Founded: 1995
NAIC: 722211 Limited-Service Restaurants; 533110 Lessors of Nonfinancial Intangible Assets (Except Copyrighted Works)
SIC: 6792 Oil Royalty Traders; 6794 Patent Owners & Lessors
Qdoba Restaurant Corporation is the second largest fast-casual Mexican restaurant chain in the United States, trailing only Chipotle Mexican Grill, Inc. The company manages the Qdoba Mexican Grill system, which includes more than 400 outlets in 39 states and the District of Columbia. Positioned as purveyors of "nouveau" Mexican cuisine, Qdoba restaurants feature a menu centering on large signature burritos offering unique flavors, such as ancho chile barbecue, fajita ranchero, and poblano pesto. Other menu offerings include tacos, taco salads, grilled quesadillas, nachos, soups, and breakfast items. Qdoba workers prepare items in front of the customer, topping them with personally selected ingredients, including a number of distinctive salsas. The prices for main courses run from $5 to $7, while sides go for roughly $2.50 to $4. The typical Qdoba, which offers dine-in, takeout, and catering (Q-to-Go) options, has a seating capacity ranging from 60 to 80 persons, including outdoor patio seating.
From a single location that opened in Denver, Colorado, in 1995 under the name Zuma, Qdoba (pronounced cue-doe-buh) had developed into a chain of 85 outlets in 16 states by early 2003. At that time, San Diego-based fast-food hamburger chain operator Jack in the Box Inc. acquired Qdoba for $45 million. The deep pockets of its parent enabled Qdoba to expand at a faster pace, with the chain reaching the 400-unit mark in November 2007 and plans to open more than 75 additional outlets over the succeeding year. Approximately 80 percent of Qdoba restaurants are owned and operated by franchisees, with the remainder owned and operated by the corporation.
1995-97: From Zuma to Z-Teca
Qdoba was founded in September 1995 by Anthony Miller and Robert Hauser, two Generation Xers who opened their Zuma restaurant at Grant Street and Sixth Avenue in Denver. Miller, an investment banker from New York, concentrated on the operations side and was the firm's first CEO, while Hauser, a graduate of the Culinary Institute of America and formerly chef at the five-star La Cirque restaurant in New York City, supervised the food side. Company lore held that the restaurant had been named after a cat that had belonged to Miller's college roommate.
The 1,300-square-foot restaurant, built at a cost of $200,000, offered big burritos weighing more than a pound each, filled with fresh ingredients, and assembled along a production line in front of the customer. Zuma was clearly a fast-casual restaurant, an emerging category of chains that were a bit fancier than typical fast-food restaurants such as Taco Bell while offering faster service than casual-dining chains such as Chevys. Positioned as a "fresh Mexican grill," Zuma offered its customers a number of options for burrito fillings: carnitas (pork), chicken, or beef; cilantro-lime rice; pinto or black beans; optional cheese and sour cream; and several salsas that varied in their level of heat. From the beginning, Hauser developed unique flavors for the menu, including poblano pesto, made from poblano peppers, green chiles, garlic, almonds, and pine nuts; and a molé sauce made from a base of dark semisweet chocolate, chili pepper, garlic, and other spices. Most of the burritos on the menu initially sold for less than $5.
Positive reviews from local restaurant critics and strong word of mouth helped Zuma generate $1.5 million in revenue during its first year. The first snag for the nascent operation arose in late 1996. In order to use the Zuma name, the company had had to license it from its owner in Boston. The lawyer for Miller and Hauser's business advised that owning a name outright was a necessity before carrying out plans to franchise the concept in other states. Therefore in early 1997, Zuma was renamed Z-Teca Mexican Grill. Around this same time, two more Z-Teca outlets were opened in Denver. Several more opened in Colorado by the end of the year, including units in the Denver metro area, Boulder, and Golden. By early 1998 there were 12 Z-Tecas open in Colorado, Texas, Maryland, Arizona, and Kansas, among which were the first franchise outlets.
New Investors and Managers, Accelerating Expansion
In February 1998 fast-food giant McDonald's Corporation purchased a minority stake in Z-Teca competitor and fellow Denver-based chain Chipotle Mexican Grill, which had been founded in 1993. This investment by McDonald's, which acquired majority control of Chipotle in 1999, spurred interest in the fast-casual Mexican sector from investors as well as a great deal of publicity. To at least a certain extent, Z-Teca was able to ride Chipotle's coattails to an important capital infusion. In March 1998 the company announced that Western Growth Capital LLC, a Denver-based investment group, had made a significant investment in Z-Teca, becoming its largest shareholder. At the same time, additional investments were made by three industry veterans--Dan Carney, the founder of Pizza Hut; Jack Laughery, former CEO of Hardee's; and Martin Hart, a board member of Papa John's America. The new funding enabled the chain to begin franchising in earnest.
