Pollo Tropical, Taco Cabana Turn to Tech, Loyalty in 2019

The initiatives and investments Fiesta Restaurant Group made over the last year appear to be stabilizing the company. Although the last quarter of 2018 was shaky for both Pollo Tropical and Taco Cabana, Fiesta is confident in turning around guest traffic and sales during 2019.

Fiesta is focused on improving customer experience, streamlining operation costs, and increasing value options, which in turn should help increase transactions and create long-term sustainable growth through both brands, the company said.

After three consecutive quarters of restaurant sales growth in 2018, Pollo Tropical finished with a 1.9 percent decline compared to the fourth quarter of 2017. On a February 25 conference call, Fiesta’s president and chief executive officer, Richard Stockinger, noted last year’s final quarter was strong due to the recovery period following Hurricane Irma.

Pollo Tropical’s sales continued to decline in the new year. During the first quarter through February 17, its restaurant sales decreased 3.7 percent, Stockinger said.

However, Pollo Tropical is slowly turning around and still has time for improvements during Q1. “We experienced an improved trajectory of sales and transactions in February compared to January, and are closing the gap between our results and the Black Box industry results,” Stockinger said.

Fiesta’s interim chief financial officer, Cheri Kinder, added that a 6.3 percent drop in comparable restaurant transactions and a 4.4 percent increase in average check also contributed to Pollo’s results last quarter.

On the other hand, Taco Cabana finished 2018 with a 5.1 percent increase in same-store sales compared to a 7.4 percent decrease in the fourth quarter last year. December 2018 also marked the ninth consecutive month of positive comparable growth for the chain.

“Taco Cabana's financial trajectory steadily improved throughout the year as we continue to evolve the guest base through our strategic repositioning away from the quick service segment and deep discount promotions to higher quality menu offerings that represent everyday good value,” Stockinger said.

Taco Cabana’s positive run has continued so far into 2019 with a 1.8 percent same-store sales increase during Q1 through February 17.

“We entered 2019 from a position of strength, characterized by quality operations, a healthier and more profitable restaurant base, improving guest metrics, and programs in place to improve traffic and build margins,” Stockinger said.

Taco Cabana’s positive sales growth and new restaurants contributed to the 3.3 percent lift—or $167.6 million—in Fiesta’s total revenues.

In order to cut down on further losses, Fiesta closed a number of locations across both brands. The biggest impact to Pollo Tropical was the closure of all nine locations within the Atlanta market.

“Pollo Tropical had struggled in the Atlanta market for some time, but we had also held out hope that results would improve if it had time to experience the enhancements we had made as part of the plan,” Stockinger said. “Unfortunately, Atlanta did not experience the same positive momentum as our other markets, and there was no reasonable path forward for it.”

Pollo Tropical

Both brands are expected to open three restaurants in 2019.

In total, 14 Pollo Tropical restaurants—nine in Atlanta and five in Florida—closed in 2018. Those stores contributed $15.8 million in restaurant sales while contributing roughly $5.2 million in restaurant level pre-tax operating losses. Nine underperforming Taco Cabana locations in Texas, which generated $9.5 million in restaurant sales, shuttered in 2018. Those locations generated $1.7 million in losses.

Both brands are expected to open three restaurants in 2019. In addition to new openings, Fiesta plans on remodeling 10–13 locations for each brand over the next year. The remodels will upgrade equipment to support catering and new menu lines while incorporating fresh technology, like self-service kiosks and portable POS tablets, to help improve efficiency within existing locations.

“We're identifying those restaurants that are the oldest, the ones that need the refreshing in the front of the house,” Stockinger said. “We've done a lot of work in the back of the house with the deferred maintenance, so the guests really didn't see that because we wanted to get started and restart a remodel program where you're going to start seeing some of that impact on the top line.”

Diving into delivery

In order to keep up with its competition, Fiesta took the plunge and rolled out delivery nationwide with DoorDash. Pollo Tropical delivery through DoorDash is available now at all 139 company-owned locations throughout the system. Taco Cabana delivery through DoorDash will be available at all 162 company-owned locations in the coming weeks.

“We can see the momentum building, and we are excited as to the potential positive impact on our business,” Fiesta’s chief operating officer Danny Meisenheimer said on the call.

In an effort to expand its off-premises presence, Fiesta relaunched catering programs at both Pollo Tropical and Taco Cabana during the last quarter of 2018.

“The catering and the opportunities with off-premise consumption are truly just coming online … and we're seeing some really nice results from those efforts so far,” Meisenheimer said.

At Pollo Tropical, a dedicated team oversees the newly rebranded catering program and refined menu. Meisenheimer said the catering platform will continue transform in 2019 “to be even more competitive in the marketplace and to broaden the offering to appeal to different occasions and party sizes.”

Taco Cabana

Taco Cabana finished 2018 with a 5.1 percent increase in same-store sales.

Although the new off-premises programs are still in the early stages of roll out, the results so far look promising. Meisenheimer believes off-premises will help boost sales and transactions in a way both brands haven’t seen before.

“There's plenty of room in terms of increasing the unit level, average unit volume, again, we're going up against our competitors that have had these programs in place for a significant amount of time,” Meisenheimer said. “It includes the catering program, which not only drives the top line but it drives the bottom line. And with delivery, we just started and we literally just started at Taco where we didn't ever had delivery before and it's already starting to show positive results from a sales perspective.”

Loyalty rolls

The growth of off-premises gives guests more opportunity to interact with both brands in ways they wouldn’t have considered before. Fiesta is hoping to capitalize on this new traffic and increase engagement through its My Pollo and TC loyalty programs and apps.

The My Pollo program just recently launched in December 2018.

“This app allows guests to find a location, order online, manage their points and redemptions and upload coupons, among other things,” Meisenheimer said. “We believe My Pollo will help increase frequency and build and return—and retain brand affinity.”

The TC loyalty program made its debut last September along with updated online ordering and app. During the fourth quarter, 11,000 loyalty members were added each month.

Currently at Pollo Tropical, there are 75,000 loyalty app members and half a million members of the email club. About 70,000 members are a part of Taco Cabana loyalty program and 280,000 members are a part of the email club.

Fiesta is consistently seeing higher average checks from loyalty members compared to the rest of the system. Using data from the apps and loyalty programs, including a detailed purchasing history for each member, Fiesta is hoping to create targeted and personalized marketing and an individual experience for each guest.

Investing in the future

There is still work to be done at both Fiesta brands, but executives believe it has laid the groundwork for future success. Delivery through DoorDash, the new catering program, and expansion of loyalty programs will help drive customers through the doors of Taco Cabana and Pollo Tropical.

“Our foundation is now firmly in place and the team is energized by the strong affinity for our brands and their long-term potential,” Stockinger said.

“We are now ready to leverage our accomplishments in 2019 to deliver results as we also plan for the long term,” Meisenheimer added.

Fiesta is planning to invest $21.4 million in new restaurants and $8.4 million in technology, including online ordering, loyalty programs, and new hardware upgrades. Additionally, Fiesta expects to invest $3 million on restaurant remodels.

“This year, we will continue focusing on delivering a consistent distinctive guest experience, improving traffic trends, realizing margin expansion and building our fundamental sales growth platforms to create long-term value for our shareholders," Stockinger said. “In addition, later this year, we plan to develop and test the refined Pollo Tropical restaurant concept with broader mass appeal for potential future expansion.”