After a disappointing Q4, Fiesta Group is making more changes to Taco Cabana, including within its leadership.
Taco Cabana’s same-store sales sank 8.1 percent in Q4 (between 164 corporate units and eight franchises), compared to the 5.1-percent growth it saw in 2018. That breaks out to a 7.1 percent decrease in comp transactions and a 1 percent slip in average check. For the year, the brand was down 4.1 percent. Total revenue dropped from $76 million to $69 million in Q4, and from $312 million to $297 million in 2019.
Fiesta announced Wednesday the departure of Taco Cabana president Chuck Locke. CEO Richard Stockinger said during a call reporting Q4 earnings that the move will allow Locke to spend more time with family.
Taco Cabana has spent recent months attempting to solve its customer satisfaction issues through operations and menu simplification. The brand cut all-day breakfast and the availability of breakfast on the weekend, and it eliminated complex items on the menu. The idea was to reduce the number of offerings and limit items to certain dayparts to improve speed of service. And it worked—drive-thru order times were sliced by two minutes and satisfaction scores rose.
But sales suffered—more than what Fiesta anticipated.
In January, 19 Taco Cabanas closed in Texas, where the brand is heavily located. Fiesta hadn’t announced double-digit closures since December 2018.
Stockinger noted that Taco Cabana’s value promotion, TC Time, wasn’t incremental enough, so it was dropped in February. The promotion stretched value across dayparts—two bacon, egg, and cheese tacos for $2.99 at breakfast; two beef tacos with beans and rice for $3.99 at lunch; two chicken fajita tacos with beans and rice for $4.99 at dinner; and six chicken fajita tacos and six flautas with beans and rice for $14.99 on the weekends.
In addition, no new items were introduced in the final window of Q4, which was not well-received by customers, Stockinger said.
In response, Taco Cabana brought certain items back to the menu and expanded daypart choices on select items to boost sales (including the return of the all-day breakfast menu). In lieu of the TC Time promotion, Taco Cabana will offer targeted value promotions in each of its eight marketing windows throughout 2020. The brand is also accelerating innovation (Stockinger mentioned a pipeline of 15–20 potential new items) and bringing back proven LTOs. The chain is hoping the changes will inspire growth while maintaining the improved customer satisfaction scores.
In February, Taco Cabana brought back its Shrimp Tampico and new items featuring Kiolbassa jalapeño sausage. It also launched a new happy hour menu with strawberry and lime margaritas, draft beer, and bean and cheese or ground beef nachos.
“These top-line results are disappointing, but in no way reflect the level performance we think we can ultimately achieve with this brand,” Stockinger said during the company’s Q4 and annual review. “As noted, the Q4 challenges were focused around issues that were partially self-inflicted. We are already making progress in each of those issues in Q1.”
Meanwhile, Pollo Tropical’s same-store sales were up 0.6 percent in Q4 (between 142 corporate units and 32 franchises) compared to a 1.9 percent dip in 2018. That marked the brand’s first positive quarter since Q3 2018. The company has witnessed five straight months of positive traffic growth.
In 2019, comp numbers fell 1.8 percent, after rising 2.2 percent in 2018. Revenue in Q4 dipped by about $1.2 million year-over-year to $90.2 million. For the full year, revenue dropped from $376 million to $363 million.
The quarter chicken lunch platter performed well despite a $0.50 increase, as well as the Churrasco Steak Platter LTO and the GrillMaster Trio LTO. Each of those items grew traffic and average check compared to last year. The brand is testing new fried chicken and chicken fried steak, multiple types of empanadas, picadillo, and coconut shrimp.
Stockinger expressed much excitement in both brands’ potential when it comes to off-premises sales. The business represents 5.6 percent of sales at Pollo Tropical and 4.2 percent at Taco Cabana, but the CEO sees upside.
Fiesta has partnered with EzCater, an online B2B ordering company, to boost its catering business. The parent company will also add third-party delivery providers and install rapid pickup stations at high-volume stores by the end of Q1. For Pollo Tropical specifically, off-premises sales more than doubled in Q4; catering sales jumped 33 percent year-over-year. Delivery accounts for 2.5 percent of sales, but Stockinger said the brand views 10 percent as the brand’s potential. A new Pollo Tropical app will launch in Q2, while Taco Cabana’s new app is expected in Q3.
“We expect online growth to accelerate over the course of the year at both brands,” Stockinger said.
Fiesta expects positive comp sales and low-to-mid single digit revenue growth for Pollo Tropical in 2020, driven in part by off-premises growth. Four to eight units will open in 2020, with some in nontraditional locations such as universities, rest areas, and airports.
The company will work to stabilize Taco Cabana’s sales in 2020. Fiesta projects improvement throughout the year, but negative numbers over the first half of 2020.
“We are optimistic about our momentum at Pollo Tropical,” Stockinger said. “The key to the future of Fiesta is nurturing the existing Pollo business, and positioning our lead concept to achieve its full potential. We believe we're making progress at Taco and the issues that impacted Q4 sales. And have also significant off-premises growth opportunities that we will capitalize on over 2020.”