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Can Pollo Tropical get its mojo back? Chicken chain fights to fly high again

Pollo Tropical looks to get back on top

Danny Meisenheimer, chief operating officer, Pollo Tropical speaks about the company's plans.
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Danny Meisenheimer, chief operating officer, Pollo Tropical speaks about the company's plans.

Around noon on a December weekday, cars lined up behind the twin ordering stations of a Pollo Tropical Express in Hialeah — the first of the Miami company’s drive-through-only stores that executives hope will add new luster, and revenue, to the chicken chain’s struggling performance.

A closer look revealed that each driver wore the black Pollo T-shirt: “Chicks Rule,” “Mojo Man,” “Salsa Queen.”

They were employees, testing the efficiency of the Express staff in a trial ahead of the grand opening, which took place Friday. The hope is that staff can get a customer in and out in three minutes — a time that analysts believe could add major revenue to a chain restaurant.

Danny Meisenheimer, Pollo’s top boss, surveyed the trial and beamed. “This is transformative for us,” he said.

If so, that could bring much-needed good news after a year in which the chain founded in Miami struggled through a “tumultuous phase,” as Bloomberg News described the company’s search for direction.

Last February, Pollo’s publicly traded parent, Fiesta Restaurant Group, announced that it planned to split Pollo and its other chain, Taco Cabana, into separate companies. Then on Aug. 25, Fiesta Chief Executive Tim Taft announced that he was retiring at the end of December. On Sept. 28, Fiesta reported that it was canceling the plan to spin off its two entities.

On Sept. 30, a press release reported that Taft’s exit had already taken place. Meisenheimer, Pollo’s chief operating officer, became Fiesta’s interim CEO as a national search was launched for a new leader. In the meantime, Pollo halted a planned expansion in Texas, its major new market.

$4.5 millionThe quarterly loss announced by the company on Nov. 7.

On Oct. 14, the New York Post used anonymous sources to say Fiesta was “quietly alerting potential suitors that it intends to put itself up for sale,” That report was picked up by Bloomberg and others.

On Oct. 24, the company reported it was closing 10 restaurants — eight of them in Texas. On Nov. 7, it announced a quarterly loss of $4.5 million. In early December, Deal Reporter said Fiesta had hired JP Morgan to explore a possible sale.

In an interview for this article, Meisenheimer said customers and investors shouldn’t be overly concerned: “We’re going to pause. That doesn’t mean stop.” Instead of trying to open 30-plus restaurants this year, it plans now to open eight to 10 stores — all of them in Florida, which continues to be its core market.

The quarterly loss was due to an $18.5 million write-off for the closed stores, he said. He postponed answering questions about the company’s possible sale or whether Fiesta had hired an investment banker to explore a sale. Later, Fiesta issued a statement: “The company does not comment on merger and acquisition rumors or internet chatter.”

Restaurant analysts say Pollo’s basic menu — grilled chicken cooked on site, with rice and beans and an array of sauces — remains solid, but the highly competitive restaurant industry has become even more so in recent years, and two consultants criticized recent decisions of Fiesta management.

Aaron Allen, an Orlando restaurant consultant, says Pollo’s menu “works well with bolder flavors” and “has a feeling of more healthfulness” than greasy burgers and fries.

At present, Pollo has 166 company-owned restaurants in the United States and 35 franchisee operations in the Caribbean and Latin America.

But he adds that Fiesta’s recent struggles are “really indicative of poor management — opening and closing stores that fast. They’re biting off more than they can chew. Sometimes ego can get in the way of EBIDA.” (Earnings Before Interest, Depreciation and Amortization) He contrasts Pollo with Shake Shack, which makes “long-term decisions slower, more methodical.” Fiesta’s “over-reaching” meant poor site and market analysis.

Ron Santibanez, a restaurant expert at Profit Line Consulting in California, said that “fast-casual is the fastest-growing restaurant segment overall, and chicken has been strong for a long time. … It’s the healthy segment.” Those “sweet plantains — you don’t see that everywhere. I like their products” for their “unique flavor profile.”

Still, Pollo’s distinctive menu cuts both ways, Santibanez says: It differentiates itself from Chick-fil-A or KFC — but also requires explaining to markets outside Florida. “More than anything, they really haven’t identified who their market is and who they want to target.”

Allen believes Fiesta is a good candidate for a sale: “It has the right flavor profile that, with better management and cash, it wouldn’t surprise me at all that new owners could restore the brand back to its former potential.”

Meisenheimer: “Like any brand being introduced into a new market, it takes time to develop the awareness and understanding necessary to be successful long-term. Our plan is centered around exceptional restaurant execution, building brand awareness at the trade and market levels and a menu ... that keeps guests coming back.”

MIAMI ROOTS

Pollo Tropical has a long history of ambitious expansions and embarrassing contractions.

It was started in 1988 by two Miami brothers, Larry and Stuart Harris, sons of the owner of the Food Spot convenience chain. Larry developed the chicken recipe by studying Latin American cookbooks and experimenting on a backyard grill to find the right marinade, which remains the company’s secret recipe.

