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Salsarita’s, a fixer-upper, getting back on track


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“It was even more difficult than I thought,” says CEO Phil Friedman, about the effort to turn around Salsarita’s after purchasing the brand in 2011.

Not inheriting someone else’s problems is an oft-cited reason for buying a new car over a used one—but you miss out on the rush of scoring a steal of a deal. On a grander scale, the same logic applies to purchasing a company.

Fresh off a successful 11-year stint as chairman and CEO of Ridgeland, Mississippi-based McAlister’s Deli, Phil Friedman was eager to replicate his success. Hunting for a good deal, he searched for a distressed brand in need of a turnaround.

He learned about Salsarita’s at an industry conference in 2011, a struggling Mexican fast-casual chain that withered from its salad days, 140 units at its peak, with a unit count that was down into the 70s.

“I decided I would look for a smaller chain that was established but needed help in many different ways, so I formed a company called Mississippi Restaurant Group and lined up investors who knew me from my past at McAlister’s,” Friedman said. “These were people who could invest with me, and I also decided that anything I buy I would invest in myself with a significant share of the business—so that meant it couldn’t be too big.”

Salsarita’s  was the ideal fixer-upper.Friedman saw it for what it was: a promising brand with good food in a hot category, but in need of aggressive leadership, a new coat of paint and a more committed base of franchisees willing to become multi-unit operators.

“It was a good brand, but it needed a lot of work in terms of organization, franchise strategy, infrastructure and financing,” he said.

Compared to what Friedman was used to at McAlister’s, many of Salsarita’s original franchisees were single-unit operators that, in some cases, lacked the money or market savvy to weather a prolonged downturn.

“I had a company that was the prototypical example of what I was looking for—that’s the good part,” he said. “The difficult part was it was even more difficult than I thought. In most acquisitions, if you’re really honest, it’s kinda like romance—great until you do it and then you say maybe it’s not as great as I thought.”

With sagging curb appeal, Friedman saw the brand’s many positives: unique positioning within the burrito category, free guacamole, meal choices beyond burritos and tacos. He also felt this segment of the fast-casual category had as much staying power as burgers and pizza.

“I don’t think it’s reaching saturation,” Friedman said when pressed about an increase in competition. “I look at this as a much bigger category, delivering Mexican flavors and tastes in the quick-casual environment.”

Salsarita’s has worked to focus on its non-burrito offerings like tacos, Tortilla Pizza, burrito bowls, Quesorito (queso-covered burrito) and quesadillas. That has required working with suppliers and chefs to create new products while hewing to its existing ingredient mix, trying to make small changes that reap big rewards.

That process began behind the line, where customers queue up, make their selections and watch the food being prepared. Friedman’s initial goals were reducing the amount of storage behind the production line and improving throughput.

“We worked really hard on the details of production workflow,” Friedman said. “We offer free guacamole, which is relatively unique, so we repositioned the cold station so guacamole was the last thing we put on our products so that it was obvious you were getting guacamole and we get credit for the fact that it was free—that’s a subtle thing.”

Rather than preparing food once a day and holding it on the line, production was shifted to cook items more often to improve quality and taste.

Another was further differentiating between its small- and large-size burritos, which were not significantly different before the company decreased the size of the small and grew the larger burrito to help customers make the big decision.

Four years after purchasing the brand, Friedman has had time to realize key mistakes made by previous ownership, which he and his team have been working to correct. His list includes franchising too soon, neglecting the zor-zee relationship, not building a proper organization of franchisee support, and settling for suboptimal real estate sites—something he’s particularly focused on going forward.

“That’s the fundamental element of a restaurant takeover,” he added. “Take your strengths, take what it offers and make it the best you can without trying to introduce and change a lot of things.”

Salsarita’s also created a dedicated training team that works in new locations for two to three weeks to improve the opening process and ensure that food prep standards are being followed from day one.

Its restaurant count is now at 79, eight of which are company-owned, and the company expects to end the year with 85 restaurants.

With a salute to its “survivor class” franchisees, Friedman believes Salsarita’s is set to grow after many dark years.

Based in Knoxville, Tennessee, H.P. Patel is one of the chain’s oldest franchisees, with 10 locations open and two under construction. Citing a lot of chaos from the brand’s inception, he saw franchisee and site selection as its two biggest faults that hobbled its expansion.

“They sold a lot of franchises to one and two guys, and after they opened the first one they never opened the second, or even closed the first one,” he said. “You can’t fix some of those things.”

No longer considering quitting the system, Patel sees the success of fellow Mexican fast-casual brands like Chipotle, Moe’s Southwest Grill and Qdoba as evidence the category has legs for future expansion. “There are only 3,000 units from the top three” major burrito players, and then “you stack that against the burger segment, which probably has 50,000 restaurants between the top three or four players,” he said.

“As long as we do what we do in terms of our product and better operations, I think we can eventually get up there and be recognized as one of the top three or two.”

Correction:

This article about Salsarita’s in the November/December issue mischaracterized the financial health of the franchisor at the time leading up to its sale, in 2011. Salsarita’s Inc., the corporate entity, was financially stable, with shareholder’s equity of $585,199 at the end of 2009, the last year reported on its franchise disclosure documents. Net income was $526,056 in 2009, up from $263,409 in 2008.

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