Operations

Tacos poised to take over fast casual

Fast-casual taco concepts have more-elevated fare, bars and breakfast. And though the landscape in this niche is increasingly crowded, most say there's plenty of room for national growth.
Velvet Taco food
Tacos are a format ripe for innovation./Photo courtesy of Velvet Taco.

In its early days, the fast-casual segment grew around a cornerstone of burrito/bowl players like Chipotle Mexican Grill, Qdoba Mexican Eats and Moe’s Southwest Grill. Sure, they offered tacos. But tacos were not the star of the menu.

Today, however, a new Mexican-inspired niche is rising within the fast-casual segment: Fast-casual tacos.

These are chains with national aspirations offering more-elevated fare than the quick-service giants, like Taco Bell, Del Taco and Taco John’s.  Like Chipotle and others, the fast-casual taco players might also offer burritos and bowls. But tacos are most definitely the star, from the classic carnitas to trendy birria and more globally flavored variations.

That’s not to say these players in the fast-casual niche are more authentic. Many have menus “in the style of” street taco stands of Mexico or the Tex-Mex shops found across the Southwest, but some stray wildly from tradition. At Velvet Taco, for example, one of the top sellers is the Chicken Tikka Taco.

But this wave of tacos concepts has certain strengths that make them stand out in the fast-casual segment: Most have a strong bar component, with beer and margaritas and sometimes a broader cocktail offering. Many also offer breakfast tacos, in the morning or all day, expanding daypart reach.

Branding tends to be bold and playful, and this new generation of fast-casual tacos concepts plays a mean social media game, pulling in an engaged young audience.

And the fast-casual taco landscape is becoming increasingly crowded.

Many of these players see much white space ahead as they race for national domination. On the Top 500 ranking by sister-brand Technomic, for example, is Torchy’s Tacos, which last year reached 109 units and $428 million in domestic sales, surpassing larger chains like Taco Cabana (with 152 units and $268 million in sales) and Fuzzy’s Taco Shop (166 units and $234 million).

Top fast casual Mexican chains


Investors are also seeing an opportunity, based on activity over the past two years, in particular.

Fuzzy’s was acquired last year by Glendale, Calif.-based Dine Brands Global, the parent of IHOP and Applebee’s, which has plans for franchise growth. And in 2021 Jack in the Box’s largest franchisee Yadav Enterprises bought Taco Cabana for $85 million.

The now 36-unit Rusty Taco was sold by Inspire Brands last year to Gala Corp., the parent of Cicis Pizza.

Tacombi, which now has 16 locations mostly around New York, won a $27.5 million investment from restaurateur Danny Meyer’s Enlightened Hospitality Ventures in 2021, and is working to reach 75 units within about four years.

Private-equity firm Leonard Green & Partners took a majority stake in the now-40-unit Velvet Taco in 2021, with plans for a next phase of expansion.

Meanwhile, concepts like Capital Tacos and District Taco are ramping up franchising. The 10-unit Capital Tacos, based in Tampa, expects to have 20 open by year’s end across Florida, Georgia and Colorado. The 14-unit District Taco, based in Falls Church, Va., in April said it has multi-unit development deals to bring the brand to Florida, New Jersey and Virginia.

Now the challenge is standing out as these brands attempt to move into less taco-familiar territories across the U.S.

“I think tacos make a ton of sense from a consumer standpoint. It’s relatable and understandable. Everybody knows what a taco is,” said Clay Dover, CEO and president of Dallas-based Velvet Taco.

But as competition heats up, he added. “The brands that are going to be successful will need to be creative and different.”

Will it play in Iowa?

Across the South and Southwest, there are myriad regional taco chains, like Guisado’s or Trejo’s Tacos in Los Angeles, or Taco Palenque in Texas. The latter was founded by Juan Francisco Ochoa, who also founded El Pollo Loco decades ago.

But for any of the more-elevated taco concepts with national aspirations, the fundamental challenge is maintaining quality at scale, said José Ralat, the James Beard Award-winning taco editor at Texas Monthly and author of the definitive “American Tacos: A History & Guide.”

“I do talk to taqueros and restaurant owners who are thinking about expanding,” said Ralat. “But, most of the time, with a few exceptions, these stories are about expanding—and then contracting—because they grew too fast.”

Ralat travels the country to visit taco shops and writes about the people behind them. He admits that he prefers mom-and-pop concepts, though he speaks glowingly of the Larado, Texas-born regional chain Taco Palenque. But Ralat said he finds himself in chain restaurants often, in part because there’s something for everyone in his family, even the picky 14-year-old.

