High Bluff Takes on the Turnaround of Quiznos, Taco Del Mar
Taco Del Mar
There are a handful of new multi-brand operators out there, pooling resources to take on the big challenges in the restaurant space, including turning around tired brands.
The private equity firm High Bluff Capital Partners is doubling down on the model and seeks to return both Quiznos and Taco Del Mar to growth.
Quiznos needs little introduction as the brand that soared to 5,000 locations in a short period and famously imploded when bad real estate decisions, unqualified operators and bad unit volumes caught up with it. It sunk to about 750 locations when High Bluff acquired the brand.
Taco Del Mar had a similar trajectory. The Seattle-founded taco brand known for Baja-inspired Mexican food surged to 270 locations in 2008, just ahead of the Great Recession. Similar brand issues and ownership missteps led to the brand filing for bankruptcy protection in 2010. The brand also lost a lot of locations, slimming to about 100 units in the U.S. and Canada today.
High Bluff, based in San Diego, announced the acquisition of both brands in the past 30 days at what seems to be the bottom.
“In these two particular situations, the store count is now reaching a level of stability where the precipitous decline is largely behind us and we’re at bottom or near bottom of the store count journey. Now it becomes a question for new prototypes and new opportunities for growth,” said Gerry Lopez.
Lopez is High Bluff’s operating partner and the new executive chairman at Quiznos. He’s building out the team and getting both brands back on a path toward growth. He brings some critical lessons from two very disrupted industries, serving as the CEO of AMC Entertainment through the recession (and Netflix) before heading Extended Stay America. Before that, he was the president of global consumer products and foodservice at Starbucks, disrupting the coffee world himself.
He said the restaurant industry has always been in a state of flux, but today’s changes are radical and fast moving.
“Change is a constant, and those who adapt will win, those who do not will fail,” said Lopez. “Adapting used to be a single variable thing, today is multi-variable. You have to adapt to changing tastes—that’s always been there. But today you also have to adapt to changing technology, changing business models, changing behaviors—adapting is not as straightforward as it once was.”
That’s one of the big reasons the multi-brand model is so en vogue. Keeping up (or catching up) is not cheap or easy, so if a company like High Bluff can effect change in one brand, why not double-dip with two?
Lopez has clearly gotten used to the question, “why Quiznos?” And it’s a good question, as industry watchers see a monumental collapse and a cautionary tale, but consumers still recall a tasty, toasty sub. And it’s the same with Taco Del Mar.
“In the food and beverage industry—and certainly in the restaurant segment—there are any number of brands the mid-market space that have very good, long-established, solid relationships with the consumer. And unfortunately for any number of reasons depending on the brand, the brands have fallen on hard times,” said Lopez. “Through it all though, leadership, management capitalization are in the background and don’t really affect the relationship with the consumer. That’s our wheelhouse, to find these mid-market brands that consumers remember fondly and consumers feel good about.”
But when industry watchers see another private equity handoff, other cautionary tales come to mind. But Lopez said High Bluff is not just the next ownership group racing to maximize the next sale price.
“Our approach is much more sustainable, not explosive growth. We are what I would characterize as patient capital. Even though our capital is private,” said Lopez. “We’re also not going out and raising funds and creating a fund, we don’t have the LP type of structure where we have to at as certain date return that capital.”
In short, don’t expect a return to 4,000 locations for Quiznos. Lopez said his first mission right now is listening and learning. He’s been flying all around the country visiting Quiznos operators and corporate staff, and he’s just booked his flights to do the same at Taco Del Mar, and he’s bringing a notebook, not a playbook.
“I’m not getting of that plane with a playbook that says, ‘I don’t know what the question is but here’s the answer.’ We have some thoughts and ideas, but we want to stress test them with the group and the franchisees,” said Lopez.
He said the operators that have survived the turmoil at each of the brands are at the core of the listen-and-learn phase. Lopez said helping them grow was a chief goal. And that means avoiding fog-the-mirror development.
“We’re not into playing games or into signing up a bunch of people to get their franchise fee. We welcome all comers, but we want to have multi-unit operators, people who have their own access to capital who are interested in building a portfolio either of one brand or of multiple brands across marketplace that they already know. Those are the kinds of things that we’re going to focus on rather than just saying, ‘Hey, we're here to sell franchises, if you have $10,000 in your bank account I can sell you one by noon,’” said Lopez.
He also said franchise profitability was a central mission. As both brands as they grew at a break-neck pace, their average unit volumes sank precipitously. At Quiznos AUVs sank by nearly 20 percent as bad real estate sapped traffic and unsupported franchisees floundered.
“I don’t want to bring the brands to a level of success on the back of the franchisees, I want to do it frankly with the franchisees and have them enjoy the fruits of the labor just like we will,” said Lopez.
He said for the time being, he’ll be listening to and learning from those franchisees as the support staff grows. He said there might be some more acquisitions in the future but nothing to announce yet, only that High Bluff would “remain nimble, be opportunistic and thoughtful about opportunities as they present themselves, and scale appropriately."