Why Taco Cabana is expanding its franchise beyond the Lone Star State

Speaker A: Foreign.

Speaker B: For those of you leading fast casual brands, take note. The Fast Casual Executive Summit is happening October 4th through the 6th in Arlington, Texas. Save 20% when you register at fastcasual summit.com with the code podcast. Welcome to the Restaurant Operator podcast. I'm Mandy Detwiler, editor of Pizza Marketplace and QSR Web, and I'm here today with John Ramsey, director of franchise sales and development with Taco Cabana based in Texas. John, thanks so much for being with us today. Well, let's hit the ground running. You said you guys have a great story. Tell me that story about Taco Cabana. How did it get its, its origin story? How did you guys get your start?

Speaker A: Yeah, so, uh, fun story. So the original founders, uh, owned a series of nightclubs and restaurants in the San Antonio market. And back in 1978 when the nightclub would close at 2am There was not a lot of places where you could go to get a bite to eat that late at night. So they had an opportunity. Directly across the street from one of the nightclubs was an old Dairy Queen, kind of the old, old school walk up window, no seating that had closed down. And so they reopened the Dairy Queen. They took one of their cooks from the restaurant, uh, and basically started making tacos in this little walk up window. Uh, it was so popular that they closed off the parking lot and put it, put out some uh, picnic tables and chairs, uh, literally outside, uh, in the parking lot. And over time they, it got to be so popular, uh, not only with the local residents, uh, restaurant, but people started to learn that this is a place they could come late at night. So they eventually enclosed the patio. And so that's still one of our trademark elements is that ah, sort of outdoor feeling. Patio is still part of the original concept.

Speaker B: And how many units does Taco Cabana have now?

Speaker A: We're currently at about 140 locations, um, almost all in Texas.

Speaker B: Okay. After decades of being a Texas icon, what was the specific tip, tipping point or uh, market data that signaled now is the right time to move out of state because you guys just originally or just now started to move out of state. Is that correct?

Speaker A: That's correct. So we started I. And we're really, our initial focus is on states that are contiguous to Texas. And I think for us the tipping point was uh, we went through an acquisition, uh, Anil Yadav, who's a very successful franchisee, um, when he acquired the company a few years ago, uh, he really rebuilt and looked at the infrastructure, knowing what it took to be uh, to be A good franchisor. Uh, so really those sort of uh, support systems, purchasing, supply chain, um, finance, legal, uh, training, all of those elements. And really started to look at the operations to say that okay, now is the time that we could replicate and scale the brand.

Speaker B: What specific non Texas markets, um, have been identified as the first wave and what makes those regions a cultural or demographic fit for, for Taco Cabana.

Speaker A: Yes. So the, I mentioned a contiguous state. So you really think of Oklahoma, Louisiana and Arkansas are the top three. Um, I think a couple things they have in common. Number one is that there's a large percentage of former Texans, uh, who have moved into those states. Uh, so we already have sort of a built in marketplace and all audience. In fact we get solicitations all the time from people who used to live in Texas that now live in one of these other states saying please come, um, you know, and put one here in my hometown. Uh, so I would say that's really number one is that having that sort of built in base. I think the other important piece is the menu itself. Um, Taco Cabana, um, like a lot of Mexican chains that started in Texas have very much, you know, people call it Tex Mexico. Really what it is is it's Mexican inspired food that's more common within the state of Texas. So as you look at those contiguous states, they also have very, their style of Mexican food is very similar to what you would find in Texas.

Speaker B: Now what's going to be your top sellers? Let's talk about that menu a little bit. What are you guys selling the most of?

