Real Mex shops for new brand

Real Mex shops for new brand

Casual-dining operator looks to double size of portfolio by 2017

Four years after emerging from bankruptcy, Real Mex Restaurants Inc. is looking for a strategic acquisition with the goal of doubling its portfolio by 2017.

The casual-dining operator has hired Telsey Advisory Group LLC to act as financial advisor in adding a new growth brand to Real Mex, said Bryan Lockwood, CEO of Cypress, Calif.-based Real Mex, on Tuesday. Real Mex is parent to the Acapulco Mexican Restaurants, El Torito Restaurants and Chevys Fresh Mex brands, as well as the four-unit El Torito Grill and one-off concepts Las Brisas, Sinigual, El Paso Cantina, and Who Song and Larry’s Cal-Mex Cantina.

Real Mex operates a total of 102 units across those brands, and franchises another 13 Chevys restaurants.

The goal is to leverage Real Mex’s infrastructure to grow a new brand, which may not necessarily be a Mexican concept, Lockwood said. It could even be a multi-brand operator.

The target is a company with annual sales between $100 million and $300 million; a concept that appeals to Millennial and Gen Z consumers with global expansion potential; and something in casual dining, fine dining or fast casual. 

Lockwood said the company is not interested in a quick-service brand.

“We would virtually be interested in anything except QSR,” he said. “The headwinds will be extraordinary in coming years, so we’re not a fan of that space.”

Real Mex is also not looking for a franchise brand, he noted.

“We feel like we have work to do before franchising other brands,” he said. “We need to marinate together a little longer before we ask other people to get involved in what we’re doing.”

Real Mex has been setting up a turnaround for the company’s core brands since Lockwood was named CEO in March 2015. He said the company’s turnaround is well underway.

Despite challenges for the casual-dining segment overall, Real Mex has recorded 12 months of positive same-store sales year over year, Lockwood said, although he declined to give specifics.

Real Mex has revamped or refreshed 22 restaurants, and this month is scheduled to open its first new unit since 2007: a Chevys in Northridge, Calif., that will serve as a new prototype design.

An overhaul of the Acapulco brand debuted with a redesigned restaurant in Downey, Calif., earlier this month. Real Mex has also reworked the menu at the El Torito restaurant near company headquarters.

Acapulco restaurant Downey
A redesigned Acapulco restaurant in Downey, Calif. Photo: Real Mex

When Lockwood, the former CEO of Tavistock Restaurants LLC, was hired last year, he was the third CEO of Real Mex in four years. 

Real Mex emerged from bankruptcy in 2012 with new private-equity owners Z Capital Partners LLC and Tennenbaum Capital Partners LLC.

Earlier this year, Z Capital acquired the two-unit Pink Taco brand, which Real Mex operates under a management service agreement. 

Lockwood described the past decade for Real Mex as “tumultuous,” but said the company has stabilized the business and earned the confidence and capital support of its private-equity owners.

Lockwood said Real Mex was once a casual-dining innovator, pioneering features like the frozen margarita and tableside guacamole. But the company “just quit evolving,” he said.

After being hit hard by the recession, it took Real Mex a decade to figure out how to return to relevance, Lockwood said.

About 10 restaurants have closed since Lockwood was hired, mostly because leases ended and the locations no longer seemed viable, he said.

Now the company is focusing on food and putting customers first.

A new culinary team has reworked the menus at each of the core brands to better differentiate the concepts, Lockwood said.

“We quit acting like a big company,” Lockwood said. “Real Mex was this juggernaut. We should be nimble and reactive and be able to listen to our guests and our employees a lot better.”

Acapulco, for example, has moved to a more “beachy” theme, with seafood dishes, and new brunch offerings. The threefold “dumbed down” menu with lots of photos is now a one-page, back-and-front menu, like “what you’d expect in a more chef-driven restaurant,” Lockwood said.

El Torito Brunch
A look at El Torito's new brunch offerings. Photo: Real Mex

Chevys has also added brunch at two restaurants, and 43 of 50 El Torito units now serve brunch. 

“Sunday sales are up 19 percent year-to-date, so Sundays have become a very important day for Real Mex,” Lockwood said.

One strength is bar sales. About 28 percent of the mix at Real Mex is from adult beverages, which is about double what is typical in the bar-and-grill sector of casual dining. Lockwood said the company is playing to that strength with the addition of more craft beers and wine, in addition to cocktails.

More work needs to be done, but Lockwood said the timing is right for an acquisition rather than grow existing brands.

“You’ve seen proposed public offerings that haven’t happened, or there being coolness in the M&A market and the tightening of credit,” he said. “If that doesn’t exist today, it’s going to exist shortly unless something else happens. And I don’t know what that something else would be.

“There are those that like to grow when maybe the waters are a little troubled,” he added. “If you’re at the right place at the right time, you can always create opportunity. And that’s what we hope to do.”

Correction: Aug. 17, 2016 An earlier version of this story had an incorrect headline that said Real Mex was looking for a buyer. The chain is looking to acquire a new brand.  

Contact Lisa Jennings at [email protected]
Follow her on Twitter: @livetodineout

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