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Abuelo's Aspirations

ABUELO'S MEXICAN FOOD EMBASSY

CONCEPT: Regional Mexican food in an upscale setting
OWNERSHIP: Food Concepts International, Lubbock, TX
LEADERSHIP: James Young, Chairman and c.e.o., FCI; Bob Lin, president and c.o.o., FCI; Charles Anderson, president, Abuelo's
LOCATIONS: 25 stores in 10 states
EXPANSION PLANS: 50 units open by 2007
AVERAGE CHECK: $9 at lunch, $16 at dinner
AVERAGE UNIT SALES: $3.5 million
COMPANY SALES: $66 million (2004).

MEXICAN FLAIR: A south-of-the-border-style courtyard and knockoffs of popular muralists' work grace the interiors of Abuelo's.

FIESTA IN A BOWL: Spicy tortilla soup combines chicken, avocados and tortilla strips.

GRANDE IS GOOD: Los Mejores de la Casa—tenderloin and shrimp—sells well.

TRES FAJITAS: The menu lists familiar favorites alongside regional Mexican choices.

SCOPING OUT SITES: Abuelo's looks for medium-sized markets.

FOUNDERS: James Young and Charles Anderson decided to bring home a taste of Old Mexico.


Abuelo's Mexican Food Embassy meandered along as one of several small regional chains run by Food Concepts International Holdings (FCI) during its early days. But at the end of 2003, a corporate reorganization thrust the upscale casual chain into the limelight, and since then the brand has blazed a trail from its Lubbock, TX home across the country to Ohio. From 1989 to 2003, 16 restaurants had opened in four states; by the end of this year, 14 more will be added to that total in seven more states, and another 10 are expected to open in each of the next two years. That will raise the total to 50 stores open by 2007, a good foundation for the long-term scheme to take the concept national.

"James (Young, the CEO and founder) and his partners decided that they had come to a crossroads; they had nice, steady growth with very good results, and they had a clean balance sheet, since FCI had always put money back into the company. They were looking for the next step," says Bob Lin, who in 2002 was wooed away from Merrill Lynch to help strategize that next step as president and COO at FCI.

Lin picked up on one of Abuelo's key points of difference: Amid a sea of Mexican chains, everything from the menu to the dècor was positioned a notch above. As a result, Abuelo's competes more against other upscale casual chains than against its ethnic brethren. And, given the surging demand for classy casual operations, FCI decided that no time was better than the present to go big time with the brand and expand nationally.

The Abuelo's executive team makes no secret of its admiration for what P.F. Chang's has done. Bill Richardson, recently recruited from Brinker International to be vice president of expansion markets, says the opportunity in the market for this kind of product factored heavily in his decision. "One of the things I weighed before coming to the company was that Mexican was underserved in the casual-plus arena," he recalls. "If you look at something like a P.F. Chang's, they demonstrated that what was predominantly a local ethnic dining experience can be national if you provide a unique offering in an environment not associated with that experience." He thinks Abuelo's might be positioned to do the same.

Taking Guests "Somewhere"
The two key elements that set Abuelo's apart from the average Mexican restaurant—dècor and food—are meant to evoke the experience of visiting an upscale restaurant in Mexico.

"We really spend a lot of time and energy on the experience side of the restaurant," explains Dirk Rambo, COO of Abuelo's. "We realize we're in the food business, but we made a commitment a long time ago to take someone somewhere." A Mexican-style courtyard, complete with a faux sky ceiling, a fountain and landscaping, provides the focal point for the interiors, which average about 250 seats (including the bar) and 7,800 square feet. Statues throughout the space are hand-carved by artists in the villages around Guadalajara and represent respected leaders and important figures in Mexican history. Copies of murals painted in Mexico by Diego Rivera, Jose Clemente Orozoco and David Alfaro Siquieros hang on the walls. In fact, there is so much going on inside an Abuelo's that guests often spend their time studying the art and artifacts. No one seems to miss the typical piÒatas or sombreros.

"We determined from the beginning that our facility had to be a 'wow,'" says Young, who launched Abuelo's with the brand's president, Charles Anderson. "We designed Abuelo's to have a gracious, yet friendly environment that's compatible with the food we serve. Abuelo's is a family restaurant that is also perfect for more formal occasions. It's casual and elegant, much like the restaurants we frequented in Mexico."

Traveling through Mexico also inspired the food, made-from-scratch fare that people in Mexico would eat.

Serving authentic Mexican dishes in a place like Texas, where Tex-Mex rules, has presented some challenges. "People are of the mind that Mexican food is tacos and enchiladas," Young says, "but that's not the daily food people in Mexico eat. And they don't expect a Mexican restaurant to serve seafood, but we have it all over, from appetizers to entrees. Mexico is a country with a lot of seafood from both the Gulf Coast and the Pacific." Getting diners to overcome their reluctance to try something new has required special training to ensure servers understand the recipes and can explain their origins.

As a result, the menu has evolved so that familiar (to Americans) items such as quesadillas, enchiladas and tacos coexist alongside regional fare such as Brocheta de Filete (bacon-wrapped beef tenderloin medallions, grilled and served with papas con chile—a signature potato casserole—and frijoles charros) and Salmon San Carlos (grilled salmon fillet seasoned with cilantro, garlic butter and lemon, served with rice and broccoli sazonado). Big portions, a hallmark of Mexican eateries, rule: One of the best-selling items is the gut-busting Grande, a combination of three enchiladas, a cheese chile relleno, a tamale, a crispy beef taco and guacamole, all piled on an 18.5-inch turkey platter for $13.95.

