Chevys Revs Up for Western Mexican-Restaurant Market

There’s no visible evidence that the Chevys Mexican Restaurant prototype that opened last month in Anaheim Hills is owned by Taco Bell Corp.

The ubiquitous mission bell is nowhere to be seen, and the Taco Bell name isn’t anywhere on the menu, even in the fine print. And that’s OK with Taco Bell, which in May acquired Chevys, a San Francisco-based chain with 40 sit-down Mexican-style restaurants clustered mainly in the Bay Area.

Taco Bell, itself a Pepsico Inc. subsidiary, wants to remain in the background as Chevys expands toward a goal of 300 locations nationwide and a tenfold revenue increase to $1 billion a year. In short, Taco Bell wants the full-service Chevys chain to mirror its own role as the premier seller of Mexican-style fast-food.

That’s a tall order for Chevys, which didn’t open its first Southern California location, in Irvine, until 1992. Chevys’ first out-of-state location--Glendale, Ariz.--opened just last month.

With Taco Bell’s financial backing and food systems expertise, Chevys plans to open about 15 restaurants next year, as many as 30 locations in 1995 and 50 each year starting in 1996, Chevys officials say. Chevys will open eateries in Arizona, Colorado, Nevada and Southern California during 1994 and move into Oregon, Washington and the eastern seaboard the year after.

Taco Bell doesn’t plan to tinker with Chevys’ “always fresh” menu, said Jim VanDercook, Chevys vice president of operations in Southern California, but Taco Bell will use its strong balance sheet to push Chevys’ expansion into high gear. VanDercook said Taco Bell also will offer valuable operations guidance gleaned from its own rapid expansion.

“They’ve got something like 4,500 Taco Bells out there, and we’re just trying to go from (about 40) restaurants to 300,” VanDercook said. “I can’t tell you what kind of impact their resources have had on us already.”

Taco Bell isn’t alone in aiming for the sit-down Mexican-style restaurant niche.

Irvine-based Restaurant Enterprises Group hopes to complete a deal that will give it the nation’s largest chain of full-service Mexican-style restaurants. REG, which already owns the El Torito chain with 80 locations, has announced plans to acquire the Chi-Chi’s chain, with 235 locations, from San Diego-based Foodmaker Corp.

REG will convert some El Torito locations in the Midwest into Chi-Chi’s, but it has no immediate plans to operate the two chains under one name, company officials have said.

Oddly enough, VanDercook, a former El Torito manager, credits Chi-Chi’s and El Torito with paving the way for Chevys’ planned expansion. “The preliminary work has been done” when it comes to interesting the public in Mexican-style cuisine, VanDercook said.

Chevys doesn’t intend to follow directly in its competitors’ footsteps, however. The chain’s focus will remain solidly on food. “We want to attract people into our restaurants based on the fact that we are a restaurant,” VanDercook said.

That’s a veiled reference to the relatively heavy dependence upon alcoholic beverage sales at Chi-Chi’s and El Torito. Company figures show that in 1986, alcohol accounted for 41.4% of sales at El Torito and 32.7% of sales at Chi-Chi’s, contrasted with 35.1% and 27.3%, respectively, in 1992.

Both chains are reducing their emphasis on high-markup alcoholic drinks; El Torito, for example, is experimenting with a self-service restaurant inside its large cantina, or bar, areas.

REG’s ability to continue to dominate the Mexican-style chain restaurant business will depend largely on a proposed recapitalization that will eliminate remnants of $737 million in debt accumulated during a 1980s leveraged buyout. That heavy debt load has kept REG from updating its restaurants.

Similarly, Chi-Chi’s managers blamed recent same-store revenue declines on a capital shortfall that forced delays in restaurant refurbishment. In addition, Chi-Chi’s managers said, the chain was slow to respond to changing consumer tastes.

Some restaurant industry observers believe that Chevys will gain valuable ground as the combined Chi-Chi’s and El Torito chains renovate their restaurants and menus.

“It seems to me that REG is going to have to spend a lot of money to get even,” said Carlsbad-based restaurant consultant Hal Seiling. “And as they’re spending money to get even, Pepsi is going to be spending money to stay ahead or get further ahead.”

Chevys Appeals to Shift in Trends

As baby boomers get older, the quick turn through the drive-up window is giving way to relaxed sit-down dining. Chevys plans to capitalize on the trend toward Mexican-style food with an emphasis on value.

CHEVYS AT A GLANCE

* Headquarters: San Francisco

* Parent company: Taco Bell

* Idea: Family-style dining in relaxed Southwestern atmosphere

* Average meal price: $8

* Locations: 38, including three in Orange County--the latest in Anaheim Hills

* Goal: Expand into a nationwide chain of 300 restaurants

MEXICAN-STYLE DINING DEMOGRAPHICS

Characteristics of typical patrons of these restaurants, according to a survey taken this year by the National Restaurant Assn.:

* Age: 25 to 54

* Household income: $25,000 or more

* Residency: Metropolitan areas with populations of less than 250,000

* Where it’s eaten: 83% eat at sit-down restaurants

* Frequency: Of the 74% who have eaten Mexican food, 41% had done so during the month before the survey.

Sources: Chevys, Taco Bell, National Restaurant Assn. Researched by JANICE L. JONES / Los Angeles Times