Diversified Restaurant Group formed in 2014 with the acquisition of nearly 30 Taco Bell restaurants. In less than 10 years, it has increased its portfolio 10x, recently marking its milestone 300th Taco Bell unit.
The company has no plans of slowing down and, in fact, just promoted SG Ellison to CEO to support its next phase of growth.
“SG and I began our restaurant ownership journey over 10 years ago with an investment in 29 Taco Bell stores. Since, SG has been instrumental in the growth and guidance of Diversified Restaurant Group into one of the largest franchises in the U.S.,” said DRG Chairman and Founder David Grieve. “I am incredibly proud of the results we have accomplished to date, and I look forward to seeing SG continue to expand the DRG brand and take it to the next level.”
The plan for that “next level” includes doubling its revenue and store count within the next five years, through Taco Bell acquisitions, new-builds, expanding its now-30-unit Arby’s business and potentially adding a new brand to the roster.
“As we look to double the growth of the company, we are also looking to grow the assets of our company – Taco Bell and Arby’s and a potential third brand,” Ellison said during a recent interview. “We’ve built a platform and structure in a way that has an ability to not only grow our existing brands, but also potentially add brands. We’re always evaluating good brands that have the opportunity to grow.”
Still, DRG is most bullish about its Taco Bell business, and for good reason. Few brands are growing sales and units as swiftly as Taco Bell right now. For context, the brand’s same-store sales were up by 11% in Q4 – nearly doubling analysts’ expectations – while the chain opened 250 gross new units in 2022 –its second highest annual amount ever.
Ellison credits Taco Bell for supporting DRG in the beginning and through the past few challenging years.
“Our relationship with the company has been good for both of us and has allowed us to continue to grow and attract amazing franchisees,” he said. “When we went through the pandemic, their leadership team supported us and put the pieces into place for us to be successful. I feel very excited and privileged to continue to grow within the Taco Bell business.”
The feeling is mutual.
“Our partnership is an incredible example of what franchisors and franchisees can accomplish; with a strong relationship, a passion for the brand, and listening to customers, we can do great things together. We’ve been able to create iconic and unique experiences like the Las Vegas and Pacifica Taco Bell Cantinas; we’re excited to keep innovating together and helping create some of the best places to work and eat across America,” said Mike Grams, Taco Bell president and global COO.
As it eyes an ambitious target, DRG plans to keep its portfolio diverse, with traditional Taco Bell restaurants, to-go models and those Cantina models, of which it operates seven in three states, including the Pacifica, California, restaurant, which has been called “the most beautiful Taco Bell in the world.” Diversified Restaurant Group introduced the Cantina design to Taco Bell in 2015 and has since expanded it beyond California, including a model to Las Vegas, where it has hosted over 500 weddings, and Kansas City, which features a sports theme. Several more are planned.
“We see a lot of opportunity in the Southern California area for the Cantina model and we have four locations in the Bay area for Cantinas. We just acquired a Cantina in Newport Beach and we’re excited about improving what we’ve started. We see more opportunities for growth with this model. The experience resonates,” he said.
Ellison said his company works closely with Taco Bell to come up with new ideas, most of which Taco Bell eagerly approves. Beyond market-specific Cantina restaurants, for instance, those ideas include electric vehicle charging stations, efficient pickup areas for delivery drivers and more.
“They support us on our innovation and help us think through some things,” Ellison said. “The brand has given us a lot of ability to think creatively.”
‘Promoting team members will be our priority’
While DRG embraces innovation, promoting current team members is its top priority and will continue to be as it expands, Ellison said. In addition to his CEO appointment, the company also brought on board several other leaders to “help mentor and grow the people within our group.” Still, labor remains a significant challenge – at DRG and across the industry. Ellison identifies turnover as the company’s biggest hurdle, in fact.
“We’ve dealt with labor challenges for the past several years and they continue. We don’t have a secret button to reduce turnover levels better than any other good operators. We’re just trying to find good people and be consistent in how we treat them, and be transparent about what we’re trying to do,” Ellison said. “It doesn’t always work – we lose people. But we’ve still been able to double our size in California in the past 18 months.”
Ellison makes it a point to call out California specifically, as the state has been on the frontlines of new labor regulations, including the proposed FAST Act, which would give an appointed 10-member council wide-ranging authority over decisions such as wages and maximum hours worked. Several restaurant companies, including Taco Bell parent Yum Brands, have donated to a coalition to fight the proposal, while McDonald’s CEO Chris Kempcinski said last week that this type of legislation has the “potential to diminish power from franchise owners and vastly alter the communities in which we operate.”
To that end, Ellison said DRG’s aggressive growth in California is like “running into the fire.”
“We all know about the FAST Act, which makes it very difficult to do business. But we believe, long-term, more reasonable minds will prevail. Taco Bell has been in California since its very beginning and it’s a market we believe is very resistant and adaptable to changes in the labor market,” he said.
He adds that it is important for those in the industry to also “change the narrative” about the paths restaurant-level jobs can create for people.
“As we continue to grow, we’re going to be aggressive about getting the word out that working in a restaurant is a good job. It’s a good catalyst,” he said.
Ellison believes strongly in this catalyst, which has helped motivate him despite the confluence of historic pressures that have presented themselves in the past few years.
“The franchise business, and why we fell in love with it, depends on people working and growing together. We’ve seen general managers and assistant managers and team members buy homes, buy cars, put their kids through school, use our scholarship programs and benefits to support their families,” he said. “All of that works to create a company that can deal with any challenges we come across.”
Contact Alicia Kelso at [email protected]