Together, the food and the atmosphere are designed to transport patrons. "We've been successful at giving the public a chance to dine and feel like they've traveled somewhere," Rambo says.

Food and atmosphere are designed to transport patrons.

Growth Mode Challenges
Shifting from essentially no-growth mode to disciplined but aggressive expansion has caused some strains on FCI's operations. "The biggest challenge has been developing the management to be able to properly execute the standards we expect in our stores; it's a very large manpower and training issue," Lin notes. At first, Abuelo's could transplant managers steeped in the company's culture from existing stores into new locations, but adding 8 or 10 units a year and expanding beyond its Texas-Arizona base to new states has tested that practice. The company has launched a training program designed to bring new manager recruits up to speed in 14 weeks.

A boon to FCI's recruiting efforts has no doubt been a two-pronged approach to incentives. Short-term carrots include cash compensation for meeting sales and profitability goals. To create long-term loyalty, managers receive sales-driven stock and options in the company without having to put up their own money. "We understand that a lot of managers are still very young and have not had the chance to save the amount of money they would need to invest in the company," says Lin. "In the happy day that there is a successful public offering, they'll be able to share in the benefits of true ownership."

That ownership stake also underscores one of the core values of FCI. "This is a very entrepreneurially driven concept," Lin says. "We're not a big corporate monolith with regimented programs."

As a result, store managers wear a number of hats. Their traininginvolves learning every job in the operation, including how each dish is prepared and plated properly. They also do informal market research by constantly schmoozing with guests. FCI does its own regular customer research through its website and, more recently, using a third-party firm .

Ensuring happy customers is key in an organization that relies mainly on positive word of mouth to create new demand. Advertising is not stressed; after all, "P.F. Chang's has been very successful with very little advertising," Lin points out. The brand's primary focus is on the "four walls"—in other words, making taking care of guests and reinforcing what makes Abuelo's different—and on local store marketing. "This is not a marketing company, this is a restaurant company, and we feel the most effective way to build business over the long term is through customers that come through the door," Lin says.

To achieve its goal of national distribution, FCI is taking a cautiously aggressive approach toward expansion. The company looks for markets with trade areas of at least 200,000-250,000 people, preferably near concentrations of retail and office buildings, and builds standalone units. The target audience—middle income diners, especially families—is broad.

As the brand has branched out to new locations in additional states, it has deliberately chosen areas where units can be clustered. "If you were to take a map of the U.S. you can see the precise diagonal we're moving in. In the last few months we've opened in Columbus, Cincinnati, Toledo, Indianapolis, and soon we'll be in Dayton," Lin points out. Real estate deals for 2006 follow the same direction, targeting Ohio, Michigan, Indianapolis and Kentucky and dropping into northern Tennessee and western Virginia.

"Entering new markets is just one part of our longterm growth strategy," Lin says. "Taking care of business in existing restaurants is critical to any concept, and we are proud of the fact that we enjoyed close to six percent same store sales growth" in 2004.

Growth is being financed primarily through a $14-million credit facility with Bank of America and internal cash flow. Because it can succeed in markets as small as 200,000, Lin thinks Abuelo's could conceivably reach the 300- to 500-unit mark.

FCI is owned by Young and some members of his family, Anderson, current or former employees and a select group of investors. Going public is the ultimate goal of expansion, but Lin can't predict the general timing of an IPO, only suggesting, "when market conditions tell us it's the right time."

Will It Fly?

Is Abuelo's ready to go national? We asked a restaurant critic and a finance and development expert to comment.

"I think if it's done in the right markets, there potential. But I don't think there's unlimited potential," says Paul Fields, a Bethesda, MD consultant. "They tend to do well in high-density urban areas where there is a sophisticated clientele."

Pat Sharpe, Texas Monthly food editor, says the Abuelo's she visited was full and people seemed to be enjoying themselves. But she's not sure about the "authentic Mexican" premise. "It seemed more like a Mexican restaurant trying to cater to American expectations," she observed.


On the Menu

STARTERS

Fundido del Mar
Shrimp , scallops, mushrooms, roasted red peppers and poblano strips sautèed in a white wine sauce and folded with melted cheese. $8.95

Reyonsa
Fresh green salad layered with ground beef or shredded chicken, jack and cheddar cheeses, chile con queso, frijoles charros, diced tomatoes and guacamole. $8.95

ENTREES

Mi Abuelo's Manjar
Stacked enchiladas layered with beef, cheese, chile con carne and two eggs $9.95

Enchiladas de Cozumel
Three avocado enchiladas covered in a rich white wine sauce with shrimp, scallops, mushrooms and roasted peppers. Served with rice and frijoles charros. $13.95

Alambre de Camaron
Grilled bacon-wrapped shrimp stuffed with jalapeños and mixed cheese. Served with papas con chile and frijoles charros. $16.95

DESSERTS

Margarita pie with tequila sauce
Chilled lime pie topped with whipped topping and drizzled with tequila cream. $4.95

Dulce de leche cheesecake
Creamy cheesecake whipped with Mexican caramel and served with leche quemada. $4.95

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