Mexican wave

Authenticity the key: Guzman Y Gomez chief executive Steven Marks Photograph by Peter Braig

Last year, the most high-profile Mexican in the country was Sol Trujillo – regularly in stoushes with the government – and there was only one Mexican food business on the BRW Fast Starters.

This year, fresh Mexicans are everywhere. Four are vying for pole position on the Fast Starters, with a combined 30 outlets. They have some serious trendsetting fans – pop icon Lady Gaga, actor Russell Crowe, model Lara Bingle and rocker Andrew Stockdale have all been spotted at one of the taquerias on the list. They have some serious financial backers too, from the leading lady of Australian franchising, Janine Allis (Salsa’s Fresh Mex Grill, ranked 23 on the Fast Starters), to the founder of McDonald’s Australasia, Peter Ritchie (Guzman y Gomez, ranked 42).

Why is Mexican flavour of the month? There’s its novelty – it is a cuisine that has been badly represented in Australia in the past by a handful of outlets serving stodgy, fatty and often ersatz versions. The version served in the modern taquerias (modelled on street stalls) offers spicy and fresh flavours that suit the Australian palate. It is also more cosmopolitan and (allegedly) healthier than its rivals: fried chicken, burgers and chips.

Mexican might have more than just novelty appeal, however. In the United States, Mexican food is widely available and in many areas, eaten three or four times a week. But without a sizeable Spanish-speaking population in Australia, isn’t there a risk that demand won’t be sustained?

Founder Clovis Young of Mad Mex (52nd on the Fast Starters) says Mexican food is popular not just in the border states of California and Texas, but in the less Latino mid-western states such as Minnesota and Ohio. “Australia is almost identical in terms of [those] populations,” Young says. “Over the past five years, three of the top 10 fastest-growing [fast] food businesses in the US have been Mexican.”

The leader of the US pack is Chipotle Mexican Grill. In 2009, it was the eighth-fastest growing company in the US, with more than 900 company-owned outlets in 35 states and plans to expand to Europe. It grew rapidly from its founding in 1993, listed on the New York Stock Exchange in 2006 (when its share price rose 100 per cent on the day it opened) and was majority-owned by McDonald’s. Last year, despite the depressed US economy, Chipotle’s revenue increased 14 per cent to $US1.5 billion ($1.7 billion).

Figures like that are enough to make any entrepreneur’s mouth water – and explain the stampede to create a local Mexican scene.

All four proponents (Salsa’s Fresh Mex Grill, Guzman y Gomez, Mad Mex and Beach Burrito) are targeting roughly the same territory. They offer a menu of tacos, burritos and quesadillas that are cooked to order and most menu items are about $10-12. Outlets are designed for people to order at a counter (paying before they get the product) but sit to eat and many have a liquor licence. The business model, known in the US as fast casual, is a hybrid of fast-food pitstops and cafe dining.

Healthy competition has its benefits: it creates a critical mass, which helps a newcomer compete against the big names, such as Subway, Nando’s and McDonald’s. But the food industry has notoriously tight margins and low barriers to entry, so small competitive advantages will be crucial to maintaining not just the growth rates of the Fast Starters, but sheer survival.

Salsa’s Fresh Mex Grill was last year’s Fast Starters Mexican cuisine pioneer. It has climbed seven spots this year, with revenue of $6.4 million, and has 16 outlets, more than double that of its nearest competitor. Allis, the founder of Boost who bought a majority stake in the company in 2007, is unfazed by the upstarts.

“If they do well, it’s growing the market – there’ll be more of an appetite for this kind of product,” she says. Allis and her husband Jeff, Boost’s chief executive, bought Salsa’s as part of a strategy to build a stable of international fast and fresh food brands. It’s this ambition, combined with her track record of stellar success (she survived where dozens of other juice bar brands failed and now has 232 stores around the world) that may give the company its edge.

Allis has replicated many of her successful marketing strategies at Salsa’s – such as giving away free products when launching a store (“Once they try our product, they have no choice but to come back”) and loyalty schemes. But she is also leveraging her personal “brand”.

About 30 per cent of Salsa’s stores are franchised. That number is predicted to grow to 40 per cent in 2010-11, with a minimum of 20 new outlets a year. (Allis says she uses Nando’s, with more than 200 Australian stores, as a predictor of the potential market.) Her profile helps to attract similarly ambitious and capable people to run Salsa’s franchises.

