One might say that the idea to bring back Chi-Chi’s came to Michael McDermott in a vision.
The seasoned restaurateur and son of the Mexican brand’s co-founder was doing his morning meditation practice, and the prospect of reviving the defunct chain just popped into his head, seemingly out of nowhere.
“I was not thinking about it at all. It was not an option,” said McDermott, who also founded Kona Grill, in an interview. “And it literally just came to me.”
When he shared his epiphany with his father, Marno, and his uncle, Marco’s Pizza CEO Jack Butorac, both men were all for it.
“My Uncle Jack said, ‘You know, the only thing wrong with it is that I didn’t come up with it,’” McDermott said.
Now, McDermott is plotting the comeback of the brand, which disappeared in 2004 amid a bankruptcy filing and a devastating foodborne illness outbreak. He plans to open two locations this year in Minnesota by converting his existing Rojo Mexican Grill locations. The menu and design will feature many elements of the Chi-Chi’s people remember while also nodding to current trends.
To help finance the projects, McDermott this week launched a $3.5 million crowdfunding campaign that will allow investors to get equity in Chi-Chi’s starting at $250 per share.
From there, he hopes to partner with franchisees to open more locations, and has already seen plenty of interest.
“I’m just excited. Really excited,” he said. But, he added, “there’s a lot of pressure to make sure it’s right.”
Fond memories fuel a comeback
McDermott was just 9 years old when his father, along with former NFL player Max McGee, opened the first Chi-Chi’s in 1975 in Minneapolis. They went on to expand the concept around the Midwest and then the East Coast, helping to introduce many Americans to Mexican cuisine.
They later sold the brand, and it changed hands twice more through the 1980s and 90s as it grew to about 200 locations. In the early aughts, it was struggling under then-owner Prandium and eventually filed for bankruptcy in 2003.
Around that same time, a Chi-Chi’s near Pittsburgh was identified as the source of a hepatitis A outbreak that would sicken 660 people and lead to four deaths. It was the worst hepatitis A outbreak in U.S. history. The next year, Chi-Chi’s closed its remaining U.S. restaurants.
Despite its disastrous end, Michael McDermott had a feeling that people still had fond feelings for Chi-Chi’s.
“The concept was the first real Mexican dinner house chain, and a lot of people had their first experience with Mexican food,” he said. “It’s a brand that a lot of people just have really good memories of.”
Even so, he was not prepared for the response when he announced in December that he would be opening Chi-Chi’s again after striking a deal with Hormel Foods to use the brand name on restaurants. The news generated extensive media coverage and an outpouring of enthusiasm from fans that surprised even McDermott.
“The comments were just amazing,” McDermott said. “It was overwhelming how much people missed Chi-Chi’s.”
The reaction got McDermott to start thinking differently about how to finance the concept’s comeback. Typically, he said, he’d have worked to raise funds internally or through a small investment bank. But he saw an opportunity to allow Chi-Chi’s passionate followers to be part of its second act.
People can invest through StartEngine, a crowdfunding site for startups, with a minimum investment of $250. They’ll get common stock, which means they won’t have a direct say in the direction of Chi-Chi’s. But they’ll still have McDermott’s attention.
“I feel like these are people that care about the brand and the success of the company, and they’ll be people I’ll be listening to,” he said.
McDermott acknowledged that he’ll have to strike a delicate balance with Chi-Chi’s 2.0. He must appeal to people’s nostalgia for the concept while also updating it enough to satisfy modern tastes and attract newcomers.
The menu, for instance, will feature Chi-Chi’s staples such as chimichangas, seafood enchiladas and deep-fried ice cream. But it will also appeal to current trends with things like birria and street tacos. Some items from Rojo will also be grandfathered into Chi-Chi’s menu.
“We want to bring it forward, and we want to make sure we respect the concept and keep loyal to those things that really worked from a menu standpoint,” McDermott said.
That approach will also be brought to the restaurants themselves. The decor and atmosphere will be refreshed, but there will be familiar elements, such as the hanging plants that were part of every Chi-Chi’s in its heyday.
Making dad proud
As Chi-Chi’s changed ownership throughout its first life, McDermott said, it began to stray from what had made it successful. Each owner had its own ideas for the concept and the menu, and they didn’t always work.
Fortunately, McDermott still has all of the chain’s original recipes, handwritten on a yellow legal pad. More importantly, he has his dad, who knows just about everything there is to know about what made Chi-Chi's a hit initially. The two talk every day.
“When I thought about doing it, there was definitely a part of me that was like, ‘I want to bring back something my dad did,’” McDermott said. “‘I want to bring it back and make my dad proud and have it be something that he’d be proud of as well.’”
McDermott has looked to his Uncle Jack, meanwhile, for help on the franchising front, drawing on his years of experience leading the Marco’s system. After the first two Chi-Chi’s locations, McDermott plans to grow the brand primarily through franchising, starting in the Midwest and then heading East. Some of the $3.5 million Chi-Chi’s plans to raise will be used to launch that program.
“I’ve actually already had quite a bit of interest for people that want to look at franchising Chi-Chi’s,” he said.
As far as how many locations Chi-Chi’s 2.0 could eventually have, McDermott said he does not have a number in mind.
A lot has changed in the restaurant industry since Chi-Chi’s disappeared. It has more competition now, not only from other full-service Mexican chains but also from fast casuals. And there are new business channels to master, such as third-party delivery, that weren’t a thing back in 1975.
But there has also been a wave of nostalgia-fueled rebirths of old concepts, such as Steak & Ale and the Ground Round, that seem to be driven by the belief that people are hungry for restaurants of the past.
When it comes to Chi-Chi’s, “I think that those memories just still really resonate with a lot of people,” McDermott said.