Taco Cabana, Inc. - Company Profile, Information, Business Description, History, Background Information on Taco Cabana, Inc.

8918 Tesoro Drive
Suite 200
San Antonio, Texas 78217

Company Perspectives:

Our mission statement defines who we are and how we run our business. We strive to fulfill this mission to over 25 million guests every year. Delivering the Cabana Experience: fresh, delicious Tex-Mex; quick, friendly service; extraordinary value; festive patio seating.

History of Taco Cabana, Inc.

Taco Cabana, Inc., operates and franchises over 100 restaurants that serve Mexican and Tex-Mex food in Texas, Arizona, Georgia, Indiana, New Mexico, Nevada, and Oklahoma. The company that pioneered the concept of "patio cafes," which incorporates semi-enclosed patio dining areas decorated in festive Mexican themes, is one of the most promising of the emerging firms in the restaurant industry within the United States. The reason for this, according to industry analysts, is management's focus on serving generous portions of traditionally prepared Mexican and Tex-Mex food at inexpensive prices, providing an attractive alternative to traditional Mexican restaurants and fast food restaurants. Unique in its ability to make most of its menu fresh each day, rather than pre-made as with other restaurants, Taco Cabana restaurants serve such items as quesadillas, salad entrees, marinated rotisserie chicken (otherwise known as "Chicken Flameante") traditionally prepared Mexican breakfasts, enchiladas, margaritas, and flame-grilled chicken and beef fajitas served on hot iron skillets.

Early History

Taco Cabana was founded by Felix Stehling, a businessman who figured prominently in the San Antonio area, due to the numerous restaurants and taverns that he owned throughout the city. One of his most popular establishments was the Crystal Pistol Bar situated on the corner of Hildebrand and San Pedro avenues. Students from Trinity University frequented the Crystal Pistol Bar on a regular basis; every weekend, and some weekday evenings as well, the place was crowded with people. In fact, the bar was so crowded on certain nights that parking became a major problem. With the convenience and comfort of his customers in mind, not to mention the growing profits from the bar, Stehling decided to purchase the lot across the street on which sat an abandoned Dairy Queen and turn it into a parking lot.

After he purchased the lot, Stehling took the next natural step. Since the property had previously been used for a restaurant, he would transform part of lot and use it to open a taco stand to feed ravenous students as they left the bar. Anticipating success with his new taco stand, Stehling was overwhelmingly disappointed when he woke up after the first night's business only to find all of the patio furniture stolen. Not knowing what to do, Stehling's first thought was to close the operation and go back to what he knew would work. But the entrepreneur in him refused to let go of the idea for a taco stand in the parking lot, and suddenly Stehling came up with the only solution to the problem, namely, keeping the place open through the night. This decision would ultimately give rise to Taco Cabana becoming a round-the-clock operation.

Not surprisingly, with Stehling's organizational ability and his talent for implementing all the appropriate operating systems and accounting mechanisms, in addition to his experience in hiring the right personnel and extensive background in restaurant design, Taco Cabana was an rapid success. From its inception, Stehling was committed to purchasing and selling the highest quality food for his customers. Made from fresh meat and produce delivered by vendors to the small restaurant three times per week, the menu was prepared fresh every day. Stehling was convinced that this would significantly set his restaurant apart from other traditional Mexican restaurants and fast food establishments that heavily depended on serving pre-prepared, pre-packaged, and frozen food to maintain their large customer base.

One of the most attractive features of his taco stand was the inexpensive price for every item on the menu. This pricing policy of Stehling's was intentional, since he thought that Taco Cabana could garner a loyal following by pricing its menu lower than for comparable fare sold in sit-down Mexican restaurants where traditionally-prepared food was the primary attraction. Home-tested recipes and authentic Mexican cuisine, along with alcoholic beverages such as beer and margaritas, were a hit at their low selling price.