“[Because] fresh Mex is new to Australia, no one has the longevity in the marketplace to give people confidence of minimising the risks of going into business,” Allis says. Boost’s track record has given Salsa’s credibility; inquiries quadrupled after the association between the brands was promoted.

Guzman y Gomez is taking the fight to Salsa’s.

“I like to think we’re the premier player – that’ll show up next year,” says chief executive Steven Marks with the swagger of a hedge fund manager – which he was. New York-born Marks (who named his chain after his and co-partner Robert Hazan’s childhood friends) has five outlets and had revenue of $3.4 million in 2008-09. He predicts this will double in the next year, partly through franchisees. In 2012, he hopes to expand overseas, probably in Malaysia first, through a master franchise.

Marks says Guzman y Gomez’s advantage is the authenticity and healthiness of its food and the openness of its outlets, where customers can see the cleanliness and timely preparation for themselves. However, he is also looking to screw prices to a minimum: at lunchtime in the Sydney CBD, a 470 gram burrito (cooked by a chef – not a kid) and Coke sell for $10. With those overheads and prices, Marks is seeking to maximise cost advantages in his international supply chain. As many food products as possible, including his marinades, are sourced from Mexico, where labour costs are vastly lower.

The strategy of maximising volume while keeping an iron grip on costs has attracted the attention of private investors. A 25 per cent stake in the business was bought this year by a syndicate of six investors. Three are from private equity and three are formerly from McDonald’s, including Peter Ritchie, who brought Big Macs to Australia and most of the rest of Asia. It was “his first investment with food outside McDonald’s”, Marks says. It’s a vote of confidence that has only increased his bravado. Guzman will prevail, he predicts, and “the ones that aren’t completely transparent will fail”.

Retailing royalty is associated with another of the Fast Starters. While planning their Mad Mex chain, founders Clovis and Angela Young were advised by stepfather Jim “the grocer” Fleming, who built and sold two supermarket empires before he died in 2007, leaving a fortune of $330 million.

Clovis Young, who grew up in Southern California and New York and was previously a trader and investment banker, is proudest of the authenticity of his food – and his systems. Despite having only seven outlets (five company-owned, two franchised), Mad Mex has sophisticated structures – including online support and video training – which means it is efficiently scalable and nimble in terms of communication and menu development.

The strength of the support systems has attracted former Gloria Jean’s Coffees international development manager Phillip Blanco (who bought a stake and is now running business development) as well as former McDonald’s and Coffee Club franchisees. With revenue of $2.5 million, Young aims to have 50 stores in five years, a quarter company-owned, then expand internationally.

Is there room for all the Mexican players?

“It wouldn’t surprise me if there was consolidation and failure,” Young says, pointing to the formerly fragmented juice industry, which Boost now dominates. “But we take comfort from the fact they have recognised Mexican food is the place to be, that they are seeing the same opportunities.”

Beach Burrito (ranked 94 with revenue of more than $950,000) is the minnow among the Mexicans. It has only two outlets, on Sydney’s Bondi and Coogee beaches. Dual US-Australian citizen Blake Read got the Mexican food bug while living the snowboarding-surfing-skateboarding lifestyle in California, where “Mexican food is like meat pies”. After running restaurants in Santa Barbara, he wanted to move home – and felt there was a gap in the market. “The culture just seemed to fit the beaches, the simplicity, plus [Mexican food is] filling – healthy and inexpensive,” he says.

It took him almost three years to open his second outlet, but another restaurant will open in September and Read predicts he will have five a year after that – all near the beach. That important point of difference has given the company its competitive advantage: coolness. Beach Burrito is a taqueria scene. Professional surfers, pop stars and models come in droves. “At Bondi, it’s a party every night,” Read says.

Is he looking at export possibilities? Read’s answer speaks volumes about how his lifestyle and business aspirations are intertwined. He wouldn’t mind an outlet in New Zealand, where he can snowboard; Dublin, where he has a mate; and Shanghai, where he’d love to live.

“I want to have fun with this business,” Read says, “travel the world, and use it as an excuse to live the lifestyle I want.”

BRW

Comments (0)