Speaker A: Yeah, so the um, number uh, one is tacos, not surprisingly. And the number one taco we have is our bean and cheese taco. Uh, so, and I think part of the reason I didn't really understand it at first, uh, I live in California, so for me it was a little bit foreign. Um, but the, the beans that are used in the Taco Gabbana have a very distinctive flavor. They're much smokier, they're much more robust flavor than sort of what, what we get here in California. So I think that. So for the bean and cheese taco from Taco Cabana, um, has a very unique and distinctive flavor, uh, that our guests love. And so that's our number one seller. Um, the other thing that's sort of unique with us is that we have breakfast in all of our locations. And so breakfast day part for us is close to 30% of our business. And when you come through a. And we have drive throughs. So when you come through a Tucker cabana, drive through for breakfast. Our number one seller is a dozen taco box. So people know, and they know us for. Okay, well, instead of going to get a dozen donuts to bring to the office or to bring to the teacher's lounge, they'll come through the Taco Cubana, drive through and pick up a couple dozen boxes of tacos. So they're very affordable, it's a good value and it's a single, you know, it's not unusual for people to have two or three tacos for breakfast. So it makes for a really nice product, uh, that we're known for.

Speaker B: I am not a donut person, but I am a taco person. That sounds fantastic. How are you adapting the brand's identity to appeal to customers who didn't grow up with the brand's heritage? Because in Texas it's a well known brand, but here in Kentucky it's not. So how, how are you kind of, um, appealing that identity to new markets?

Speaker A: Yeah. So, uh, first thing is that we're doing is that um, we outside of Texas, we don't call it Tex Mex because people either, either that doesn't have a good connotation or they don't understand what it means. And so one of the subtle shifts that we make is that we call the food Mexican inspired. Um, so because if you think of Mexican cuisine, it is very different in different parts of the country. So it's a Mexican inspired menu. Um, secondly is we make it clear to folks, uh, that we're very convenient. So we have drive through, we use third party delivery, we have catering. So it's a very accessible brand. And so as we start to market the brand and talk to people, uh, we make it well known that you could come to us for any occasion, drive thru delivery, uh, dine in. Then I think the other piece that we, that we talk about is the diversity of menu. Uh, so it's not just tacos, um, and it's not just things that come out of a deep fryer, that we have fajitas that are grilled fresh on the grill, um, we have full platters, we have quesadillas. So, um, you know, people, when we explain to people what our menu is, they say, oh, that sounds just like a full service Mexican restaurant. We say, well, yes, that's kind of how we started with that menu, that breadth of menu and that variety menu. But you could get it in a convenient format and you could get in a good value format.

Speaker B: So what are the biggest logistical challenges in maintaining the freshness of your supply chain. Like your scratch made tortillas, um, as you m. Move further from your Texas hubs.

Speaker A: Yeah. So the tortillas is a good case in point. So uh, in all of our restaurants today, we actually um, we cook the tortillas fresh to order. Recently, um, we've been able to work with our suppliers, uh, and been able to use that same recipe and that same methodology and be able to get fresh uh, tortillas delivered into our restaurants. You know one of the, one of our strengths that I sort of alluded to before, supply chain and distribution, uh, and that's part of the reason that we're staying close to Texas for now, uh, is we want to be able to make sure that those ingredients are delivered fresh and that they, that we're able to maintain the quality as we go into these contiguous states.

Speaker B: Now do you all have um, a goal in mind for 20, 26? How many units do you plan on opening?

Speaker A: We don't have a specific number. You know our uh, being that we are owned by a franchisee, I think our position, ah, and our strategy is let's make sure we get the right partners and we go into the right markets and we grow the right way. So it's not about numbers for us. It's really more about quality, uh, and making the right decisions.

Speaker B: So do you guys have a new prototype, is that right?

Speaker A: We do.

Speaker B: Tell me a little bit about that. How does that design facilitate this expansion? Is it smaller, more tech forward or optimized for off premise dining? How does it differ from, from the current layout now?

