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One year in, El Torito’s owner finds surprising results

Xperience Restaurant Group, which bought Real Mex out of bankruptcy last year, is generating quicker-than-expected sales growth and is looking for more, says RB’s The Bottom Line.
Photograph courtesy of Xperience Restaurant Group

The Bottom Line

Randy Sharpe spent three years as an executive with the company formerly known as Real Mex and, before becoming their CEO a year ago, knew that brands like El Torito, Chevys Fresh Mex and Acapulco just needed a little love.

But even he’s surprised at the results so far.

Sharpe, CEO of the chains’ new owner, Xperience Restaurant Group, says all of the company’s brands have generated stronger sales and traffic this year, and as a company, their sales have been up for 42 consecutive days through Wednesday.

“We’ve been up in sales every single month, and not only up in sales, we’re up in traffic,” Sharpe said in an interview with Restaurant Business. “We haven’t had a down week since the Fourth of July. I couldn’t be more thrilled.”

The chains were sold to the private equity firm Z Capital last year for $47 million after emerging from bankruptcy, which had been Real Mex’s second. Z Capital is one of a generation of investment firms taking advantage of the availability of chains that are struggling with low sales, significant debt or both, and can thus be bought cheap.

Z Capital subsequently renamed the company Xperience and named Sharpe CEO.

To be sure, the company operates considerably fewer locations than it did at its peak. Real Mex before its 2011 bankruptcy operated more than 200 locations. It had 112 in 2012 and 68 before the most recent filing. It now has 54 locations.

The bankruptcies shed the chains of their underperforming units. And one year’s worth of sales growth is just that: one year.

Still, the brand is heading in the right direction. It has renegotiated leases with more than half of its landlords, signing on for another 10 years in a sign of faith in the company’s direction.

“We’re not interested in closing any restaurants,” Sharpe said.

Indeed, the company is proving a truism in the restaurant business: It’s better to build than to tear down.

Restaurant chains that are investing in their brands generate sales, and those that put off fixes and maintenance and remodels frequently struggle to get business. The industry is far too competitive for anything else.

“What we’ve learned is that when you invest in the business, you get repaid,” Sharpe said.

Real Mex had struggled for more than a decade with casual-dining Mexican brands at a time when consumers were shifting more of their spending to fast-casual chains such as Chipotle Mexican Grill.

The company was heavily indebted and had weak sales and poor locations. It did little to invest back into the brands.

“I was the vice president of El Torito from 2014 to 2017. One of the reasons I left the company at that time is I wasn’t happy that there wasn’t reinvestment in the brand itself,” Sharpe said. “That’s what was needed to help keep these companies going.”

Sharpe said some of the restaurants hadn’t been remodeled in years. “Some had the same carpet they’ve had 30 years ago,” he said.

Xperience is on a remodeling tear. It has remodeled 12 locations and expects to have 20 done by the end of this year, with the rest of its restaurants done by next June. It is also revamping menus, changing uniforms and retraining employees on customer experience.

Once remodeled, the company holds a “grand reopening.”

The remodels so far get an average sales lift of 20%, Sharpe said. “These are some of the strongest brands I’ve been around,” he said. “They just needed a little attention and reinvestment.”

Still, he said, “I am a little bit surprised at the success we’ve had with the remodels.”

The brands have some employees who’ve worked at the restaurants for decades, and many of their customers have been around a while too. The sales growth after remodels demonstrate some pent-up demand, and is proof that customers will come back to an older brand that gets a bit of a makeover.

The success could beget further growth. The company has been opening Pink Taco locations, with two more on the way in Boston and in Miami. It’s also close to acquiring another brand, as the private equity sponsors grow bullish on the company. “We’re heavily engaged with an acquisition,” Sharpe said.

And the company also intends to do something it hasn’t done in a long time: build new El Torito and Chevys locations.

“We’re bullish on opening our other brands,” Sharpe said. “With the amount of success we’ve had, there will be opportunities to grow some new restaurants.”

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