The Comeback is On for Pollo Tropical and Taco Cabana

Fiesta Restaurant Group has traveled an arduous path in recent months. If you rewind back to the first quarter of fiscal 2017, the parent company of Pollo Tropical and Taco Cabana reported same-store sales declines of 6.7 percent and 4.5 percent, respectively, at its legacy brands. Thirty restaurants closed. Transactions dipped 8.9 percent and 4 percent, and total revenues fell 0.6 percent to $175.6 million.

And so began a “strategic renewal plan” meant to generate long-term value for shareholders and breathe some life into the fledging concepts.

A year later, Fiesta is showing some promising signs of recovery. Pollo Tropical reported same-store gains of 1.1 percent compared to the previously noted 6.7 percent decrease in the first quarter that ended April 2. Taco Cabana’s comps dipped 1.7 percent versus the prior-year 4.5 percent drop. Fiesta’s shares were trading up more than 11 percent early Tuesday afternoon on the stock market. It traded as high as $27.45 to carve out a new 52-week high.

But perhaps more notable are the trends at play, and what still lies ahead. Both brands are testing kiosks this year, among other changes that continue to return positive results.

This was Pollo Tropical’s first quarter of comparable same-store sales growth since the fourth quarter of 2015. The chain’s core markets of Miami-Dade and Broward counties in Florida posted comps increases of 3 percent, beating Florida’s Black Box quarterly benchmark of 1.9 percent. The success carried into April as well, the company said, with company-owned gains of 2.8 percent, including 5.1 percent and 3.9 percent in those respective counties.

"The comprehensive improvements in food quality, hospitality, and restaurants facilities as part of the brand relaunch are clearly resonating well in both our core and non-core markets.” — Richard Stockinger, Fiesta Restaurant Group president and CEO.

Pollo Tropical generated its highest same-store sales growth in the system on a percentage basis during April in its non-core Southwest Florida market as well, where the company first began testing citrus marinated crispy chicken earlier in the year.

“Reinvigorating our business in South Florida has been and remains our primary focus, but we are encouraged by the improving sales trajectory across every Pollo Tropical region,” president and chief executive officer Richard Stockinger said in a May 8 conference call. “The comprehensive improvements in food quality, hospitality, and restaurants facilities as part of the brand relaunch are clearly resonating well in both our core and non-core markets.”

Pollo Tropical’s sales growth included a 2.3 percent in transactions offset by a 3.4 percent increase in average check that stemmed from higher menu prices. For the most part, this quarterly comp breakdown is by design for Fiesta. The brand is evolving its base by using higher quality menu items, not deep discounts, to lure guests back.

“We believe that our trends will continue to improve as we build new guest loyalty and frequency,” Stockinger said.

The company’s discount and promotion business used to be between 9–10 percent, he added. It’s now hovering around 3 percent, which is primarily for military, first responders, and senior citizens. While Fiesta engages in selective or strategic discounting, like bounce-back coupons that encourage guests to return during a select window, the days of courting value hunters is over. Another example is Pollo Tropical’s promotion of “Pollo Time,” which aims to increase sales during certain parts of the day, week, and market by market.

“We all believe based on our research that the No. 1 item was quality, and the reason why people didn’t come back—the only reason that they were coming back before—was because to fill their bellies at … a price point about $4.99,” he said.

“And then the margins kept going down.”

If Fiesta can now improve those transactions, the comp sales would likely hit mid-single digits.

As Danny Meisenheimer, Pollo Tropical’s chief operating officer, put it in the call, “the heart of our revitalization includes comprehensive quality enhancements made across our menu.”

Fiesta relaunched Pollo Tropical’s brand in October. This included a vast menu overhaul that touched 90 percent of the offerings with food and ingredient enhancements, including removing artificial ingredients. Fiesta also said it would vertically integrate its chicken supply chain to control the feed and breed of chickens, with a goal of serving a totally antibiotic and hormone free product.

Meisenheimer said guests are responding positively to the brand’s NAE (no antibiotics ever) chicken and its citrus-marinated crispy chicken platform introduced earlier in the year. The product was extensively researched and founded on Pollo Tropical’s signature 24-hour citrus marination process. It’s then hand battered in the restaurant and fried. “We consider this platform a real game changer for our brand,” he said.

At the beginning of 2018, the chain began pushing Crispy Pollo Bites with TV and social media support. They rolled out systemwide in February as a meal or side item.

So far, the item has reached 11–15 percent of transactions across every Pollo Tropical market since launch. The Pollo Bites wrap arrived in April. A crispy chicken sandwich is up next.

Meisenheimer said 2.8 percent comps growth can be attributed, among other things, “to the compelling appeal of our crispy chicken platform that we believe will bring guests back more frequently once they try the product.”

Pollo Tropical is preparing to launch its new loyalty program, online ordering, and digital catering platform by early July. Meisenheimer said the company believes this “will be foundational as we focus on building our off-premise business.”

Taco Cabana, admittedly, is a bit behind Pollo Tropical. Despite key changes, Fiesta doesn’t plan to relaunch the brand—similar to what it did with Pollo Tropical—until summer. Stockinger said they hope to have the loyalty program live before reintroducing Taco Cabana to the public in what it hopes will be a very different light.

Taco Cabana posted comps growth of 0.9 percent in April, and the brand has improved its sales every quarter since August 2017, despite the fact it reduced operating hours in November 2017—a move that hurt comps by 1.6 percent, Stockinger said.

Also like Pollo Tropical, Taco Cabana is taking a quality-first approach to its revitalization. With the help of founding chef Connie Gutierrez, the brand has looked at reestablishing quality in its recipes. Applewood-smoked Texas brisket rolled out in the quarter, and Stockinger said brisket-related product sales are exceeding 100 per restaurants, per day—one of the most successful launches in years. Other product improvements include USDA Choice skirt steak, NAE chicken, higher-quality shrimp, and lean-smoked bacon. Improved shredded chicken and ground taco meat are coming, he added.

Taco Cabana is also in the process of developing a patio party initiative to roll out at certain units. These stores will serve featured alcoholic beverages to complement sharable menu offerings. Taco Cabana has tested draft beer and sangria in select locations to favorable results.

“Similar to Pollo, guests are noticing the enhancements we have put in place at TC. And our guest metrics and social media scores are improving. As we continue to build our sales, our margins will also improve,” Stockinger said.

As of April 1, there were 146 company-owned Pollo Tropical restaurants, 166 company-owned Taco Cabanas, 31 franchised Pollo Tropicals in the U.S., Puerto Rico, the Bahamas, Guyana, Panama, and Venezuela, and seven franchised Taco Cabana restaurants in the U.S. There were no restaurant openings during the first quarter.

In 2018, Fiesta plans to open seven to eight company-owned Pollo Tropical units in Florida and seven to eight Taco Cabanas in Texas. The Taco Cabana openings include five closed Pollo Tropical conversions. Two Taco Cabanas are expected to close in the year.