Speaker A: Yeah, so I think, I think two of the three that you mentioned are there. Number one is the footprint. So it is smaller. Um, and it's, I think it's not just us but clearly we're taking advantage of the post Covid world that the dine in traffic has not really come back to a pre Covid rate. Um, so we're going with the smaller footprint which is primarily in the dining area. So we still have a patio that's sort of an indoor outdoor space. Even though it's smaller, we ah, still have indoor seating although it's smaller. So for example it might be 40 seats instead of 60 seats. Um, so but the kitchen itself, we haven't really uh, reduced the size so much. Ah, however what we have done is, and you sort of alluded to it, right, is the third party delivery and other and takeout. So a lot of our restaurants now not only have a drive through on one side of the building. But on the other side of the building we have a walk up window. So if you're a takeout customer, um, you don't have to walk into the restaurant, you could come right up to the takeout window. So especially if it's a family with kids in the car, it makes it much more convenient. Um, and then inside the restaurant, uh, where you, where the delivery drivers come in. One of the things that we saw early on right after Covid is that as that delivery business picked up was the cross traffic. You know, if you had a dining customer say wait a minute, how come I just ordered my food yet these other people are waiting in line, you know, who are third party delivery drivers trying to pick up food. It didn't seem fair. So we've been able to separate the dine in from the delivery, um, on the inside of the restaurant and make it very clear to the guests that if you're a dine in customer, you're not going to have to wait behind a delivery driver. And likewise our delivery drivers know that they're not going to have to wait in line behind a dining guest, that they come to a separate location to pick up their food. So that's something that we've really solved and worked out and we're very focused on with the prototype.

Speaker B: Are you focusing on traditional street side locations or are non traditional venues like airports or universities or stadiums a core part of the 2026 roadmap?

Speaker A: No, I would say it's definitely more traditional sites. I would say the twist is that uh, we really recognize, especially when you go into new markets, uh, we're really focused on new growth areas and part of the reason for that is that because we're introducing a brand new to the marketplace. When you go into a new growth area, we've really learned that you have an opportunity to appeal to people who have not yet established sort of their patterns on their favorite restaurants. Uh, so if we're able to open up into a new center, uh, in the last two we've opened up, we're in brand new centers. I think they were anchored, both of them were anchored by Target and Home Depots. So people are in the relatively new houses. So people are sort of learning, you know, creating their new patterns and so we become then part of their routine. Uh, so really I would say it's the, the real estate site selection are traditional but it's, but it's highly focused on new growth markets.

Speaker B: What are the non negotiables that you look for in your first set of out of state multi unit developers or franchisees. What are you looking for in a franchisee?

Speaker A: Yeah, so we've really developed a model that I think is a little bit unique, um, to us is that, you know, a lot of franchisors really focus on, um, you know, do they have restaurant experience and do they have money? Um, and if they have either both or one of those, they're like, great. Uh, we take it a bit further. Uh, number one is we're looking for not necessarily people that have restaurant experience, but business experience. Um, and so, you know, what is their business acumen? Have they owned a business before? Um, then we look at development experience. You know, have they actually built a restaurant or built a commercial building before? Do they know how to hire an architect? Do they know how to go through the building permit process? Have they led a construction contract? Have they worked with a commercial real estate broker? Um, and then the, I think the last piece that we really look at is connection to the local community. Um, it's very important to us that we don't want a franchisee who's sort of a larger player that has locations all over the place. We're looking for people who are, have a local connection, uh, understand the marketplace. They've, they've hired people to work either in the restaurant, in their business, within the local marketplace. Um, they have connections to chamber of commerce, to, you know, fire department, police department. Um, so because it's really important from a marketing standpoint, as we start to go into new market, we don't have the scale to do, to do, you know, major media push. So we have to rely upon local store marketing. And it's having those, uh, word of mouth and local connections that make a big difference to be able to see the brand properly.

