Industry News | May 9, 2017 | By Danny Klein | QSR Exclusive Brief

Fiesta Shutters 30 Pollo Tropicals in 'Renewal Plan'

Fiesta Restaurant group closed 30 Pollo Tropicals in the first quarter. Pollo Tropical
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Richard Stockinger has been here before. That was the silver lining of what was, numbers wise, a very difficult quarter for Fiesta Restaurant Group, parent company to fast casual brands Pollo Tropical and Taco Cabana.

The former president and CEO of Benihana, who was named to the same role at Fiesta in February, said during a conference call Monday afternoon that the company is in the early stages of a “strategic Renewal Plan” that will drive long-term creation. In the interim, some lumps are going to be taken.

“The process starts with extensive research by rolling up your sleeves, getting into the heart and soul of the company, its restaurant operations,” he said.

Subsequent to the end of the first quarter, Fiesta shuttered 30 company-owned Pollo Tropicals, including all locations in Dallas-Fort Worth, Austin, Texas, and Nashville, Tennessee. This leaves the company with 19 Pollo Tropical units outside of Florida—13 in Atlanta and six in South Texas. Up to five of the closed Texas restaurants could be rebranded as Taco Cabanas, the company said.

The move comes following a first quarter where total revenues fell 0.6 percent to $175.6 million. Comparable restaurant sales at Pollo Tropical dropped 6.7 percent and comparable restaurant transactions decreased 8.9 percent. Comparable restaurant sales at Taco Cabana were down 4.5 percent and transactions fell 4 percent. Fiesta also reported a net loss of $15.1 million, or 56 cents per diluted shared, compared to net income in the prior year period of $9.9 million (37 cents per diluted share). Adjusted net income was 6.7 million (25 cents per diluted share).

The Renewal Plan launched on April 24. “I have used this process at other brands with consistent successful results, most recently with Benihana, where we generated industry-leading comparable restaurant sales and margins for several years following the implementation,” Stockinger said.

He said he sat down with the founders of each brand and the management teams to try to figure out what made the restaurants successful early on, and what later initiatives rolled out to send the company’s trajectory in the opposite direction.

“We reviewed financial, operational and guest metrics including guest feedback and social media scores. With the assistance of a culinary expert that I have worked with in the past, we reviewed each ingredient, product specification and recipe across the entire menu at both brands,” he said.

There are currently more than 170 action items in the Renewal Plan, Stockinger said.

Perhaps the key change will be a turn inward. Fiesta plans to relaunch Pollo Tropical in its core markets in September and Taco Cabana later in the year. This process will be led by brand presidents, where Pollo Tropical and Taco Cabana will continue to be managed separately.

Store returns in the core markets are at that 30 percent-plus level. So those restaurants still perform incredibly well. Right now, South Florida is running over $3 million in terms of average unit volume. And then margins can be anywhere northward of 25 percent depending on the average unit volume," said Lynn Schweinfurth, chief financial officer, treasurer, and senior vice president.

Fiesta opened three company-owned Pollo Tropicals in Florida during the first quarter and one Taco Cabana in San Antonio, bringing the total to 180 company-owned Pollo Tropical restaurants, 167 company-owned Taco Cabanas, 34 franchised Pollo Tropical units in the U.S., Puerto Rico, the Bahamas, Guatemala, Guyana, Panama, and Venezuela, and seven franchised Taco Cabana restaurants in the U.S.

In 2017, Fiesta said it expects to open eight to nine new company-owned Pollo Tropical restaurants in Florida and six to seven Taco Cabanas in Texas.

“Investments in core markets have suffered over the past few years as a result of the expansion of Pollo Tropical into other markets,” Stockinger said. “Therefore, it is imperative that we revitalize both our brands in their core markets first with the goal of establishing our brands as best-in-class within our segment and providing the best quality and value to our loyal guests.”

Additionally, Fiesta said it will increase the use of natural ingredients and improve the quality and freshness of its food. One decision that didn’t sit well with guests, Stockinger said, was the brand’s decision to replace certain quality parts of the chicken with “some thigh meat that the guests told us, loud and clear, didn't like.” The company switched back to breast meat and is already seeing returns, he said.

Restaurant-level programs are being refined across the board, everything from dress attire to music to pest control to sanitation.

A push toward technology is underway as well. “We plan to implement high-quality systems that improve our guest experience and operational efficiency, utilizing state-of-the-art digital platforms, enhanced online, delivery, and catering systems capability, digital menu boards and video monitors. We are also evaluating production systems, kiosks, and point-of-sale enhancements that will be considered in the future,” he said.

Marketing is being revamped. Spanish TV and outdoor billboard in core markets are being brought back to life and broadcast media scaled back.

Lastly, Fiesta is reimaging restaurant to “to address deferred repair and maintenance items across both brands and to enhance restaurant visibility with better exterior lightning and signage.”

All of these moves are taking form with the future in mind. Stockinger said Fiesta will look at quantitative and qualitative research, menu pricing, menu design, and menu offerings by location.

The company expects these steps and more to deliver a cash-on-cash return for new restaurants of 30 percent or better.

“We strongly believe that the many initiatives, including our strategic Renewal Plan, will revitalize and rebuild our brand equity for Pollo Tropical and Taco Cabana,” Stockinger said.