Soon Stehling came to realize that he was sitting on top of a potential gold mine. He decided therefore to open up a chain of the Taco Cabana restaurants throughout the city of San Antonio. However, Stehling knew that he couldn't expand without additional help. As a result, he asked two of his brothers to assist him in expanding the business. Brought in as equal partners, the two brothers worked hard to make the Taco Cabana concept successful. Within a short period of time, the hard work of everybody involved paid off handsomely. Under the direction of the family partnership, Taco Cabana grew to include nine restaurants in and around San Antonio. And just as important, revenues were increasing at a dramatic rate.

Growth and Expansion in the 1980s

Throughout the early 1980s, Taco Cabana continued to provide its customers with fresh food and efficient service. At first, Stehling and his brothers had an informal and close-working relationship, where each one of the siblings assumed and fulfilled certain responsibilities related to the business. From one small taco stand, the brothers had built up what was regarded across the city as a highly successful restaurant business. Yet as the company grew larger and larger, with increasing revenues, more staff, and the possibility of even greater expansion, the brothers began to express significant differences in their vision for the firm. Most of these disagreements centered around management issues, and as time went on they became more pronounced. Finally, in 1986, the brothers who had formed a partnership to expand the company went their separate ways. Felix Stehling, of course, the original founder of Taco Cabana, remained at the head of the firm.

The disagreements among the brothers hadn't hurt Taco Cabana's revenues at all, and Stehling decided that he didn't want to wait any longer to expand the firm's operations in a dramatic way. The first step in his expansion plan, therefore, was to hire a right-hand man that would help him in the endeavor. Stehling found the perfect candidate in Richard Cervera. Cervera had been working as a middle management executive at Fuddruckers, a national restaurant chain based in San Antonio. More importantly, Cervera was a regular customer at Taco Cabana, sometimes eating there six time a week, and had inquired about franchise opportunities at the company. Stehling was intrigued with Cervera's passion for Taco Cabana food, and also impressed with his executive management capabilities, and decided to bring him on board at his firm.

Taco Cabana prospered under the dual leadership of Stehling and Cervera. Hired as the executive vice-president in 1987, Cervera was responsible not only for implementing a strategic expansion plan that Stehling and he had conceived, but the new manager was also responsible for many of the day-to-day operations at the firm. By 1990, the company had added a number of new restaurants to its chain and began expanding into neighboring states. For his effort and accomplishments, Cervera was appointed president of the company in 1990. Cervera continued to pursue an aggressive expansion policy. A strong supporter of franchising, he made a comprehensive support system available to people who arranged franchise agreements with Taco Cabana. The company was now experiencing explosive growth with a private placement in 1991 and the purchase of four restaurants owned and operated by Sombrero Rosa. Another private placement was made the following year, with the acquisition occurring during the early part of 1992. By the end of 1992, the company had gone public with its first stock offering and counted 17 restaurants that were managed and operating under the name Taco Cabana.

Growth and Transition in the 1990s

Earlier, Taco Cabana had filed a lawsuit against Two Pesos, a chain of restaurants originating in San Antonio. Taco Cabana's quick growth and success had attractive many imitators and copycats, so much so that some of these imitators decorated its restaurants and patio cafes in the same bright pastels Taco Cabana used in its restaurant design and decoration. Stehling and Cervera immediately brought the most flagrant of the imitators to court, a restaurant chain named Two Pesos. In 1992, the Supreme Court decided the case in favor of Taco Cabana and awarded the firm $3.7 million in damages from Two Pesos. The lawsuit had severely damaged the financial viability of Two Pesos, and Taco Cabana acquired the firm that had grown to include 30 restaurants in the city of San Antonio and its suburbs.

Having found its niche, and having succeeded in protecting it, Taco Cabana flourished. The acquisitions made during the early 1990s began to pay off enormous dividends in sales and an ever-larger customer base. From 1989 to 1993, sales for the company rose from $29.1 million to $96.9 million. In 1994, sales skyrocketed to $127 million. There was no doubt that Cervera had done his job well, and, assured that the company was in good hands, Stehling resigned as chairman of the company in 1994. Succeeded by Cervera, there was no interruption in the operations of the firm.

