Industry News | November 7, 2017 | By Danny Klein | QSR Exclusive Brief

Taco Cabana, Pollo Tropical Hit Hard by Hurricanes

Sales at Taco Cabana struggled in the third quarter. Taco Cabana
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As with any strategic renewal plan, patience is perhaps the most valuable commodity. Fiesta Restaurant Group has taken its share of bruises along its path to brand renewal in recent quarters, and its latest review was no different. Only this time the devastating impact of hurricanes Harvey and Irma set the recovering company back even further, delaying an overhaul executives said was beginning to show progress before the storms crushed much of its footprint.

Nearly 25 percent of Fiesta Restaurant Group’s company base is located in the Houston area. The company closed 43 Taco Cabanas and two Pollo Tropical company stores in the Houston metropolitan area during Harvey. In Florida and Atlanta, 149 Pollo Tropicals were closed and affected to varying degrees during Irma.

Fiesta estimated the hurricanes negatively impacted adjusted EBITDA and income loss from operations by about $3–$4 million at Pollo Tropical and $1-$1.15 million at Taco Cabana, and that same-store sales and transactions were hurt 5.5–6 percent at Pollo Tropical and 2–3 percent at Taco Cabana, respectively. Fiesta donated $600,000 in food to relief efforts in addition to feeding first responders and families in need in both Texas and Florida.

All in all, a very difficult quarter for Fiesta ended with comparable restaurant sales declines of 10.9 percent, driven by a decrease in transactions of 13.1 percent, year-over-year. Comps fell 12.6 percent at Taco Cabana, anchored by a 14.3 percent decrease in transactions. The group opened two company-owned Pollo Tropicals, three Taco Cabanas, and closed six Pollo Tropical units and four Taco Cabanas in Texas.

“The hurricanes resulted in a short-term loss of business and inventory as well as some property damage and delayed our brand relaunches, but we are back on track now,” CEO Rich Stockinger said in a conference call.

The storms hit Fiesta during a transition period. The company relaunched Pollo Tropical in August, introducing a massive menu revamp that touched 90 percent of the offerings, as well as a new advertising campaign. Prior to the hurricanes, Stockinger said Pollo Tropical was experiencing improved sales trends that had moved into the low-single digit declines from high single-digits. Sales fell 6.7 percent in the second quarter.

Reduced promotional discounts and advertising hurt Taco Cabana’s sales, Stockinger added.

“However, we remain optimistic that the strategic renewal plan is taking hold as leading qualitative indicators that preceded improving sales trends at Pollo Tropical are now beginning to build at Taco Cabana,” he said.

Much of this strategy has been centered on revitalizing the brands in core markets.

Fiesta said it vertically integrated its chicken supply chain for Pollo Tropical, which allows it to control the feed and breed of all chickens purchased with the objective of achieving “no antibiotics ever” by next year.

Pollo Tropical launched TV, radio, billboard, and social media advertising in late October to push its improved menu, centered on fresh and clean ingredients.

Taco Cabana recently launched a new advertising campaign and new digital menu boards, which are in the process of being rolled out across both brands.

Fiesta said it also introduced new labor models to improve speed of service, transaction flow, and consistency. Kitchen upgrades and décor, including added signage and exterior lighting, was also added.

Regional chefs joined Fiesta’s field structure as well to enhance food knowledge, provide training, and improve food safety standards.

“We are working hard every day to fundamentally improve the guest experience and induce trial and increase frequency. Our guests, particularly in core markets, already have strong affinity for our brand and that, coupled with superior financial performance of these restaurants, is why we are focusing our efforts and investment in core markets first,” Stockinger said.

A big note this quarter was the hiring of three executives to Fiesta’s senior team. Chris Locke joined the company as Taco Cabana president. Locke was the chief operating officer at Anthony’s Coal Fired Pizza. Tony Dinkins, formerly with Cable and Wireless Communications, joined as senor vice president of human resources. Maria Chang Mayer, general counsel of AMG and Widex USA, was named general counsel and secretary.

Lastly, Danny Meisenheimer, Fiesta’s chief operating officer, took on the additional role as Pollo Tropical president.

Meisenheimer said the brand’s menu innovations are making a significant impact. On October 9, Taco Cabana introduced three new flame-grilled chicken tacos for a limited time and enhanced its margaritas, which now feature Lunazul 100 percent Blue Agave Tequila.

“Over time, we see an opportunity to grow alcohol sales at the brand, which currently represent approximately 3 percent of sales, by encouraging greater patio use with special promotions and activities and enhancing our happy hour,” he said.

Pollo Tropical debuted a series of items on October 16, including Gauva BBQ Ribs, a Pollo Bites Kids Meal, and Grilled Chicken BLT. The brand improved and expanded its side dishes, and added to its dessert lineup with cheesecake, a signature key lime pie, and chocolate chip cookies.

“Both brands are putting in place refined positioning, marketing and digital strategies that will complement the new advertising campaigns. Through these communication platforms, we will convey our updated positioning and reinforce our brand equities across all consumer touch points,” he said.

“Much work has already been accomplished but there is still more to do,” Meisenheimer added later in the call. “Our enthusiasm for our brands has been renewed through this plan and our team is extremely motivated by and proud of the positive changes taking shape in our restaurants. Brand rejuvenation is certainly a process, but if we stick with what we are doing, we believe that our brands will provide the food and experience that our guests deserve, growth opportunities for our team members, and value for our shareholders who have trusted us with their investment.”

Other parts of the company’s renewal plan, as explained by Fiesta, include:

Managing Capital and Financial Discipline

  • Based on research and financial modeling, the company has introduced a tiered menu pricing strategy across both brands in October.
  • Nine Pollo Tropical Company-owned restaurants have been remodeled this year and one Taco Cabana restaurant will be remodeled by the end of the year.
  • Fiesta is in the process of developing a preventative maintenance program to improve the longevity of its restaurant base.
  • Restaurant prototypes for both brands are being redesigned to optimize the guest experience and deliver attractive investment returns at lower costs.

Establishing Platforms for Growth

  • The company launched an outsourced call center to answer guest inquiries and handle catering orders initially at Pollo Tropical. This is a significant source of future growth at both brands.
  • Fiesta is working with new partners to establish comprehensive digital capabilities that will include refining delivery, catering, mobile apps, online ordering and loyalty platforms for implementation in 2018.
  • The company continues to refine the positioning of both brands in core markets and outside of core markets beginning with Pollo Tropical locations in North Florida and the Atlanta metropolitan area.

Optimizing Restaurant Portfolio

  • Fiesta has rationalized its restaurant portfolio at both brands with the closure of several unprofitable restaurants.
  • The company is updating its franchise disclosure documents to support potential franchise growth in the future.
  • Fiesta plans to update its site selection and restaurant optimization models for future expansion outside of core markets.