Speaker B: How are you structuring incentives for early adopters who help pioneer the brand outside of Texas and new territories as we

Speaker A: go into new market is that they're not going to be competing against another franchisee. So the number one incentive is to be able to create a territory and give them development rights within that territory so that they know if they're going to come in and say they're going to develop Baton Rouge, Louisiana, that we're not going to then be putting another franchisee in the same market. Uh, that's something that a lot of we hear over and over again when people come to us. It's like, well, I've sort of already built out all my locations that I can within my current brand. And now the franchisor is bringing in new people into my market. So they're looking for that exclusivity and those development rights. I would say that's number one on their minds.

Speaker B: In our minds, what kind of localized marketing support can new franchisees expect to help them compete against established national Mexican QSR chains? And I think we all know which one we're talking about.

Speaker A: Sure. So I think there's um, two parts to that answer. One of them is the message and the other is sort of the format. So from a format standpoint, you know, these days it's all digital. Um, and so we've really taken our marketing team and really created a team of people that have digital expertise, uh, so they understand how to uh, work within the digital format and use uh, local digital, uh, targeting, uh, to get the message out. So I would say that's number one is to be able to use the digital format which is much more affordable and much more localized. Then around the messaging has to be different. Um, is. We've also built up on our team really a focus around uh, catering, around uh, delivery and sort of the convenience of the brand, uh, so that people start to learn the differentiator what we have. So we have a broader menu, um, and we have all these different formats that they could get the product in. And so uh, that's where we're trying to differentiate ourselves from already established restaurant operators and especially the Mexican cuisine operators.

Speaker B: Given the current economic climate, um, how is Taco Cabana working to keep build out costs manageable for new franchisees? A lot of times, um, over the past couple of years as I'm interviewing people, I hear them say build out costs. Build out costs are so expensive now. How are you guys kind of helping the, the franchisees to keep that down?

Speaker A: Yeah, so a, uh, couple areas that we're focused on. One is when we talk about this new prototype, one of the things that was very important to us obviously was the build out cost. Um, so we really looked at the kitchen in detail and number one is to make sure we're not over utilizing custom equipment. So we're using a lot of off the shelf items in the kitchen. Um, secondly is by going with the smaller footprint we're using, uh, therefore the, the load H vac loads and plumbing and electrical are less on the building. So we're reducing costs there. Um, and then the last piece I would say is really the scalability. You know I've mentioned that, um, we're part of a larger group. Uh, so we, we are a franchisee and a franchisor and so it's utilizing contractors in other parts of the country. It's by utilizing scale and purchasing both equipment and fixturing. Um, so it's, it's really taken advantage of our years of experience of being franchisees, of reducing those costs and keeping them down.

Speaker B: How do you position Taco Cabana, um, against Fast Casual competitors vs. Quick service competitors in new markets? Because it's really a fast casual. You're kind of in the middle. So how do you compete on those levels?

Speaker A: Yeah, we sort of are in the middle. Um, so I think that we. And it's, uh, to our. Once our guest sort of learns the brand, they sort of also look at us as being unique. And I sort of alluded to it before. Right. Is we have this variety of menu. So compared to QSR or even compared to some of our fast casual competitors, we have a broader menu. Uh, so. And we, and when we talk to our guests, especially to a new guest, uh, we make it known that we have a broad menu so that they can start to use this on a more frequent basis, knowing that each time they come, they can sort of change up their order and get a variety of products. Secondly, um, is around value. Uh, so even though we have some items on the menu that would be normally considered either fast casual or full casual dining, such as fajitas, for example, um, so they know they could come to us for fresh fajitas, but they could also come to us at lunchtime, for example, get a value combo meal. So you're sort of, um, playing against both sides of that. You have some products that are higher end, but you also have a value menu.

Speaker B: Great. That's great. Okay, well, I think we're out of time. Thanks so much for being with us today. This has been great.

Speaker A: Oh, you're welcome. Thanks for having me.

Speaker B: We need a taco cabana here in Kentucky.

Speaker A: You do?

Speaker B: Sounds good. Well, that'll do it for this episode of the Restaurant Operator podcast and we'll catch you next time.