Taco Turnaround
Kevin K. Moriarty picked the perfect place to tell his story--a festive Del Taco restaurant that reflects the kind of upbeat energy that admirers say has helped him transform the faltering chain into a thriving business.
But back in 1990, when Moriarty first decided to take charge of Del Taco Inc., even his 11-year-old son questioned the decision.
Shortly after moving his family from Naperville, Ill., to Mission Viejo, he took his wife and two boys on a tour of the restaurants. They stopped at one dreary Del Taco after another. The outlets were dirty, lightbulbs were burned out and the landscaping was ragged, Moriarty said. With the company then losing $1.2 million a month, even the workers were gloomy.
“Everybody,” he said, “was just waiting for the doors to close.”
Moriarty, an unsinkable optimist, saw nothing but opportunities. Son Sean saw only doom.
“He said, ‘Mom, Dad’s gone too far this time. We’re all going to end up in the streets,’ ” Moriarty recalled.
As it turns out, the Moriartys still have housing. And the Mexican-style fast-food chain is in the midst of what some in the industry are calling a stunning comeback.
Since 1990, Del Taco executives say, sales at established stores have more than doubled. And the Laguna Hills company has ambitious plans to expand beyond its Southern California base, building up to 70 restaurants in 15 other states.
To accomplish the turnaround, Moriarty took off in a dozen directions. He unloaded about 50 restaurants, freshened up old stores, built splashy new ones, revamped the menu and worked to bolster employee morale.
“Everything was wrong,” he said, “so it took very little genius to start setting it right.”
The road to recovery included a hairpin turn--a 1993 bankruptcy from which Moriarty and four other managers emerged as the company’s new owners. But now, the industry is heaping praise on the 49-year-old chief executive officer.
Last month, New York-based Nation’s Restaurant News presented him with its Golden Chain Award for 1997, considered the industry’s most prestigious award.
“Del Taco was a basket case when Moriarty was recruited to take over,” Editor Richard Martin said. “By all accounts, he’s the kind of guy who can rally the troops when an outfit is under siege.”
Lacking the academic credentials of many high-powered executives, Moriarty has used a mix of rah-rah chutzpah and down-home humility to force company changes.
And he’s had plenty of help.
Some on his sturdy management team have been in the fast-food business since before they could drive. For example, Shirlene Lopez, the company’s newest vice president, was just 14 when she began sweeping floors and wiping tables at a Del Taco in Fountain Valley. Now she’s in charge of corporate development and design.
Co-owner James D. Stoops was also 14 when he began making French fries for a Burger King in Midland, Mich. He now oversees operations at more than 200 Del Tacos and seems to be in perpetual motion. To gauge how things are going, Stoops cruises from restaurant to restaurant, placing orders from drive-up windows. He’s on the go so much that he doesn’t have an office, staff or even a secretary.
All the attention seems to be making a difference. Systemwide, the chain’s 300 stores now generate sales of about $250 million annually.
And when company executives talk about the company’s success, they are quick to credit their leader, Moriarty.
“He really knows how to motivate the employees and get everybody excited about what we’re doing,” said Dawn Wallock, vice president of marketing.
Moriarty, a hands-on chief executive who’ll grab a rag and wipe a table, moved quickly to make changes at Del Taco.
Within 90 days of taking control, he eliminated 30% of the menu, including the fish taco, bun taco and some carnitas dishes. He has now tinkered with every item on the menu, except the green sauce. Even the French fries have been redesigned.
The benches where customers once sat to wait for their orders have been ripped out. “My theory of fast food is not place your order and take a nap,” Moriarty said. “My theory is place your order and here’s your order.”
People who know Moriarty say his success has hinged on a combination of experience, enthusiasm, vision and a knack for making co-workers feel like team members.
“He’s a very paternal and charismatic kind of guy who seems to know how to relate to the rank and file and the upper echelon,” Martin said.
After 16 years with Burger King Corp.--the perennial runner-up to industry giant McDonald’s Corp.--Moriarty also was adept at playing second fiddle, industry insiders say. So he was able to operate skillfully in the shadow of the much larger Taco Bell Corp., Del Taco’s main competitor.
“You might say he learned from experience that being No. 2 is tough,” said Hal Sieling, a Carlsbad-based industry consultant. “And you’ve got to make smart moves.”
*
One of those moves was to cater to “heavy users”--young men 18 to 24 who grab fast food up to 25 times a month and account for 70% of the industry’s business. The company was “right on target,” Sieling said, when it hauled out the one-pound Macho Burrito line.