While the company founders had succeeded in creating a viable model in terms of the menu and the customer service approach, they realized that professional management was needed to expand Z-Teca into a national chain with hundreds of outlets. Thus in 1998 Gary J. Beisler was hired as COO. He brought two decades of quick-service restaurant experience to Z-Teca, including his most recent stint as senior vice-president of operations for Rally's Hamburgers, Inc. Beisler had played a key role in expanding Rally's from a small chain into a major player in the fast-food hamburger sector with nearly 500 outlets.
Beisler further strengthened Z-Teca's management team with several additional hires, including Richard Pugh, a colleague of Beisler's from Rally's who was named vice-president of operations; Karen Guido, named vice-president of marketing on the basis of previous marketing experience at Vicorp Restaurants, Inc.'s Village Inn chain and at Domino's, Inc.; and Eric Grundmeier, formerly with Einstein/Noah Bagel Corporation, who was hired as director of purchasing and distribution. The new management team led Z-Teca into a faster rate of expansion, particularly on the franchise side. More than a dozen agreements were soon in place with area developers around the country experienced in multiunit franchising. Between mid-1998 and mid-1999 the number of units doubled to 42 in 14 states, with 29 of the restaurants being franchises.
During this same period, Z-Teca introduced a new store design and image created by outside designers. Design elements included new packaging; new poster boards; warmer interior decor featuring earth colors, stainless steel, and copper; and such decorative touches as ancient Mexican hieroglyphics and a mural depicting women making tortillas by hand on a Mexican farm. As Miller told the Denver Rocky Mountain News in July 1998, "This is the evolution of our overall branding efforts from simple logo to something more sophisticated that has more design elements."
Another important development in 1998 was the beginning of Z-Teca's transformation from a big burrito concept to more of a full-fledged Mexican grill offering "nouveau Mexican" cuisine. The restaurant menu expanded to include tacos, taco salads, nachos, and seasonal soups. This augmentation was designed in part to strengthen the chain's appeal to female customers as customer user studies had shown that the original focus on burritos had appealed primarily to men. Having spearheaded many of the significant changes that Z-Teca was undergoing, Beisler was promoted to CEO in December 1999 with Miller remaining chairman.
New Name in 2000
As Z-Teca began its steady expansion around the country, its name once again became an issue. In a number of markets, the similar name "Azteca" was already being used by a restaurant, and the company also faced federal trademark infringement lawsuits from Seattle-based Azteca Restaurant Enterprises and Z'Tejas Grills of Scottsdale, Arizona. Although Z-Teca had filed a federal copyright name registration, the other two restaurant chains had registered their names earlier. On this basis, Z-Teca eventually had to pay Azteca a $27,500 court settlement and also reached an out-of-court settlement with Z'Tejas for an undisclosed amount. It also elected to change its name once again, this time using professional help to avoid future nomenclature disputes. In the early months of 2000, a transition to the name Qdoba Mexican Grill was carried out, with the corporate parent changing its name as well from Z-Teca Restaurant Corporation to Qdoba Restaurant Corporation. Beisler asserted to Chain Leader in November 2000 that the Qdoba name "means absolutely nothing, and thus was something we could use for any idea and any geographic area in our gradual plan to go national."
By the end of 2000, the Qdoba chain had grown to encompass 55 units, 41 franchised, in 17 states, including California, Illinois, Georgia, and North Carolina. Systemwide sales totaled approximately $38 million, with the average company-owned restaurant pulling in $825,000 in revenues that year while the franchise average amounted to $750,000. The average customer check totaled $7.
Qdoba continued its steady growth over the next two years. While continuing to open new company-owned outlets, the company on the franchise side entered into a number of substantial territorial expansion deals. In late 2002, for example, Qdoba announced a deal with a sister company of RMD Corp., the largest Hooters franchisee, for the opening of 25 Qdoba outlets in southern Florida. By this time, Qdoba had commitments in place for more than 200 new units that were in various stages of development. Most of the new stores were sited in higher-end shopping centers catering to the chain's target customers, busy adults heading dual-income families. Qdoba ended 2002 with 85 restaurants, 57 of which were franchises, and systemwide sales of $65 million. The chain continued to post strong same-store sales growth, with this key figure for 2002 standing at 12 percent.