Still, watching this race for national attention, Ralat said he wonders how some of these fast-casual taco chains will fare in places like small-town Iowa, “where black pepper is spicy.”

Velvet Taco Drive-thru

Velvet Taco has been tweaking its drive-thru to allow both ordering and speedy pickup./Photo courtesy of Velvet Taco.

Velvet Taco, which operates in Texas, North Carolina, Georgia, Illinois, Tennessee and Oklahoma (and coming soon to South Florida), addresses spice fear by taking a more global approach to tacos, with options like a Cuban pig with pulled pork, gruyere, honey ham and bacon; or Buffalo chicken with Danish blue cheese, ranch crema, carrots and micro celery. Changing weekly is the WTF (weekly taco feature) option.

Booze includes a variety of “kick ass” margaritas, “sangrita”(a red wine/margarita blend), beer and ranch water. For dessert: A signature red velvet cake. The average check is $17 with a drink.

Earlier this month, the chain unveiled a line of breakfast tacos to its Dallas locations after seeing success with the offerings at units near college campuses elsewhere.

Dover said Velvet Taco’s unique culinary approach differentiates the brand. In some cases, Velvet Taco can even share a parking lot with competitors because it’s so different.

“There’s lots of things you can do with a taco,” he said.

Keeping it weird

Torchy's Tacos

Torchy's Tacos was founded in Austin, Texas, considered by some to be the taco capital of the U.S./Photo courtesy of Torchy's Tacos.

Torchy’s Tacos takes a similarly creative approach to its “Damn Good” tacos as an Austin, Texas-born brand that believes in keeping it weird. On the menu are Jamaican jerk chicken tacos alongside more traditional pork carnitas or barbacoa. There are rotating Tacos of the Month, a full line of breakfast tacos, and queso is more than a minor player.

Not all have a full bar, but those that do have fun with offerings like the bright blue Camarena Cooldown, made with curacao, and the Torchy’s Tini made with reposado tequila by Exotico and Cointreau with fresh lime and olive juice.

Founder Mike Rypka returned as CEO last year after former CEO GJ Hart stepped down after three years. During his tenure, Hart had more than doubled the chain’s unit count, and there was talk of going public at the time.

Now Torchy’s has 110 units in 14 states, with plans to expand across Texas and into East Coast markets like Florida and Virginia. The chain is primarily owned by a group of investors that includes General Atlantic, D1 Capital Partners, T. Rowe Price, Lone Pine Capital and XN.

When asked if IPO is still a possibility, Rypka said, “As we grow, we are excited to build our brand for the future and will explore all avenues to ensure we have optionality for our company. However, our focus for the immediate future is on operating our restaurants to the best of our ability and serving our guests the Damn Good Tacos they’ve come to love.”

Taco franchising

Fuzzy's Tacos

Fuzzy's is leaning into its Baja roots./Photo courtesy of Dine Brands Global.

At Fuzzy’s, President Paul Damico stayed with the brand as it became part of the Dine Brands family. Like Applebee’s and IHOP, Fuzzy’s is almost entirely franchised. Only three Fuzzy’s are company-owned, and 135 are franchised across 18 states.

Dine Brands acquired Fuzzy’s in December from Experiential Brands LLC, a subsidiary of NRD Holding Co., for $80 million. In the first quarter earnings call in May, Dine Brands CEO John Peyton said franchisees of Applebee’s and IHOP have already expressed interest in franchising the taco concept. Fuzzy’s has 125 units in the pipeline.

First, however, Peyton said the company plans to do a little work on Fuzzy’s to further differentiate the brand, leaning into its Baja roots with some menu tweaks, store design elements, uniforms and other branding touchpoints, which will likely be revealed later this year or in 2024.

In Mexico, a Baja-style taco would generally refer to one made with seafood, but Damico said Fuzzy’s doesn’t follow a literal definition.

“In Fuzzy talk, Baja means a frame of mind,” he said. “We’re talking about things like a laid-back attitude, like having margaritas on the dog-friend patio. It’s a chill way of thinking,” with “Baja-isms” like “sun’s out, clock out” or “Wednesday weekend, close enough.”

Damico said the chain spent the past two years nailing down prototypes, and there are three formats poised for growth: the traditional restaurants, a taqueria for smaller urban locations and a drive-thru model.

In addition to the core Baja tacos, Fuzzy’s has an all-day breakfast menu and broader offerings that include Mexican plates, burrito bowls, nachos and quesadillas. The full bar is also a big component, with sales ranging from 19% to 40%, depending on the market, Damico said.

