El Pollo Loco Holdings Inc. President and Chief Executive Steve Sather is our Business Person of the Year for restaurants—but it took nearly a decade to pull it off.
Here’s some of what he crossed off his to-do list in 2014:
• Took the Costa Mesa-based parent company of the Mexican-style fast-food chain public in July;
• Cut annual debt service from $39 million in October 2013 to about $4.5 million today;
• Hit the halfway point in a redesign of the chain’s approximately 400 restaurants;
• Brought average unit sales volumes to the edge of $2 million per store by the third quarter from $1.5 million in 2011;
• Signed a master franchiser to help it expand in Texas, a growing market for the chain.
The groundwork for the milestones began in January 2006, when Sather joined El Pollo Loco as senior vice president of operations. Steve Carley, a former colleague from Sather’s time at Irvine-based Taco Bell Corp., was chief executive of El Pollo Loco at the time.
A group led by New York-based private equity firm Trimaran Capital Partners—which still owns most of El Pollo Loco—had just bought the chain. Sather had a background in “Fresh Mex”—a new area at the time for Mexican-style fast food—with stints at the Rubio’s and La Salsa chains, in addition to Taco Bell.
He was sold on a career in restaurants by the time he arrived at El Pollo Loco.
“I always liked the pace of the industry,” he said. “There’s a lot of action, and it’s different every day.”
He said challenges that include new products, store designs, franchising and figuring food trends make for a vibrant experience.
The Plan
Sather was named chief executive in 2011, and he immediately began taking the steps and building the team that would take the company to its recent heights.
It was a second go-round for El Pollo Loco, which had recently shelved a national expansion and plans for an IPO as it grappled with the recession and high debt.
Growth remained a goal, and a future IPO was still possible, so Sather had to act.
He wrote a “strategic vision” for the company that included in-depth research to reset the chain in both fast food—which the industry calls “quick service”—and in the now-developed Fresh Mex arena.
“We called it ‘No Stone Unturned’ and then began executing against that,” Sather said.
El Pollo Loco redesigned its restaurants and expanded its menu—chicken is still the staple, but it added entrees and salads.
Both moves aimed to attract new customers, upgrade their experience, and boost what they’d pay for the food.
“We kinda own the Hispanic market in L.A., but we had an opportunity to go for the general market,” he said.
Sather talks of the “customer journey” and a “theater of chicken”—vibrant colors and chicken chopped in front of customers.
The chain is now positioned at a level all its own, according to Sather, with a price point above typical fast food such as Taco Bell but below fast-casual restaurants.
“We’re about 10% above Taco Bell and other players but 15% to 20% below Chipotle.”
Three years of pursuing Sather’s plan led the chain to the right time for another go at the public offering and adding restaurants. He said the difference this time around is a menu with broader appeal and an expansion plan with a narrower focus.
El Pollo Loco plans to stick to its Southwest U.S. base for now instead of the entire U.S. The last time it tried to grow, it opened in Chicago. This time around it entered Houston and expanded in San Antonio.
The company now has about 400 restaurants, with most in California and about 60% franchised, Sather said.
It plans to open 16 company-owned locations and 11 franchised locations this year.
El Pollo Loco has marked out 325 locations, some in current markets, that could take new sites, he said. Dallas is a likely market, as are Denver and Albuquerque.
About $35 million in cash flow freed up by reducing its debt will fund expansion.
The tight focus that got El Pollo Loco back to growth doesn’t preclude an even bigger picture in the future.
Sather said he envisions more than 2,000 locations across the country over the long term.
“I wouldn’t be here if it couldn’t be a national brand.”
Sather said debt and the recession stymied the company’s previous attempt to grow but also created benefits.
“We took the opportunity of the recession to understand what the consumer wants and what the opportunity is.”
