Pollo Tropical was on the market for about two years before it was finally sold, largely because many of the private equity and strategic buyers that examined the chicken chain didn’t think it would work beyond its Florida home.
But its new owner, Authentic Restaurant Brands (ARB), isn’t interested in seeing how big the chicken chain could get. “I’m not sure you need to,” Alex Macedo, chairman of ARB, said in an interview. “There’s only 135 locations in Florida. First of all, I think there is room to grow in Florida.”
ARB completed its acquisition of Pollo Tropical on Monday, spending $225 million for that 135-unit, company-operated chain.
The company is owned by the New York-based private equity firm Garnett Station Partners—which notably is a large shareholder of Pollo Tropical’s former owner, Carrols Restaurant Group. ARB operates a trio of other chains, each of which are locally focused: The 38-unit Primanti Bros. and 28-unit P.J. Whelihan’s out of Pennsylvania and Mambo Seafood out of Texas. The company is led by Felipe Athayde, former president of Popeyes.
The brands, Macedo said, have strong consumer affinity in their home markets. ARB’s intent is to take advantage of that, building these brands in their home markets where they’re most popular, rather than grow them aggressively across the country.
It has instead targeted other concepts around the country that could be acquisition targets that fit the same mold. “We’ve mapped around 40 states that each have one brand that can fit into Authentic Restaurant Brands,” Macedo said. “We’re not trying to do one plays to get some crazy fast national expansion.”
“Instead of taking P.J. Whelihan’s and saying ‘let’s go to Ohio,’ let’s try to buy the brand that’s equivalent to P.J.’s in Ohio,” Macedo added. “We don’t want to cross state borders.”
Pollo Tropical fits the bill. The company has long been a strong performer, at least on a unit level, with strong sales and profitability per restaurant. And it has proven popular in its home state.
Fiesta Restaurant Group, its parent company, struggled to grow the chain outside of Florida, ultimately closing just about all of them, including several in Texas. Fiesta then put itself up for sale two years ago, saying that it didn’t have the size and cash flow to be able to fund growth or remodels.
But questions about the brand’s inability to grow outside of Florida slowed the sale process to a crawl and forced Garnett Station and ARB to be patient to get a deal done.
Yet Macedo believes the brand can grow first by generating stronger sales inside its restaurants. ARB’s strategy is to give these smaller brands more sophisticated digital platforms and data analytics to help them generate stronger sales inside their existing restaurants.
“We don’t want to do anything with the food, the food is great,” Macedo said. “But we could be a little bit faster, serve the food a little bit hotter and have cleaner locations. Just focus on the basics, add technology and analytics to marketing and grow the top line even further.”
But expansion will be limited to the existing geography. And Florida is plenty big for a chain like Pollo Tropical.
McDonald’s, Burger King and Wendy’s combined have 2,000 locations in Florida. Even Chick-fil-A, which opts for fewer locations and higher volumes, operates 100 more units in Florida than does Pollo Tropical. That plus organic sales growth could fuel Pollo Tropical for some time.
“We have plenty of opportunity to grow within Florida,” Macedo said. “Once we decide to step outside of Florida we grow in concentric circles 20 minutes away. Then the next one is 20 minutes away. Then we build 20 minutes from there.”
He cited In-N-Out, which quietly expanded near its existing territory. “They didn’t jump straight from California to Texas,” Macedo said. “Our thesis is density in Florida and then regionally.”
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