in Q3 grew 16 percent compared to Q2 and 29 percent compared to 2019. At Taco, the channel lifted 36.6 percent in Q3 compared to last year. Drive-thru soared to 83 percent of sales at Taco and 67 percent at Pollo in the quarter. Average check at drive-thrus lifted 15 percent at Pollo because of an increase in items per order and 17.4 percent at Taco due to alcohol promotions.
CFO Dick Montgomery explained that Fiesta is upgrading order-taking devices to process payments faster. That includes connectivity and signal distance capability, which would allow restaurants to take more orders in advance, like 10 cars deep as opposed to six. This helps Pollo and Taco cut wait times, which trend in the low five-minute range. That technology goes hand-in-hand with a reengineered kitchen line that improves the swiftness of assembling an order.
“We're in very early stages there,” said Montgomery during the brand’s Q3 earnings call. “We're in the process of really selecting the technology that we're going to go with, but we've got a huge opportunity there. We've benchmarked in our digital menu board platform against the competitive set, and frankly, it's a big opportunity for us to create an update, which should result in check average increases due to add-on sales.”
In addition to drive-thru, Fiesta launched curbside pickup at both brands and released new mobile apps. Since the roll out of Pollo’s app in late July, loyalty club signups have increased 53 percent compared to the average weekly signup rates beforehand. Taco’s updated app debuted in September and the company is expecting similar results. To further curbside pickup, Fiesta plans to launch geofencing capability to let restaurants know when a customer is close.
Comps decreased 11.1 percent at Pollo and 14.2 percent at Taco, a steep climb from the 31.6 percent and 19.2 percent drops, respectively, in the second quarter. Operations have been optimized, as well. Pollo’s restaurant-level adjusted EBITDA margin grew to 21.2 percent at Pollo compared to 20.1 percent in the year-ago period, and Taco’s grew to 14.9 percent, an improvement from 9.2 percent in 2019.
This is how comps trended through the third quarter:
Note: Pollo’s performance benefitted from the negative impact of Hurricane Dorian last year
- Pollo: –13.8 percent
- Taco: –14.4 percent
- Pollo: –10.8 percent
- Taco: –14.1 percent
- Pollo: –8.7 percent
- Taco: –14.2 percent
At Pollo, off-premises mixed 12.1 percent, an uptick from 4.4 percent in 2019. Delivery sales tripled compared to 2019 because of three new third-party providers. Average delivery sales per week increased 33 percent compared to Q2 because of traffic and average check growth.
For Taco, off-premises increased from 3.6 percent in 2019 to 7.9 percent in 2020. In addition, average delivery sales per week more than tripled compared to the year-ago period.
“We are excited with the progress we have made over the quarter on managing the COVID crisis successfully, growing margins and profit, and finding new ways to meet customers' needs and improve sales,” said CEO Rick Stockinger. “We believe the investments that we have made in sales growth initiatives will provide returns in the future.”
The strength of sales, profit, and off-premises has also been driven by menu innovation.
Pollo rolled out a new Latin pressed sandwich lineup—Classic Cuban, Grilled and Crispy Chicken Cuban, and Mojo Roast Pork—at prices ranging from $5.99 to $6.99. Each of the new items, launched in early October, adapt very well to drive-thru, takeout, and delivery. Stockinger said the handheld food category has doubled in sales per day. Average check for transactions with sandwiches is well above the brand average, as well.
Taco ran a MargaritaPalooza promotion in Q3, featuring 12 flavors for $2. The promotion helped the brand reach one million social media impressions in July, and resulted in a 147 percent increase in reach, 57 percent growth in page views, 175 percent rise in likes, and 154 percent increase in engagement compared to June. Stockinger said Taco has a calendar of margarita promotions for the rest of 2020 and into 2021 to leverage the popularity.
Alcohol mixed 7.5 percent in Q3, but reached 9 percent during the first four weeks of the promotion. Pre-pandemic, alcohol accounted for 3 percent of sales. Alcohol transactions average $3 more than non-alcoholic transactions. In regard to the culinary menu, Taco debuted a line of flautas and an expanded enchilada line.
Fiesta ended Q3 with 323 units—171 for Pollo and 152 for Taco. Of the total amount, 283 are company-owned.
The company made the decision to close dining rooms in July due to rising COVID cases, but began reopening in-person dining in late September. Twenty-three Pollo dining rooms are open as well as 20 Taco dining rooms and 70 patios.
Stockinger said the process of opening dining rooms will be based on location, safety, and potential profit. Fiesta is evaluating sales trends each week to see which units can bring back in-person dining.
Fiestas’s revenue dropped to $137.3 million, or a 16.4 percent decline from last year. Pollo’s revenue decreased to $77.9 million, a 12.2 percent slide, and Taco’s revenue slipped to $59.4 million, a 21 percent decrease.
“Combined with growth initiatives we've already put in place including curbside capabilities, new apps and delivery channel sales, we believe that we have positioned Fiesta to emerge stronger once the pandemic has subsided,” Montgomery said.