“It’s very hard to find a franchise model in the taco fast-casual category that’s got breakfast all day, a full bar, this really chill-vibe atmosphere, with food that is really from scratch and culinary driven in the back of the house,” he said.

“The category has been crowded forever and it’ll continue to be crowded,” Damico added. “But I’m feeling very comfortable, no matter how crowded it gets. You think about Texas, where there’s a taqueria on every corner, and we thrive.”

Simplification

Rusty Taco Interior

Rusty Taco has 36 units and plans growth through franchising./Photo courtesy of Rusty Taco.

Rusty Taco, meanwhile, is also looking to grow with franchising, said Anand Gala, founder of Gala Capital Partners, or GCP, which brought the taco chain into a portfolio that also includes Cicis Pizza, Dunn Brothers Coffee and Mooyah Burgers.

Inspire Brands had picked up Rusty Taco when it acquired Buffalo Wild Wings in 2018. While under the Inspire umbrella, the taco concept grew by more than 50% to 35 units, but the chain was deemed too small for the Atlanta-based multi-concept franchisor’s shared service model, Inspire officials said when it was sold to GCP.

Rusty Taco now has 36 units with the opening by a franchisee in Idaho in the first quarter, and another six are expected this year. The Idaho unit is a partnership with convenience store operator Good 2 Go, and Gala said they may do more. The company is also looking at other non-traditional locations, like universities, airports and stadiums.

Under GCP, Rusty Taco has also been slowly rolling out breakfast catering in the Dallas market, with some stores also adding breakfast to the regular menu.

“We think that could be a really interesting opportunity to grow,” Gala said. Others are beefing up the bar component, particularly near colleges. There’s more evolution to come as Gala works with existing franchisees.

“We have been very, very focused on operation simplification. I think many brands, over time, become more complicated, with more menu items or more single use SKUs,” he said. Rusty Taco has gone through a menu review and rationalization, and the chain is in the process of rolling out new menus. A new birria LTO, for example, has been a hit. A loyalty program is in the works.

Next year, Rusty Taco may add one or two corporate locations to the growth pipeline, he added. But for now, the focus is on strengthening the brand for existing franchisees and then opening it to operators within the GCP family and outsiders.

“We feel like we’ve got a really good business here and we’ve got a really good roadmap with this plan,” he said. “We’ve executed it with other brands and they’ve successfully moved from, maybe, challenging times to definitely more successful times. We think we can do the same here.”

One to watch

Tacombi Westbury, N.Y.

Tacombi recently opened the first stand alone unit in Westbury, N.Y./Photo courtesy of Tacombi.

Observers like taco expert Ralat say Tacombi may be the chain to watch.

Founded in 2010 in New York City by Dario Wolos, whose mother is originally from Monterrey, Mexico, Tacombi is a variation of a taco concept he first attempted in Mexico, operating out of a Volkswagen bus on the beach at Playa del Carmen.

With 16 units open, Tacombi has plans to reach 75 units over the next four years. Built into the brand’s DNA is a consumer packaged goods component, which includes a line of tortillas, chips and frozen burritos under the Vista Hermosa brand, which are available in more than 2,000 retail outlets.

Rather than franchising, Tacombi is using a managing partner model, similar to that of Texas Roadhouse, offering equity to managers with the goal of instilling an owner-operator mentality.

This year, Tacombi is expected to open in Miami and Chicago, as well as greater New York. Last week, for example, the company opened its first stand-alone unit in Westbury, N.Y.

At Tacombi, the menu is relatively streamlined, with a traditional lineup of tacos and tostadas, quesadillas, burritos and breakfast tacos, Mexican-style cocktails, beer and wine.

In April, Tacombi hired acclaimed Mexican chef Carmen Miranda to lead culinary innovation for the brand out of a new Test Cocina at the chain’s Empire State Building location.

Miranda sold tamales on the street in Mexico with her mother before beginning her career as a chef, staging at restaurants in Chicago, Bangkok and France, and later winning the seventh season of “MasterChef Mexico.” She’s also a specialist in nixtamalization, a traditional maize process, and she will work with the Vista Hermosa brand, the company said.

Wolos described Miranda as “a strong fit” for the company as it moves forward with its growth plan.

“Her journey is inspirational—from learning her craft in the competitive landscape of Mexican street stalls, to her work with culinary artists and Michelin-starred chefs, she’s maintained an approach to excellence that’s an homage to Mexico’s traditions,” he said in a statement. “Her vision is aligned with our passion to deliver the most delicious tacos anywhere—from the richness of a handmade tortilla, to the fresh, seared Pacific fish, to the simple luxury of an avocado tostada alongside a Spiked Hibiscus margarita.”

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