“Eighteen-year-old boys are not in the least worried about their diets,” he said.
The company’s newest marketing campaign also targets young males, ending with the tag line: “We know who you are. We know what you like.”
The company has also put considerable emphasis on freshening up the look of Del Taco, including designing a new corporate logo. Since 1991, Del Taco has poured $30 million into reviving old restaurants, Moriarty said.
As a result of their efforts, Del Taco has begun to distinguish itself in an industry that is “strong and stable” but not growing much, said Bob Sandelman, president of Sandelman & Associates, a firm that tracks industry trends. Over the last few quarters, Del Taco has been “narrowing the gap somewhat” between itself and Taco Bell, Sandelman said.
Although things are going well for Del Taco now, it has not always been easy.
When Moriarty arrived, the company was not only losing money but mired in debt. It owed $87 million to General Electric Capital, its largest creditor. Moriarty arranged a bankruptcy filing that was quickly approved by GE. A year later, Del Taco emerged from bankruptcy with Moriarty and four other senior managers in control.
Today, Moriarty said, the company is “incredibly healthy” financially. “As we speak, I sit with excess of $20 million in the business account,” he said. “This is a chain that’s come back to life.”
While Del Taco is privately owned and does not release exact numbers, Technomic Inc., a food service market research firm, estimates that sales dipped 1% between 1991 and 1996--a period during which the chain was dumping unprofitable restaurants.
But in 1996, sales jumped about 7%. And this year, the company is “tracking better than that,” said Paul W. Hitzelberger, co-owner and executive vice president of Del Taco.
By comparison, sales grew less than 2% in the food service industry during that period, and Mexican-style fast-food sales rose a mere 1.3%, Technomic said.
But it remains to be seen whether Del Taco will become a major player nationally.
“I don’t think [Del Taco] is regarded as a big competitive threat in a lot of markets,” Martin said. “It really has not grown that much, if at all. But the units are much stronger and that gives them a stronger foundation to attract new partners, franchises and so forth.”
*
Company executives insist they are already well on the path to national expansion. And they say Del Taco has become increasingly aggressive about advertising in the last two years, putting additional emphasis on television ads.
“Our biggest challenge is just getting the word out to people who don’t know about Del Taco,” said marketing vice president Wallock.
The company’s expansion plans include building restaurants, installing eateries in existing buildings and selling more franchises. Currently, two-thirds of the 300 outlets are company owned; the remainder are franchises.
While most Del Tacos are in Southern California, the company is opening restaurants in Central and Northern California. The company also plans more restaurants in Arizona, Utah, Nevada, Georgia and Florida, Hitzelberger said.
“They’re going into new markets where Del Taco hasn’t been before,” said Janet Lowder, president of Restaurant Management Services, an industry consulting firm. “It seems like they have their game plan set out.”
If their game plan is set, the team is clearly in motion.
Moriarty can’t take a weekend getaway without visiting the Del Tacos on his way out of town. Stoops uses his car as his office. Even Chief Financial Officer Robert J. Terrano, another co-owner, can be found cruising Del Tacos at lunchtime to see if they’re busy.
On one recent weekday, as Moriarty pulled into the new Irvine store, Terrano drove up, slowed, and shouted a message.
“Three forty-two is jammed!” he said, referring to another Del Taco nearby.
The two men beamed at each other.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Del Taco on the Move
CEO and majority owner Kevin K. Moriarty has masterminded a dramatic turnaround at Del Taco. But the chain faces stiff competition, with nationwide sales far less than the fast-food giants:
Profile: Kevin K. Moriarty
Age: 49
Education: Attended Suffolk Community College, Suffolk, N.Y.
Background: After Navy service, joined Burger King to learn more about the restaurant industry. Headed two divisions there, then joined Del Taco as CEO in 1990; became majority owner in 1993
Residence: Mission Viejo
Personal: Married, two children
Awards: Ernst & Young’s Entrepreneur of the Year, 1996
Del Taco at a Glance
Headquarters: Laguna Hills
Founded: 1964
Chairman/CEO: Kevin K. Moriarty
Business: Mexican-style fast food
Restaurants: 300 in 10 states
Estimated annual sales: $200 million-250 million
Employees: 6,000
Status: Private
How Del Taco Compares
*--*
1996 sales Rank Chain (in millions) 1. McDonald’s $16,370 2. Burger King 7,485 3. Pizza Hut 4,917* 4. Taco Bell 4,419 5. Wendy’s Old Fashioned Hamburgers 4,284
*--*
Unranked Del Taco 200*
* Estimate
Sources: Del Taco, Technomic Information Services