The strategy was fresh-grilled, in sight of the customers: no prepackaging slipped into microwaves, as happens at so many fast-food restaurants.

In 1993, with eight stores, the company went public with great fanfare. Within a year, it opened 19 restaurants — in New York, Atlanta, Tampa, Chicago and elsewhere. Most closed within a year. “We made errors across the board,” one executive told the Miami Herald.

In 1998, the fledgling chain was sold for about $90 million to Carrols Corp., Burger King’s largest franchisee in the United States. Carrols, too, expanded quickly. By 2006, it had 69 company-owned Pollo restaurants, along with franchisee operations in the Caribbean and Latin America. It went into heavily Hispanic areas in New Jersey and New York. But northern Hispanics didn’t like spending as much dining out as South Florida Hispanics — and those locations, too, shut down.

In 2012, Carrols combined Pollo’s 125 stores and Taco Cabana, a largely Texas chain with 165 stores, into a Fiesta Restaurant Group, with headquarters in Dallas. The new Pollo plan: more expansion, this time into affluent areas that weren’t necessarily Hispanic, in places like Texas and Atlanta.

For the non-Florida restaurants, execs changed the concept a bit: Customers order at a counter, and a server brings food to the table with real plates and silverware. Mashed potatoes were added to these restaurants, along with mac and cheese and beer.

At present, Pollo has 166 company-owned restaurants in the United States, and 35 franchisee operations in the Caribbean and Latin America.

It’s a highly competitive business, with chain restaurants popping up all the time on major thoroughfares. Consider that in a two-block stretch of NW Seventh Avenue near 120th Street, three chicken stores — a KFC, Popeye’s and Pollo Tropical — battle it out side by side.

“The business is still under pressure,” says Nick Setyan, a restaurant analyst at Wedbush Securities. “We are oversupplied in terms of units.”

What’s more, he adds, supermarkets are increasingly offering ready-to-eat fresh-cooked options, and delivery services like GrubHub and UberEats make it easier to get food delivered — generally for smaller, independent restaurants.

Allen, the Orlando consultant, sees competition everywhere from food trucks to “groceries acting like restaurants.” Still, he observes considerable investor interest in chain concepts: “Everybody wants to find the next Chipotle. … Huge money is pouring into this market,” with much of the emphasis being on online ordering. “This is a real technological shift.”

Of millennials, smartphones and food delivery, Allen says: “There are multibillion-dollar players lined up on the fault line.”

A QUICK TOUR

“The restaurant industry is a very difficult business to be in,” Meisenheimer acknowledged in December. He viewed Pollo’s chief competitors as La Granja and Chicken Kitchen in Miami, Chick-fil-A in Atlanta, and El Pollo Loco in Dallas.

Meisenheimer has been in the restaurant business for a quarter-century, including stops at the Texas chains Souper Salad and Pizza Inn, where he worked for Taft, Fiesta’s recently departed CEO. He moved to Miami as Pollo Tropical’s chief brand officer in 2012 and became chief operating officer in 2013 before returning to Texas last summer.

He and several other executives were showing a reporter and photographer examples of Pollo’s new direction in a tour of Miami, starting with Pollo’s corporate office in Dadeland, where 40 work. (They are scheduled to move soon to The Landing at MIA, west of the airport.)

Driving through southwestern Miami-Dade, Meisenheimer said the chain had “some very nice locations in South Florida.” (The two top revenue producers are on South Dixie Highway, at Southwest 27th Avenue and near Southwest 187th Street.) “The wrong side, even a quarter-mile away, can be harmful.”

The tour’s first stop was at 8700 Bird Road, where about $350,000 was recently spent on a remodeling, with the old red-gold colors replaced by lime green and blue, with an ersatz Bahamian shutter added.

Meisenheimer said Pollo wanted a “Caribbean look” because its old colors “once you got out of South Florida appeared more like traditional Mexican and people were a little confused about that.”

“Restaurants go through this rebranding every five or seven years” to remain competitive,” he said. “If this brand is going to be here for the next generation or two generations, we have to keep evolving.”

The remodeling includes new chairs and tables and a brighter kitchen, but the central focus is the Saucing Island — with sauces like cilantro garlic (most popular), curry mustard, guava bbq and spicy poyo poyo — flavors that distinguish Pollo from other chicken chains.

“The sauces are very much about who we are, our heritage,” Meisenheimer said.

Fast-casual is the fastest-growing restaurant segment overall, and chicken has been strong for a long time. … It’s the healthy segment.

Ron Santibanez, a restaurant expert at Profit Line Consulting in California

Ileana Martinez, a regional district manager, said half the store’s business was drive-through and 20 percent of the inside business was for takeout, meaning 70 percent of orders are consumed at home.

Like most chains, there’s free wi-fi in the stores and a Pollo app for online ordering, a small but growing part of the business. “Lately, we have a lot of business customers, coming in with a laptop, using the laptop over lunch, sometimes meeting a customer.”

