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EAST MEETS SOUTHWEST

REAL MEX EXPANDS ITS MEXICAN RESTAURANT EMPIRE TO THE EAST COAST

By Molly Knight

The largest Mexican food restaurant chain in the U.S. is taking its south-of-the-border fare east of the Mississippi. In June Real Mex, which operates the Acapulco, Chevys, El Torito and El Torito Grill chains, announced plans to expand its El Torito Grill and Chevys restaurants up and down the eastern seaboard from New England to Florida. “We are moving forward with aggressive national expansion plans, specifically concentrating on the East Coast, where we feel there is tremendous potential for growth,” said CFO Steven Tanner.

Real Mex operates 10 El Torito Grills in the U.S., and Tanner says the Cypress, Calif.-based company will add 10 or 12 more by the end of the year in Florida, Maryland, New Jersey, New York and Pennsylvania. The company also plans to add about 10 Chevys restaurants to its existing fleet of 106 (70 are company-owned, 36 are franchised). The restaurants will measure about 8,500 square feet.

“We’re going into neighborhoods with high population density and high income levels,” said Tanner. He says the company will seek East Coast locations comparably upscale to some of El Torito Grill’s California sites, such as those at Fashion Island, Newport Beach; the Sherman Oaks (Calif.) Galleria; or on Wilshire Boulevard in Beverly Hills.

The company prefers to avoid markets where established family-owned restaurants have already set the tone for Mexican dining. “We’re focusing specifically on the East Coast because people really like our food there,” Tanner said. “We don’t want to go into states like Texas or Oklahoma, where Tex-Mex is huge, because our version of Mexican food won’t work for them.”

Before joining Real Mex in 2004, Tanner was CFO of In-N-Out Burger (1991-1996), Pick Up Stix (1997-2002) and Sweet Factory (2003). His experience at Pick Up Stix helped him learn to identify markets where ethnic food chains can be successful, he says. “We found that when we went into newer, younger areas, we did much better than in developed areas with traditional Chinese food,” Tanner said of the Pick Up Stix expansion strategy. “If people have a preconceived notion of what something should taste like, they’re less likely to give a chain restaurant like us a chance, which is a shame.”

Tanner sees the biggest opportunity for growth on the East Coast because it has relatively few players in the Mexican food sector. “Twenty-five, 30 years ago people in New York didn’t know what a taco was,” said Tanner. “Now, with places like Rosa Mexicana opening up in Manhattan and doing well, there is obviously a demand for more Mexican food.”

The first El Torito Grill unit of 2008 is scheduled to open in New York City, near Grand Central Station, on Third Avenue and 42nd Street early in the year, Tanner says. The company is also in the process of finalizing leases on units at New Jersey’s Meadowlands and in Annapolis, Md. “We are actively looking in Florida,” said Tanner. “We estimate that the bulk of our growth will take place down there.”

Tanner describes Chevys as casual and El Torito Grill as upscale-casual. “At Chevys you can dress any way you feel, and parents are more comfortable with their kids breaking things,” said Tanner. “For El Torito Grill we’re focusing on creating a finer dining environment. It’s not stuffy, but people do tend to dress a little nicer.”

Real Mex takes care to differentiate among the chains in its fleet, says Julie Koenig-Browne, the company’s vice president of marketing. “Chevys feels like an ultracasual Baja cantina with vibrant colors,” said Koenig-Browne. “El Torito Grill is the upper end of casual dining, with warm archways, wrought iron and copper tones.”

El Torito Grill serves mesquite-grilled Mexican food, whereas Chevys does California Mexican cuisine, says Koenig-Browne. “Everything at Chevys is straightforward Mexican food,” she said. “At El Torito Grill you might order lobster in your quesadilla. Think of it as the P.F. Chang’s of Mexican food.”

Patterning El Torito Grill after P.F. Chang’s is a smart move, observers say. “P.F. Chang’s broke Americanized food from a different culture wide open,” said Paul G.W. Fetscher, CLS, president of Great American Brokerage, a Long Beach, N.Y.-based restaurant and retail consulting firm. “That was really the first time consumers said it was OK to go to a Chinese restaurant and have food served to them by people who weren’t Chinese. There aren’t many Mexicans in New England, but with places like El Torito Grill and Chevys, that might not be important.”

The challenge Real Mex faces is that Americans in different regions of the country have different expectations of Mexican food, says Fetscher, who brokered El Torito’s first deals in New York and New Jersey in the late 1970s. “But if you look at El Torito Grill, it’s much more versatile, because the word ‘grill’ makes it sound like the food isn’t made with lard,” said Fetscher. “It’s sort of like California Bistro Meets the Mexican Border. That gives them a lot of latitude as far as East Coast development goes.”

The time for Real Mex to focus on East Coast expansion is now, says Fetscher. “In the U.S. American food is the number one seller, followed by Italian food,” he said. “Number three would be either Chinese or Mexican. In New England the number of Chinese restaurants probably outnumbers Mexican restaurants nine to one. Obviously, there is tremendous market potential.”

Fetscher says El Torito Grill’s fusing of pricier seafood and meats with traditional Mexican dishes will resonate with more-refined diners. “We’re talking about people who watch the Food Network and want all sorts of colorful, interesting meals,” said Fetscher. “These people would be bored with a simple bean-and-cheese burrito.”

Customers with a more distinguished palate can choose between Mexican shrimp cocktail, lobster tamale cake, mesquite-grilled halibut and comino-crusted ahi tuna.

El Torito Grill and Chevys are known also for their margaritas, served with dozens of different tequilas. In fact, Tanner reports that Real Mex is the largest buyer of Jose Cuervo in the country, after Costco.

As for the East Coast expansion plans, Fetscher says Real Mex should initially avoid the smaller suburban areas because those may not yet have enough interest in Mexican food. “They need to go into large regional markets with half a million people so they can service a large customer base that visit their restaurants with a smaller frequency,” said Fetscher. “This isn’t like Applebee’s, where customers come in 2.5 times a month. Getting a lot of people to come once a month would be more realistic.”

And if born-and-bred East Coasters fail to supply enough business, Tanner is banking on millions of displaced Californians who still remember the chain fondly. “The El Torito name has been around since 1954,” said Tanner. “We want a presence on the East Coast, because we know people will like it.”