Hatching an Expansion Plan
The last time that El Pollo Loco tried to expand beyond its Southern California roost, the chain’s poor performance prompted some restaurant industry observers to crow that it was living up to its name--The Crazy Chicken.
In 1992, the Irvine-based chain failed to reach its stated goal of 500 restaurants nationwide. El Pollo Loco was under attack by a handful of angry franchisees, and the chain’s South Carolina-based parent company didn’t seem to be focusing on its restaurants.
So why is new El Pollo Loco President John Romandetti now talking about doubling the number of outlets in the 220-unit chain by 2000?
“Our biggest problem and our biggest potential is growth,” the former Burger King executive says. “We’re a regional chain, but we aspire to go national.”
Restaurant industry observers say that the chain is better positioned for growth this time around.
El Pollo Loco seems to have ironed out most of the kinks that prompted 11 franchisees to allege in a 1991 lawsuit that executives weren’t making good on their promises to expand the chain.
One irate franchisee in San Diego County chose to drop the El Pollo Loco name at a dozen restaurants and reopen them as a separate, free-standing chain.
El Pollo Loco has beefed up its menu by adding more traditional American fare, making the chain more palatable to consumers elsewhere in the country who aren’t yet familiar with the chain’s flame-broiled chicken and Mexican-style dishes.
El Pollo Loco also should benefit from Spartanburg, S.C.-based Flagstar Cos. Inc.’s decision to sell its non-restaurant businesses and concentrate on expanding its restaurant holdings.
Flagstar, which owns El Pollo Loco, Denny’s and the Hardee’s burger chains, agreed last week to purchase the Coco’s and Carrows chains from Irvine-based Family Restaurants Inc. in a deal valued at $306.5 million.
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El Pollo Loco has moved way beyond anything that founder Juan Francisco Ochoa could have envisioned in 1975, when he opened a roadside chicken stand in Guasave, Mexico. Ochoa eventually opened 85 of the broiled-chicken restaurants in Mexican cities before crossing the border in 1980 with a restaurant on Alvarado Street in Los Angeles.
Denny’s Inc. acquired El Pollo Loco’s U.S. operations in 1983 for $11.3 million, and the two chains were in turn acquired in 1987 by TW Services Inc., which later changed its name to Flagstar.
El Pollo Loco reported third-quarter operating income of $3.9 million, a 30% increase from the $3 million posted a year ago. Revenue for the quarter declined by 7% to $32.4 million from $34.8 million.
Company executives said that an important measure--same-store sales at locations open for at least a year--have continued to improve for two years.
The road toward expansion will get rockier as Romandetti goes head-to-head for new locations with deep-pocketed competitors, including longtime chicken king KFC and two relative newcomers, Boston Market and Kenny Rogers Roasters, that want to be the nation’s dominant rotisserie chicken chain.
Despite the obvious pitfalls, Romandetti maintains that El Pollo Loco is moving toward his goal of doubling in size by 2000. As proof, he noted that El Pollo Loco will open eight new company- and franchise-owned restaurants during the first quarter of this year, equaling the entire number opened during 1995.
Matthew C. McGuinness, El Pollo Loco’s chief financial officer, said that Flagstar is paving the way toward more growth by earmarking about $500,000 to create a franchising department at El Pollo Loco. Flagstar also is spending heavily to create a state-of-the-art accounting and computer system that’s designed to cut operating costs and bolster profits at all of its chains.
But Flagstar, which reported $2.6 billion in 1995 revenue, has had its own problems in recent years, running up $2 billion in losses since 1990. Last week, Flagstar Chairman James B. Adamson maintained that the company has completed a painful restructuring and is ready to focus on building restaurant sales.
Restaurant industry observers agree that El Pollo Loco has a strong menu, but they say the company will have to walk a fine line as it navigates between lower-priced burger chains and more-expensive sit-down restaurants.
“We can’t stray too far below Denny’s, and we can’t go too low on price and get beat up by the burger guys,” Romandetti said. “We don’t want to be slugging it out with them.”
Romandetti is betting that El Pollo Loco will continue to attract less-affluent diners who are seeking value--as well as higher-income patrons who perceive El Pollo Loco’s food as a healthier alternative to yet another burger, fries and a soft drink.
It’s still uncertain, though, how the El Pollo Loco name will play in parts of the country where it isn’t familiar.
Romandetti said that initial market research in Denver, St. Louis and Atlanta shows that “the name will travel well to other parts of the country, that it’s not a big problem,” and that the chain will use experience gleaned from a Northern California expansion to help guide marketing in the East and Midwest.
Adamson argues that El Pollo Loco’s food, not its name, will help the chain expand, both domestically and overseas.
“As long as the company keeps its heritage alive, and offers a fantastic value, the name isn’t important,” Adamson said. “It can be El Pollo Loco or the Crazy Chicken. Either way, it’s going to grow.”
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Gearing Up for Expansion
El Pollo Loco plans to double its number of outlets by 2000. Details on the firm:
Headquarters: Irvine
President: John A. Romandetti
Concept: Mexican-style flame-broiled chicken and other items served in fast-food format
Founded: 1975 in Guasave, Mexico
Parent company: Flagstar Cos. Inc.
First U.S. restaurant: Alvarado Street in Los Angeles, 1980
U.S. locations: 215 in Arizona, California, Nevada and Texas
International locations: 50 in Mexico, Guam and Philippines
Source: El Pollo Loco; Researched by JANICE L. JONES / Los Angeles Times
