Del Taco and Naugles, two of the best-known names for Mexican fast-food in California, are being combined by one owner who plans to make the new company a national chain challenging industry leader Taco Bell.
The combination would create the second-largest Mexican fast-food chain in the United States and the largest in California, with 373 restaurants.
Agreements have been signed for a cash purchase of the two chains by a new company formed and owned by Orange County restaurateur Anwar Soliman, chief executive of American Restaurant Group, which operates 360 restaurants.
Costa Mesa-based Del Taco is a privately held company that operates 202 restaurants, all in California except for one in Yuma, Ariz. Orange-based Naugles operates a chain of 171 restaurants, mostly in California, with some in Nevada, Utah and Missouri. It is owned by Collins Food International of Los Angeles.
"We're trying to create one big company out of two--and become a powerhouse," Soliman said. "We're going after a segment of the fast-food market, Mexican, that's a very growing segment with a very good size."
Soliman said that his preliminary studies show that "people don't believe the claims of the big one, Taco Bell, but they believe in the quality of Del Taco and Naugles. . . . We're combining the best of both."
The combined chain will be called "either one of the two names--Naugles or Del Taco--or a new name," Soliman said. "Market research will tell us that."
"The long-term plan is to create an undisputed chain that competes in the market and make it a national chain" in three to five years, Soliman said.
Soliman estimated 1987 combined sales of Naugles and Del Taco at $250 million--or almost half of the market share for the Mexican fast-food industry. The sale to Soliman's new AWR II company is expected to be completed within 30 days.
By far the leader in the fast-food burrito, taco and refried bean industry is Taco Bell, the Irvine-based unit of Pepsico. It has a nationwide network of more than 2,300 restaurants.
With Soliman's purchase, the two leaders are almost certain to reevaluate their menus and marketing strategies to solidify their shares of the already intense Mexican fast-food war.
In 1986, the Mexican fast-food and mid-price dinner house market had total sales of $2.5 billion, according to the Commerce Department. Soliman estimated that sales at Taco Bell accounted for $1.3 billion of the total.
Soliman's ambitious effort to take a big bite of the market should be no surprise to those familiar with the 49-year-old Orange County entrepreneur. During a Times interview in September, he talked about his hope to build a restaurant group that will one day rival McDonald's.
Soliman learned to build restaurant empires at W. R. Grace & Co. He spent 22 years creating the company's restaurant division almost from scratch and earning a reputation as a deal maker and near-maniacal worker.
It was in 1986, during his last year at Grace, that Soliman first made news with Del Taco. He negotiated an agreement that called for Del Taco to pay $34 million for Grace's 81% interest in Taco Villa. The deal fell through when Del Taco could not obtain financing for the purchase.
After leaving as head of W. R. Grace's restaurant division in August, 1986, Soliman engineered a multimillion-dollar purchase of 330 restaurants from Marriott, including Stuart Anderson's Black Angus and some trendy Los Angeles and Orange County eateries such as Prego and Harry's Bar & Grill.
Those form the core of Soliman's Newport Beach-based American Restaurant Group, which he heads as chairman and chief executive. American Restaurants now operates or franchises 360 restaurants, including the Velvet Turtle chain, Spoons, Grandy's and MacArthur Park.
Last fall, he made an unsolicited bid to take over Restaurant Associates Industries of New York, a firm with more than 100 restaurants and 150 newsstands. That proposed deal, worth more than $100 million, was ultimately rebuffed.
He said he is the sole owner of AWR II Acquisition Corp., which was formed to purchase Naugles and Del Taco. "It is an interesting segment," he said, "that is not crowded."