Emerging Restaurant Chain Chuy's Second Wind
Funky Tex-Mex restaurant concept Chuy's is doubling its size as it grows in and outside of Texas.
By David Farkas, Senior Editor -- Chain Leader, 4/1/2009 12:00:00 AM
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| Most new Chuy's were once another concept. CEO Steve Hislop says it's less expensive to remodel an existing restaurant than build a prototype. |
Chuy's CEO Steve Hislop likes to do conversions. So much so that three of the five or six new restaurants Chuy's will open in 2009 will have once housed another concept.
Five or six? This year? In this economy?
“Chuy's was capitalized with the intent to fund growth,” says former investment banker Rod Guinn, who has advised Goode Partners LLC, the full-service chain's owner since 2006.
Joe Ferreira, a partner in the New York private equity firm, says the company's debt, which he would not disclose, shouldn't interfere with expansion plans: “Chuy's has acceptable financing for the foreseeable future.”
In any case, conversions are less expensive than ground-ups. The total cost for a conversion ranges from $800,000 to $1 million. Chuy's 6,500-square-foot prototype is about $200,000 more. So far, the company has remodeled several barbecue restaurants, including a Smokey Bones. “I'm looking to convert anything from 5,000 to 9,000 square feet,” Hislop says.
Picking Up the Pace
Although Chuy's was created 25 years ago by Austin restaurateurs Mike Young and John Zapp, who have left the company, rapid growth wasn't on the agenda. Only eight of the funky Tex-Mex joints sprang up during their tenure.
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Hislop, former chief operating officer for Nashville, Tenn.-based O'Charley's, says that was chiefly because Young and Zapp concentrated on building a close-knit culture that made staff members stick around despite a lack of steady advancement.
“Mike and John opened a Chuy's only when they had someone ready to become a general manager,” Hislop explains.
Hislop has markedly stepped up growth since joining Chuy's in 2007, opening four units in 2008 and hiring 42 outside managers. This year, he expects to open at least five more, ending '09 with 17 restaurants. As he did last year, Hislop will open restaurants in existing markets: Austin, San Antonio, Houston and Dallas.
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For good reason: New units don't cannibalize older ones given that there are currently so few; and the brand is still popular in spite of its age. Chuy's, for instance, earns mostly 4- and 5-star ratings in each market on Yelp.com. The units rang up an average of $5.2 million in sales last year.
Chuy's popularity may be attributed to its kitschy, offbeat decor, featuring hubcap-lined ceilings and shrines to Elvis. “Our motto has always been, 'If you've seen one Chuy's … you've seen one Chuy's,'” Hislop says, referring to the layout, which is designed to look as if dining rooms have been added over time.
Fiesta fare
Made-from-scratch dishes have also contributed to Chuy's success, says Hislop, who describes the food as “the old style of cooking.” The menu features tacos, burritos, fajitas and enchiladas. Beverages, mainly margaritas and beer, account for 20 percent of sales.
Hislop believes such positioning will produce similar topline results in Nashville; Birmingham, Ala.; Memphis, Tenn.; and Louisville, Ky., Chuy's target markets in 2010. “We will connect the dots going down I-65, right through Alabama and over to I-10, which swings back to Houston,” he says.
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