Next stop: a busy intersection at East 49th Street in Hialeah and the county equivalent of Le Jeune Road. This is a new Pollo, opened in 2016, using the shell of a former Burger King. The cost of new units averages about $1.9 million, with a South Florida unit costing an extra $150,000 or $200,000 because of wind code requirements.

This store does about 75 percent takeout, noon and night. An employee with an iPad and headset stood near the start of the drive-through line near lunch time to speed up service for the long line of cars.

Inside the Hialeah restaurant, Edgar Galindo and Maynor Mejia were each eating a basic meal: quarter chicken, rice and beans. “We’re here almost every day,” said Galindo, who likes the price. “Tastes pretty good, too,” added Mejia. Both were using the cilantro garlic sauce.

Final stop: the new, first-of-its-kind Pollo Tropical Express on West Fourth Avenue in Hialeah. The location wasn’t yet open when Meisenheimer visited in December, but the kitchen was fully staffed for a trial with new employees scrambling to learn how to quickly fill orders.

It will make for a challenging opening — with major road work at the entrance. On one side is a Taco Bell, on the other a Jumbo Chicken, serving buffet-style with no drive-through.

The Pollo site is set up with two lines for ordering the chain’s 10 most popular items. Drivers are then funneled to a window where they pay, then they move on to a second window to pick up the food.

“This has been in development probably more than two years,” Meisenheimer said. With takeout such a big part of business, the Express is designed for sites too small for a full restaurant.

Vice President Willie Romeo said the goal is to have a customer in and out in three minutes. McDonald’s averages 3:09, according to QSR magazine, with Chick-fil-A at 3:23.

Speed is crucial to get repeat customers, says Allen, the Orlando consultant. “Shave a few seconds, and it translates to tens of thousands” per store in annual revenue.

LEARNING FROM ERRORS

Going forward, Meisenheimer says Pollo needs to learn from its mistakes: “Some of the stores we built in Texas were simply too close to each other. … That’s the nature of the restaurant business — sometimes you’re going to get it right. Sometimes you’re going to get it wrong when you’re growing. …

“We’ve built over 100 stores in the last four years, and the law of averages tells you you’re going to lose some of those. … We built 38 in Texas, and we lost eight. We closed one in Tennessee out of four, and we closed one in Atlanta out of 17 or 18.

“Why’d that happen? … I think our pace was just too quick.” Of other stores in the new markets: “We’re still optimistic that those stores are improving or will improve.”

Setyan at Wedbush Securities says Fiesta made “arguably some poor decisions” in Texas, but “very few [restaurant chains] are always successful expanding. Also: Texas collapsed with the oil market.”

Pollo keeps experimenting with its non-Florida products. For Texas red-meat lovers, they’ve added Calypso Beef with a red onion vinaigrette. In Atlanta, they’ve added two types of spicy chicken.

Another experiment is being terminated: They had offered Caribbean beers outside Florida, but Meisenheimer says demand was lacking. “We’re more a family-style restaurant.”

Less certain is the search for a new owner. The catalyst appears to be JCP Investment Management of Houston, which announced last fall that it owned more than 6 percent of Fiesta stock. JCP is well known for stirring things up. Last year, its pressure led to the sale of Corner Store convenience stores.

On Oct. 1, Barron’s reported that activist shareholders had met with Fiesta management to discuss ways “to enhance shareholder value.”

The New York Post cited “a source close to the situation” that Fiesta was exploring a sale after a push from JCP, which did not respond to three requests for comment.

While Meisenheimer refuses to comment on “rumors,” some analysts believe a sale makes sense.

“It’s not a broken concept,” says Setyan at Wedbush. “I think there’s a lot of national potential there,” but with indications that Fiesta would benefit from new management, “I think Fiesta is reasonably a candidate to be bought out.”

Meanwhile, Pollo Tropical has endured an election campaign that included many negative statements about Hispanic immigrants. Has Pollo felt any anti-Hispanic backlash or thought about changing its name?

“No,” Meisenheimer responded. The company was founded by two Anglo brothers, but the interim CEO said it’s “very proud of and committed to our Hispanic roots and our loyal guests. We remain passionate about serving the best chicken on the planet while remaining true to our heritage.”

The writer can be reached at johndorschner@gmail.com

Founded: 1988 in Miami by Larry and Stuart Harris

Headquarters: In Kendall

Owned by Fiesta Restaurant Group (FGRI)

Number of employees: 5,600

Number of restaurants: 166 company-owned (Florida 123, Georgia 16, Tennessee), plus 35 franchisees overseas, including Puerto Rico, Ecuador, Honduras.

Average annual sales per restaurant: $2.5 million

Average customer bill: $10.50

Market cap for FRGI: $739.53 million

Closing stock price for FRGI: $27.65

Stock price range past year for FRGI: $20.15-38.54

Restaurant sales for Pollo, 2015: $364.5 million

Capital expenditure for Pollo, 2015: $73 million

Income before taxes for Pollo, 2015: $38 million

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