David Kim is trying to breathe life into a floundering Mexican restaurant chain.
Kim bought Fresh Enterprises Inc., which operates 300 company-owned and franchised Baja Fresh Mexican Grills, in 2006 and has spent the past three years trying to spur a turnaround.
Wendy’s International Inc., part of what’s now Atlanta-based Wendy’s/Arby’s Group Inc., sold Baja Fresh for about $31 million, well below the $275 million Wen-dy’s bought the chain for in 2002.
The fire sale price, according to Chuck Rink, president of Baja Fresh and sister brand La Salsa Fresh Mexican Grill, was because of Baja Fresh’s “challenging” financial track record.
Baja Fresh posted operating losses for nearly eight quarters through 2005. Wendy’s practically had given up on Baja Fresh when it sold it to Kim at the deep discount.
“Wendy’s pretty much stopped advertising completely for Baja Fresh,” said Jerry DeLucia, director of marketing at Baja Fresh.
Under Kim—who moved the chain’s headquarters to Cypress from Thousand Oaks last year—Baja Fresh has started to regain some standing in the market as same-store sales have risen in the past three years.
In addition to more advertising, the company is changing the look of the restaurants to attract people for dinner. It launched a prototype in Irvine earlier this year to test its new look.
The prototype features a more upscale design with beer and agave wine margaritas.
Baja Fresh’s original design was black and white with a minimalist look. The new look uses warmer colors, some wood and relaxed seating to seem warmer and friendlier, Rink said.
“I’m always careful with the term prototype because it implies we came up with an entirely new footprint and design, when really all we’ve done here is the evolution of the brand,” Rink said. “The brand—as all good rands do—needed to evolve.”
Dinner Options
The new look is a bid for dinner customers as more people are looking for cheaper options when eating out.
Dinner typically accounts for 30% of sales at Baja Fresh, Rink said. He hopes to build the dinner business to about 40% of sales in the next few years with the draw of beer and wine.
“Most people go out for Mexican food for dinner and they like to have a cold Mexican beer and a margarita,” Rink said.
It’s still working out the details at the Irvine store and plans to implement alco-
hol at all locations once it irons out a liquor license.
The new design will apply to all new Baja Fresh restaurants.
Baja Fresh is starting the renovation with its own stores and with certain franchise owners in the next year.
The company also is working out plans to remodel all existing restaurants without incurring heavy debt.
“We have kept all our existing franchise owners well-informed on the performance of the remodel from a customer standpoint and financial standpoint,” Rink said. “We’re trying to make this work in spite of some of the debt and financing challenges.”
The downturn actually is aiding the company in its expansion plans with deals on real estate. Baja Fresh opened eight restaurants this year including two in New York. Fifteen more stores are in the pipeline for 2010.
“As the commercial real estate market comes under more and more pressure, there tends to be better opportunities out there from a rent structure standpoint,” Rink said.
Baja Fresh occupies a segment of casual Mexican food that has grown in the past 10 years with competitors including Santa Ana-based Wahoo’s Fish Taco, San Clemente-based Chronic Tacos Enterprises Inc. and Carlsbad-based Rubio’s Restaurants Inc., among others.
History
Started in the 1990s in Newbury Park, Baja Fresh sells made-to-order burritos and tacos, as well as quesadillas, nachos and salads.
Fresh Enterprise also runs the 100-restaurant La Salsa Fresh Mexican Grill chain and The Sweet Factory candy store chain, and it is a franchisee of Cinnabon Inc., part of Focus Brands Inc., and Denny’s Corp.
In addition to revamping existing brands, Kim launched an investment arm—Cypress-based Growth Concepts—as an incubator company designed to discover and develop restaurants.
Growth Concepts acquired Atlanta-based Canyons Burger Co. in September for an undisclosed price.
Canyon Burger founders Sonny Crumpton and Nick Binnings will maintain their positions as president and chief operating officer.
The Southeast burger chain is known for its black Angus burgers.
The acquisition of Canyon Burger may lead to a joint Baja Fresh and Canyon Burger in one facility.
The joint operation would be a great way for both brands to piggyback into untapped markets, Rink said.
“We think the two being together under one roof would share many synergies,” he said.
