Jeffrey D. Allred for The New York TimesThe Red Iguana 2: “We didn’t even think of doing different concepts,” said Bill Coker, a co-owner.
Case Study
What would you do with this business?
Last week, we published a case study that looked at a choice facing Red Iguana, a Salt Lake City Mexican restaurant that was deciding where, and how, to expand. Founded in 1985 by Ramón and María Cardenas, the 130-employee company offers sit-down restaurant service as well as catering and fast-food operations.
Now owned by Ramón and María’s daughter, Lucy, and her husband, Bill Coker, the 100-seat Red Iguana was facing two problems, one that most restaurateurs would die for and another that most would die to avoid. In September 2008, the restaurant was featured on the Food Network’s “Diners, Drive-ins and Dives,” and soon there was an hour-and-a-half wait for seating almost every night. Then came word that the city would be building a light-rail line down the middle of the restaurant’s street, construction that could potentially force the restaurant to close occasionally, or at least eat into its revenue by dissuading some of the 700 diners who came every day, 363 days a year.
When regular customers started telling Mr. Coker that they were being turned off by the long lines as much as by the construction, he and Ms. Cardenas decided to expand. But how? Conventional wisdom held that they should open a second Red Iguana at some distance so as not to cannibalize their current business, and several nearby towns approached them about doing just that. But while searching for a location, they heard about a warehouse for sale for $259,000 just two blocks from their first restaurant, replete with a concrete pad that could be used for patio dining.
In the end, Mr. Coker and Ms. Cardenas opted to ignore conventional wisdom, at least mostly. They bought the nearby warehouse, as well as neighboring properties for parking and catering, and opened a 119-seat copy of Red Iguana — with the same menu — in December 2009. Soon after they bought the warehouse, a developer who was building a downtown mall approached them about opening a fast-food version, and in March 2010 Taste of Red Iguana opened at the City Creek Center.
Opening Red Iguana 2 two blocks from the original was a tough sell to the bank loan committees Mr. Coker approached. “I convinced them that our daily anecdotal evidence was that we had a large customer base that was no longer coming in because we had gotten too busy, too crowded, too successful and that they would indeed fill the new restaurant,” Mr. Coker said. “And that in fact the two-block proximity gave us a valuable business advantage over distant additional locations because we could literally push large reservation parties and large walk-in groups to the restaurant that was the least busy.”
Ms. Cardenas and Mr. Coker’s counterintuitive bet paid off. Annual revenue has grown to more than $6 million today from $4 million in 2009, and both restaurants are regularly full. Surprisingly, perhaps, it is the fast-food branch that is not yet making money, though mall construction will not be complete until next year. Ms. Cardenas and Mr. Coker discussed their decisions, and the results, in an interview:
Q: How bad has the disruption caused by the light-rail project been?
Mr. Coker: We estimate we lost about $300,000 over the last 12 months. Primarily it impacted our lunch numbers because a lot of our business, probably 10 to 20 percent during the week, was business meetings from downtown. We’d call them the “suits.” We’d look through the room and you’d see a sprinkling of suits.
Ms. Cardenas: Afterwards, you didn’t see so much. Before the construction, we’d have a waiting list for lunch of two to three rows of names; afterward, it would be one row.
Q: Is that over?
Mr. Coker: The bridge on our street that connects the west side with downtown was closed on April 17, 2010, and opened again on Aug. 17, 2011. We’ve definitely seen an impact since it’s reopened — at both restaurants, actually. During a recent convention, we got a lot more activity than we would have when the bridge was closed.
Q: Why didn’t you give the second restaurant a slightly different concept, as our outside experts advised?
Mr. Coker: I understand why that would make sense to people. But we didn’t even think of doing different concepts. This is one of the strongest concepts in the country. Over the years, even with multiple locations and different names, Ramón and María’s restaurants always served their same food. When we first took over, I ran into a couple who’d known Lucy since she was 7 and had been coming weekly. They know exactly what they wanted. Our anecdotal evidence is that 70 percent of the customers always order the same dish. When you have that kind of loyalty, it’s much safer to bet on the same restaurant with different decoration than on inventing a new concept. And that’s been borne out by the numbers.
Q: What are the numbers?
Mr. Coker: In 2010, the brand made $6.4 million. The original Red Iguana made $3.9 million, the new one made $2.1 million, and Taste of Red Iguana another $350,000.
Q: With a popular restaurant’s “magic” being the hardest thing to replicate during an expansion, how do the customers and the atmospheres compare?
Mr. Coker: The second restaurant has several streams of clients. First, those who try to go to No. 1 but find it’s too crowded so they’re directed to No. 2. Then, there are loyal customers that actually prefer the second location because it has a patio and diner-style seating at a bar. It’s a quieter location. Parking’s easier, it’s a larger location, and it has indoor waiting for when it’s raining, hot or cold.
Ms. Cardenas: We have a lot of families coming into Red Iguana No. 2. We’re putting a lot of tables together. They bring their kids, in part because the train goes right by there and they like to watch, and in part because they don’t have to wait as much as at No. 1.
Q: What are your plans?
Mr. Coker: The concept of multiple locations grew out of logistics concerns but also to position the brand to go for a large platform expansion. We wanted to prove the brand had enough strength to be in a new building, to be two blocks away. And then when the City Creek offer came up, we realized it was a good opportunity to create a dual-tiered franchisable brand that could roll out with quick service and full-service version, very much like the UNO pizza chain from Chicago.
Q: Are you thinking of opening other locations now?
Mr. Coker: No plans now. We’ve been offered to open at Salt Lake airport by four or five airport management chains. We’re not ready for that, but it’s an indication that we have that strength. This is still a mom-and-pop operation. Aside from dining room and kitchen managers, there are only four of us in the office managing these three locations — Lucy and I and the finance and H.R. mangers we hired. We like the In-N-Out Burger expansion theory: pay as you go. Our preference is to not take on any more debt and pay down things.
Article source: http://feeds.nytimes.com/click.phdo?i=1a9ad8ffde1a40748d51d495b0fc7bf5