2003 Acquisition by Jack in the Box
By the end of 2002 Chipotle Mexican Grill had become the clear leader of the fast-casual Mexican restaurant sector, as the financial backing and operational expertise of its McDonald's parent helped push the store count of Qdoba's crosstown rival up to 230. Qdoba, seeking to grow at a faster clip, gained its own deep-pocketed fast-food parent in January 2003 when the company was sold to San Diego-based Jack in the Box Inc. for $45 million in cash. At the time of the purchase, Jack in the Box was operating around 1,850 hamburger outlets in 17 mainly western and southern states. For its part, Jack in the Box was seeking to diversify its operations while the entire fast-food hamburger sector was suffering from stagnating sales. It was also in the midst of a refranchising program through which it was converting some of its company-owned outlets into franchises, and by acquiring Qdoba it hoped to tap into the pool of franchisees that the Mexican chain had developed.
Under its new parent, Qdoba operated as a wholly owned subsidiary and kept its headquarters in Denver and retained its existing team of executives. The same month of the acquisition, Qdoba added grilled quesadillas to its menu and a new signature burrito called the Queso that featured a three-cheese sauce--an innovative mixture of Swiss, white cheddar, and Monterey Jack cheeses--and could include either adobe-marinated grilled chicken or steak. Over the next two years, as planned, Qdoba parlayed the capital funds of its parent into a more rapid rate of growth, opening up 66 new restaurants in fiscal 2004 and 73 the following year. By early October 2005, the Qdoba chain consisted of 250 outlets in 37 states: 57 company-owned and 193 franchises. Systemwide sales reached approximately $220 million.
By this time, the menu was showcasing another signature burrito, the grilled vegetable. This item featured sautéed and grilled red peppers, zucchini, and yellow squash, tossed in a garlic herb seasoning. Qdoba also had begun offering a catering service called Q-to-Go consisting of a hot taco, Naked Burrito, or nacho buffet suitable for groups of 20 or more people. Interestingly, since the chain's beginnings as Zuma, the menu at Qdoba had featured the Naked Burrito: the contents of a big burrito served in a container or on a plate without the tortilla, and eaten with utensils. The original concept, according to Hauser, as quoted in the Denver Post in December 1996, was designed to "appeal to business professionals who don't want to risk spilling sauce on their suits." Much later, the low-carbohydrate diet craze breathed new life into this concept, and one of Qdoba's competitors, Moe's Southwest Grill, LLC, began selling "Buck Naked" burritos. Qdoba had trademarked the term "Naked Burrito," and so it sued Moe's for trademark infringement. As part of a settlement the two sides reached in March 2005, Moe's agreed to stop using the term "Buck Naked."
Also in 2005, Qdoba replaced its marketing tagline "Not just big burritos, big flavor" with the new tagline "What are you going to love at Qdoba?" The accompanying advertising campaign emphasized the various choices the chain offered and the unique flavor profiles available at the restaurants. The accompanying marketing campaign included television and radio spots, print ads, in-store material, and direct mail. At this time, Qdoba's annual advertising budget amounted to around $2.5 million. Same-store sales remained strong at Qdoba, including an 11.8 percent increase during fiscal 2005.
Maintaining an Aggressive Growth Rate
In 2006 and 2007 Qdoba maintained its aggressive rate of growth, opening its 300th unit in the summer of 2006 and its 400th outlet in November 2007. Although same-store sales growth slowed in these years to 5.9 percent and 4.6 percent, respectively, these figures were nevertheless more than respectable. By 2007 systemwide revenues had reached an estimated $330 million.
Qdoba's menu continued to evolve during this period. In the fall of 2006 the chain had one of its most successful new product introductions with the launch of Mexican Gumbo soup, which was simply Qdoba's tortilla soup poured over the fillings of a burrito. In 2007 a chicken mango salad was offered on the menu as a limited-edition summer item. That fall, Qdoba also added seasoned shredded pork to its menu along with a new signature burrito, the Ancho Chile Barbecue Burrito. At the same time, the slow-selling Chicken Molé Burrito was pulled from the menu. In July 2007 Qdoba announced that it had launched an initiative to remove artery-clogging trans fats from all of its menu items by the end of the year. Future growth plans called for Qdoba Mexican Grill to expand by between 75 and 100 new restaurants per year, with around 80 percent of these slated to be franchise outlets.
Principal Competitors
Chipotle Mexican Grill, Inc.; Baja Fresh Mexican Grill; Moe's Southwest Grill, LLC; Rubio's Restaurants, Inc.; El Pollo Loco Holdings, Inc.
