At 750 restaurants in 45 states, Canada, and Puerto Rico, QDOBA is the No. 2 player in the Mexican fast-casual space. What’s more impressive, according to CEO John Cywinski, is that the brand reached this height while dealing with lackluster ownership.

He’s specifically referring to Jack in the Box, which paid $45 million for the brand in 2003, and Apollo Global Management, a private equity firm that took over for $305 million in 2018. Current owner Butterfly Equity obtained control in 2022.

“In my opinion, with Jack in the Box, the brand was a bit of an afterthought, and Jack had its own issues that they needed to tackle,” Cywinski said earlier this month at the ICR Conference. “So, in many respects, I feel historically, the brand was orphaned.

“Apollo, we were probably a bit of a fly on an elephant’s ass to be quite honest with you,” he added. “Very small holding within a very large portfolio.”

Yet, QDOBA pulled positive same-store sales 17 out of 20 times between 2004 and 2023. Two of those three negative occasions came during the Great Recession in 2008 and the onset of COVID in 2020. In that two-decade timespan, the fast casual averaged 4.1 percent growth in comps. In 2023, same-store sales lifted 6.1 percent, rolling over a 12.1 percent bump in 2022 and a 10.7 percent lift in 2021. Through the first three months of QDOBA’s 2024 fiscal year (which starts in October), the chain’s comps were up 5 percent.

In fiscal 2023, the brand earned $1.1 billion in sales and a restaurant-level EBITDA margin of 18 percent. Corporate AUV was $1.6 million, a 30 percent increase from 2019. About 70 percent of that growth came from price and 30 percent came from transactions—a mix that QDOBA is more than comfortable with, said CFO Mel Tucker.

Of those 750 restaurants, 78 percent is franchised, but the chain wants to bump that up to 90-plus percent by 2027. Currently, the chain has 366 new restaurant commitments from 85 existing franchisees across the U.S., Puerto Rico, and Canada. The largest operator has 100 stores in the Midwest. The second-biggest has nearly 60 units in Wisconsin. There are a couple more franchisees with around 30 locations apiece. Then there’s a long tail of operators that own one, two, or three restaurants.

“You can expect that we would  have some consolidation around those smaller players,” Cywinski said. “I’d prefer to have fewer, larger, well-capitalized multi-concept franchisees in the system, but we love what we have. Our expectation on growth is significant moving forward.”

QDOBA took a development hiatus during COVID prior to Butterfly acquired it, Cynwinski said. During recent years, the brand “pruned up the system of some underperforming units.” The chain shuttered a net of eight locations in fiscal 2021 and 2022 combined, but roared back with net growth of 14 restaurants in fiscal 2023. Over the next three years, QDOBA projects net openings of 50, 75, and 100. If all goes according to plan, QDOBA will be at around 1,075 restaurants by the end of fiscal 2027. The longer-term goal is to reach 1,500 units.

Cynwinski is optimistic about whitespace. There are only 17 outlets in Florida, 20 in Texas, and 10 in California. The chain has no presence in Utah, New Mexico, Vermont, Maine, and Hawaii.

“The good news for us, we have tremendous demand internally from our existing franchisees who want to grow and acquire,” Cynwinski said. “We have significant demand from those who operate in casual dining and [quick-service] who want into Mexican fast casual. They can’t get into Mexican fast casual with Chipotle because they’re 100 percent company-owned. We actually have more demand than we can satisfy. They want to acquire those 165 restaurants that we own. And we’re going to hold those for the next few years because they are valuable to us.”

QDOBA will pair that unit growth with more brand awareness. The chain’s 2.25 percent contribution rate to the national marketing fund will grow to 3.25 percent in 2025. The brand retained advertising agency Leo Burnett to lead all production and creative.

“When we begin nationally marketing this brand through traditional media and digital media, we will define who we are. And what will come about as a result of that is significant brand awareness because I’m convinced most of America knows of us,” Cywinski said. “They may not know where their closest QDOBA restaurant is. That’s our opportunity. We’ll tackle that one. But we’ll have margin expansion. We’ll have AUV expansion. We will impact new restaurant development as well.”

Forty-two percent of QDOBA’s customers are under the age of 35, followed by 40 percent above 45 and 18 percent between 35 and 44. In terms of household income, 42 percent fall in the $40,000 to $59,000 range. After that, 21 percent are between $60,000 and $79,000, 19 percent are under $40,000, and 18 percent are above $80,000. By a slight margin, a majority of customers are male at 52 percent.

The leading dayparts are lunch at 35 percent and dinner at 33 percent.

“We expected maybe the recession or this recessionary inflationary environment would impact business as we moved into ’24. We just honestly haven’t seen it,” Cynwinski said. “The business is robust. Momentum is better than ever. And then the daypart is a bit unique if you know this industry quite well. Casual dining is a very dinner-dependent, weekend-dependent business. [Quick-service] is a very weekday lunch-dependent business. We are 50/50 lunch and dinner and a really simple operating model. We open at 10:30. We close at 10 o’clock.”

Bowls account for 37 percent of sales. Second are burritos at 19 percent. A little more than 60 percent of customers are walking into stores to either dine in or take out. The rest is 16 percent delivery, 12 percent web/app, and 10 percent catering.

“The fact that I can customize my burrito or my bowl or my quesadilla, I can’t do that at Chick-fil-A. I can’t do that at McDonald’s. It’s very important to our guests,” Cywinski said. “That’s why 60 percent of them come in because they love the theater of moving down that line and building their own product.”

Catering will be the channel to watch moving forward. It’s QDOBA’s most profitable, highest-growing business. It’s roughly 1,000 basis points more profitable on a four-wall cash basis than any other channel, and it’s expanding at a double-digit comp. Pre-COVID, it accounted for 11 percent of sales at $2,600 per week per store. Although mix is down to 10 percent, on a dollar basis, it increased to $2,973 per week per store in 2023.

The average QDOBA is about 2,500 square feet and costs roughly $800,000 to build, net of TI from landlords. Sixty-one percent of units are endcaps, 13 percent are inline, 11 percent are free-standing, 10 percent are in airports and military bases, and 5 percent are on college campuses. Freestanding stores are the most productive, right above endcaps. Only 35 restaurants have drive-thru, but the volumes on these outlets are higher than similar non-drive-thru outposts.

For fiscal 2024, QDOBA’s 600-plus traditional units expect to earn a $1.6 million AUV at a 19 percent restaurant-level EBITDA margin. On a build-out cost of $800,000, that’s a roughly 38 percent unlevered cash-on-cash return.

“Build a unit for $800,000, get to $1.6 AUV, that 2:1 sales-to-investment ratio is very attractive and unique,” Cywinski said. “If I were building an Applebee’s that cost me $3.5 million, I might be happy to get to a $3 million AUV. Over a few years that sales-to-investment ratio is challenged and those margins in [casual dining] and [quick service] continue to shrink. Whereas we’re just not very labor-dependent. We can run a QDOBA with four or five people quite easily.”

This year will also see $30 million in capital investment, including 85 company-owned restaurant remodels. Also, the plan is to install digital menu boards in all corporate outlets. That effort will be led by newly hired chief technology officer Prashant Budhale, a veteran of Inspire Brands and Yum! Brands.

“We’re not an affluent brand. You would find us in suburbia, but we also play quite well in metropolitan areas,” Cywinski said. “And then our momentum is significant and continues. We’re very enthusiastic and confident about this brand and where we’re going. “