In spite of all the good news about increasing revenues and expanding operations, however, Taco Cabana's stock price had dropped rather precipitously. Stockholders blamed Cervera for the nose-dive in stock prices, and there was mounting pressure for Cervera to be replaced. In 1995, Cervera resigned from his position at Taco Cabana and became the new president of the House of Blues restaurant chain. He was replaced by Stephen Clark, who was appointed both chief operating officer and president in the same year.

Prior to his work with Taco Cabana, Clark had worked with Church's Fried Chicken, Inc. for over 18 years, his final position at that company as senior vice-president and concept general manager. His responsibilities included oversight of the company's day-to-day operations for nearly 1,100 firm-owned and franchised restaurants with a sales volume of $600 million. Upon his appointment, Clark immediately began a comprehensive review of the firm's operations, including a close look at its expansion strategy, marketing plans, relations with franchisees, along with a detailed analysis of the sales and profitability trends within its network of restaurants.

The review did not take much time, and the consequences for Taco Cabana's operations were far-reaching. Clark decided to close a number of the company's restaurants, restructure some of the franchisee debts, bring in his own management team, get rid of many non-restaurant related assets, revamp the firm's marketing strategy and, most importantly, slow down all current plans for expansion, including either the opening of new restaurants or franchise agreements. The overall plan was to streamline the company's operations, introduce the advantage of economies of scale, and implement accounting systems and management standards which would enable Taco Cabana to continue growing in the most economically efficient way.

Perhaps the best example of Clark's strategy to improve Taco Cabana's position within the restaurant market was his concern with restaurant layout. Near the end of 1996, under Clark's direction Taco Cabana opened up a new type of restaurant in Dallas to test non-traditional market locations and prototype units for smaller, community-based, markets. Incorporating new designs and features that set it apart from the ordinary design of a Taco Cabana restaurant, the prototype unit in Dallas featured a rounded front, clay tile roof, a trellis shading the patio area, aged wood paneling and distressed stainless steel counter tops that gave the customer the impression of walking into an old Mexican cafe. One of the most important additions to this prototype design was bright neon on the exterior of the building to advertise the Taco Cabana menu. Designs kept from the original Taco Cabana restaurants included the bright pink signature paint used generously throughout the restaurant, an open cooking area where patrons could see their food being prepared, and retractable garage doors so that the dining area could be opened to the outside during good weather.

Clark's strategy worked well. The newly designed prototype attracted more customers than expected, and plans for a series of these new designs to be built in Texas were underway in the late 1990s. The implementation of a new vision and mission statement, the writing of the company's first business plan, and the installation of new operating principles for managers and employees at all the company's restaurants had tangible results; while growth slowed, more cost-effective, better financial systems improved employee accountability and profit margins, and a more streamlined administrative and management system garnered a more effective operating structure.

With the dramatic growth of Taco Cabana brought under control by Clark's leadership, the restaurant is poised for steady growth and increased profits. Such growth will be measured and calculated, so that construction costs are minimized, customer service is enhanced, operational efficiency is improved, and the image of Taco Cabana as a unique type of Mexican restaurant is assured.

Additional Details

Further Reference

Liddle, Alan, "Chains Traveling Different Roads to Interactive Nirvana," Nation's Restaurant News, January 13, 1997, p. 21."Marketing Miscellaneous," Nation's Restaurant News, November 27, 1995, p. 14.McLaughlin, John, "Growth Chains Are Missing the Mark on Expansion," Restaurant Business, March 20, 1995, p. 14.Robertiello, Jack, "H-E-B to Test Whether In-Store Taco Cabanas Will Be Hot," Supermarket News, November 18, 1996, p. 21.Ruggless, Ron, "Taco Cabana Expands, Opens Prototype Unit in Dallas Suburb," Nation's Restaurant News, January 6, 1997, p. 7.------, "Taco Closes Doors in Colorado, Turns Focus to Core Markets," Nation's Restaurant News, December 1, 1997, p. 3."Taco Cabana, Inc.," The Wall Street Journal, August 19, 1997, p. B9(E)."Taco Cabana Sets Buyback," The Wall Street Journal, April 17, 1997, p. A10(E).

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