Wahoo’s to Become a Bigger Fish
As a teenager, Mingo Lee would skip school to join his two older brothers to surf the breakers off Rosarito and San Felipe in Mexico. Afterward, they would strip off their wetsuits and scarf down fistfuls of fish tacos bought from roadside vendors.
The trio’s craving for those tangy south-of-the-border treats never went away. Neither did their memories of the throngs of surfers crowding around pushcarts to buy them.
So, instead of going to law school as their parents begged, the brothers opened a tiny fish taco joint in Costa Mesa. That was 1988, and Wahoo’s Fish Taco hasn’t looked back.
As the surf-and-skateboard industry has grown in Southern California, so has Wahoo’s. With wall-to-wall mountain bike and snowboard posters and mounted surfboards and skateboards, Wahoo’s has become the dining symbol for the booming $2-billion extreme-sports movement.
“They have created a mystique and a cult-like following,” said Janet Lowder, president of Restaurant Management Services, a Rancho Palos Verdes consulting firm. Wahoo’s following, she said, is like that of In-N-Out Burgers or Krispy Kreme doughnuts.
By almost any measure, the business has thrived.
Last year, the 22-store family-owned chain had a 9% profit on sales of $12.1 million, the company said. That’s triple the average earnings for fast-food restaurants, said Tim Carlin of Technomic Inc., a research firm near Chicago. Sales at stores open at least one year, a key industry measure, jumped 15%, the company said. That’s more than six times the average for fast-food eateries.
Now, Wahoo’s is undertaking its most ambitious expansion to date. It wants to open as many as 40 new outlets in the next five years, including some in Arizona and Nevada.
With funding from cash flow and an existing line of credit, Wahoo’s would add 25 company-owned outlets and 15 franchise operations. With 325 employees, it now has 15 company stores and seven franchises, including six in Colorado.
Presiding over the planned growth are brothers Mingo Lee, 32, Wahoo’s finance director; Eduardo Lee, 37, planning director; and Wing Lam, the 40-year-old marketing director who sports a Fu Manchu mustache and kept the family name after their Chinese-born parents moved them to America from Brazil and eventually changed their surname.
The trio exudes California mellow. At their Santa Ana headquarters, the threesome, clad in shorts, sandals and shades, pepper their conversations with enough “mans” and “cools” to fill a skateboard shop. Yet each holds a business degree and speaks four languages.
With consumers increasingly flocking to such healthful fare as fish tacos, grilled chicken burritos and homemade salsa, “we want to strike while we have momentum,” Mingo Lee said about the expansion plans.
Indeed, focusing on the quality of its fish tacos, teriyaki beef-and-rice Maui Bowls and vegetarian burritos will be key in its growth, said Eduardo Lee. Another key will be Wahoo’s personality, which developed as surf-wear makers began slapping company banners on restaurant walls to mark their favorite booths and as surf champs hung autographed pictures in restaurants.
Bob Hoose, a 35-year-old Newport Beach salesman and surfer, said the restaurant’s decor fills him with a “good vibe.” A Wahoo’s regular for more than a decade, he also likes “the real Baja flavor.”
Fresh Mexican food is one of the fastest growing segments of the restaurant industry. And bigger chains are luring customers in with similar offerings. El Torito Grill, Chevy’s Fresh Mex and even Islands Fine Burgers & Drinks, all of which have major operations in California, now carry fish tacos.
Wahoo’s more-direct rivals, such as La Salsa Fresh Mexican Grill, Baja Fresh Mexican Grill and Rubio’s Baja Grill, also aren’t standing still. Thousand Oaks-based Baja Fresh hopes to add nearly 100 restaurants by the end of next year, which would bring its total to 225. That’s more than eight times the number of stores Wahoo’s will have by then.
Rubio’s, the Carlsbad chain that claims to have a cult following in the San Diego area, operates 135 restaurants and is expanding briskly. So is La Salsa, which is owned by the Santa Barbara Restaurant Group, also operators of Timber Lodge Steakhouse and Green Burrito restaurants.
Randall Hiatt, president of restaurant consulting firm Fessel International in Costa Mesa, said Wahoo’s relative slow-growth approach could backfire as other chains snap up the best sites for future outlets. “On the real estate side, they may be late to the party,” he said.
Mingo Lee acknowledges that finding good locations is a problem. Wahoo’s had searched for a suitable spot in greater San Diego for more than a year before finding one in Encinitas, where it is negotiating a lease. Landlords often prefer renting to larger, established chains such as McDonald’s, he said.
There also is concern that Wahoo’s fish tacos might not garner much excitement outside of Southern California.
“Many people, only vaguely familiar with Mexican food to start with, aren’t going to think a fish taco is particularly palatable,” said restaurant consultant Hal Sieling in Carlsbad. “Chicken tacos are already a stretch for them.”
In new markets, Wahoo’s ads emphasize that the chain serves more than just fish tacos, including salads, fish and chicken sandwiches and even onion rings.
Still, Wahoo’s three founders seem largely unfazed by the myriad challenges, saying they overcame bigger obstacles when they started.
The trio opened the first restaurant near a commercial district in Costa Mesa with a $20,000 loan from their parents and $10,000 of their own money. Having grown up working at the family’s Shanghai Pine Gardens restaurant in Newport Beach, which their parents have since sold, they believed they had the experience to succeed from the get-go.
They were wrong. With no money for advertising, they got only about 40 customers a day trickling in during the first few months, spending about $5 each. Lam and Eduardo Lee worked 12 hours a day, seven days a week. Mingo Lee dropped by whenever he could tear himself away from his studies at UC Irvine.
Lam, who had worked as a purchasing manager in the aerospace industry, began canvassing the many surfing-related businesses in the area, handing out menus and encouraging the folks he knew from the beach and high school to try the food. Business picked up through word of mouth, he said.
“I soon had guys from Billabong, Quiksilver and O’Neill dropping by,” Lam said.
To cement ties with surfers and skateboarders, Wahoo’s began co-sponsoring local sporting events, feeding hungry surfers and skateboarders after competitions. The formula is simple: Wahoo’s gives them fish tacos, and they tell their buddies about the food.
Wahoo’s opened a second outlet in Laguna Beach in 1990. Four years later, the chain had five stores and business was good. But the brothers nearly destroyed it.
In 1994, they opened a coffee bar and lost more than $125,000 by the time it closed two years later. They were saved from possible bankruptcy by their parents, who refinanced their home and lent them $150,000, Eduardo Lee said.
Realizing their limitations, they promoted restaurant veteran Steve Karfaridis to director of operations. He quickly installed an inventory control system and “professionalized” the company, Lam said.
In its first aggressive move, Wahoo’s turned to Merrill Lynch in 1998 for a $1.5-million line of credit, which it tapped to open eight company stores and enter the Los Angeles market.
Mingo Lee now says he has no regrets that he never went to law school. “If I were a lawyer, I don’t think I’d be able to show up at work in shorts and take off in the afternoons to surf every so often,” he said. “It’s been a fun ride so far.”
