Guillermo Perales knows he has to be patient with the turnaround that he wants for Taco Bueno.
That’s difficult for Perales, who built his 1,000-unit franchisee, Sun Holdings, with a particular aggressiveness. He builds dozens of new restaurants every year under brands such as Burger King, Arby’s, Popeyes Louisiana Kitchen and Krispy Kreme.
Since buying the Dallas-based Taco Bueno out of bankruptcy in January, he hasn’t opened one, though he has chosen a new prototype and has four restaurants under construction.
“We’ve been slow at it,” Perales said in an interview with Restaurant Business. “We’ve built over 200 stores in the last three years (as a franchisee). I like to build. But (at Taco Bueno) we haven’t been able to build a single one.”
To be sure, “slow” is a relative term. Since the purchase, Taco Bueno has improved its ingredients, started working on remodels and is marketing and advertising the brand again.
And turnarounds take time. It took years for Taco Bueno to land itself in bankruptcy last year. It’s not a quick fix. Nor does the brand have just one issue that needs attention.
“If we remodel but we don’t have a good product, it won’t work,” Perales said. “If we have a good product but a bad facility, it won’t work. If we don’t have good advertising, it won’t work.
“It’s like the perfect storm. To get it working again we have to fix everything. And if we don’t fix everything, some customers will get upset.”
Taco Bueno filed for bankruptcy protection last November. The chain had been struggling and hired a restructuring consultant in August so it could find a buyer.
Heavy rains led to a steep decline in sales last September, prompting a filing. “I would say the last two years were brutal,” Perales said. “Not just September.”
Indeed, system sales at the brand declined from $192 million in 2013 to $170 million in 2018, the year of the bankruptcy filing. Since then, the brand has shed locations. It has fewer than 150 today, compared to 169 at the time of the filing. Most of the restaurants are company-owned.
The brand had a ton of debt—$130 million—so it likely cut corners to make enough money to make those payments.
That led to a lot of problems that ultimately did the brand in. “It wasn’t just one thing,” he said. He noted the quality of the tortillas was poor, and the company changed the recipe of its popular queso as well as the beef for its tacos and burritos. “The food wasn’t at its peak,” Perales said.
The company didn’t invest in its facilities, and it cut advertising as its financial problems worsened.
Taco Bueno was also owned by a succession of private-equity firms that Perales said hoped to turn the brand into a big national chain.
“Every private-equity firm has come to this brand thinking it could be Taco Bell,” Perales said. “I doubt that could really be possible.”
There are only two major nationwide Mexican chains: Chipotle Mexican Grill and Taco Bell. Other chains have struggled to make it nationwide, and the category is filled with regional competitors that do well in certain parts of the country.
As such, Perales has no lofty goals of making Taco Bueno the next Taco Bell.
“For us, being such a small brand with 150 stores, we can still double sales in every market,” he said. “So why expand in multiple states when you have a lot of work to do where you’re at?
“I would prefer to stay at home, make sure we operate better closer to home, and have better food closer to home.”
It’s more work for Perales to operate a brand rather than the franchised restaurants he had operated for more than 20 years. He has to worry about marketing and product development, things that he doesn’t have to worry about at his franchise locations.
“It’s a big weight to make sure you get good products and good advertising to increase sales,” he said. “If you’re a franchisee, your products and marketing are done by the brand. Here, we do that.”
That said, Perales said he is learning from the brands he operates and taking best practices and applying them to Taco Bueno. He’s also learning from the other brands’ mistakes.
“We learn from the other brands, what’s good and what’s bad,” he said. “We need to find that home-run product to move forward. And if we go back to the basics—good food, fresh food, good, remodeled stores, good products and advertising, we’ll be successful, and Taco Bueno becomes great again.”
Correction: A previous version of this story included the wrong number of locations Perales' Sun Holdings operates.