Further Reading
Aronovich, Hanna, "New Flavors: New Menu Items and Expansion Ensure That Customers Nationwide Can Sample Qdoba's Nouveau-Mex Flavor, the Company Says," Food and Drink, May/June 2005, pp. 46, 48, 50.
Basquez, Anna Maria, "Z-Teca Restaurant Takes Big Burrito Concept National," Denver Rocky Mountain News, July 4, 1997, p. 1B.
Bernstein, Charles, "What's in a Name?" Chain Leader, November 2000, pp. 25-26.
Bertagnoli, Lisa, "Industrial Lite: A Soft Yet Modern Interior Helps Consumers Differentiate Qdoba Mexican Grill from Its Competitors," Chain Leader, November 2003, pp. 28-30, 32.
Brand, Rachel, "Burger Chain Makes a Run for the Border with Qdoba Buyout," Denver Rocky Mountain News, January 23, 2003, p. 2B.
Brandau, Mark, "Gary J. Beisler," Nation's Restaurant News, October 16, 2006, pp. 68, 70.
Breuhaus, Brian, "Burrito Blow-out?" Restaurant Business, April 1, 1998, p. 20.
Bunn, Dina, "Z-Teca Chain Plans Design Make-over," Denver Rocky Mountain News, July 28, 1998, p. 4B.
Cavanaugh, Bonnie Brewer, "Qdoba Mexican Grill," Nation's Restaurant News, January 28, 2002, pp. 168-69.
Cebrzynski, Gregg, "'Emotional' Qdoba Campaign to Reinforce Positioning," Nation's Restaurant News, May 2, 2005, p. 15.
Cox, Jack, "Expansion Excites Restaurant Owners," Denver Post, December 31, 1996, p. E2.
Dunn, Julie, "Q the Spotlight: Qdoba Mexican Grill, Hot on the Expansion Trail, Hopes to Stand Out in Unwrapping at Least 80 More of Its Fast-Casual Restaurants This Year," Denver Post, April 16, 2007, p. C1.
Farkas, David, "Fresh Competition: Qdoba Plays Up Food Quality, Options, and Speed of Service to Set Itself Apart from Rival Burrito Chains," Chain Leader, August 2004, pp. 58-59, 65-66, 68.
Forgrieve, Janet, "Qdoba Looking to Spice Up Growth," Denver Rocky Mountain News, September 22, 2005, p. 5B.
French, Liz, "Fresh Ideas," American Executive, April 2007, pp. 61-63.
Littman, Margaret, "Mex It Up: Chipotle Targets a Niche Audience, While Qdoba Goes After the Mass Market," Chain Leader, July 2005, pp. 22-23.
Parker, Penny, "Investors Are Pumping Big Bucks into Big Burritos," Denver Post, March 2, 1998, p. C1.
------, "Z-Teca to Franchise Restaurants," Denver Post, June 11, 1997, p. C2.
Pate, Kelly, "Qdoba Chain Sells for $45 Mil," Denver Post, January 22, 2003, p. C1.
------, "Z-Teca Changing Its Name," Denver Post, December 15, 1999, p. C1.
Petersen, Chris, "'Nouveau' Food: Qdoba Mexican Grill Says It Brings New Flavor Profiles to the Mexican Fast-Casual Segment, As Well As a Healthier Approach to Its Food Preparation," Food and Drink, May/June 2007, pp. 94-95.
Rogers, Monica, "Outside the Box: Qdoba Chef Ed Wilroy Sidesteps Cliches and Defines Fresh, 'Nuevo-Mex' Fare," Chain Leader, March 2003, pp. 46-50, 52.
Ruggless, Ron, "Z-Teca Plans Expansion of Fresh-Made Burrito Concept," Nation's Restaurant News, July 27, 1998, p. 76.
Spector, Amy, "Jack in the Box Buys Qdoba," Nation's Restaurant News, February 3, 2003, pp. 1, 77.
Spielberg, Susan, "Qdoba Mexican Grill: Jack in the Box Brings Upscale Burrito Brand into the Fold, Prepares for Rapid Growth," Nation's Restaurant News, January 31, 2005, pp. 172, 174.
Thorn, Bret, "Ted Stoner," Nation's Restaurant News, September 20, 2007, p. 42.
Walkup, Carolyn, "Expansion Has Become Name of the Game for Qdoba Mexican Grill," Nation's Restaurant News, November 6, 2000, p. 26.
— David E. Salamie
