Tempest in a Taco
Three look-alike restaurant chains slug it out to see who will be número uno in Mexican fast food.
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Investors believed enough in Two Pesos to buy more than $5 million worth of its shares. Signs on the counter of Two Pesos restaurants advertise that the company is publicly held, encouraging patrons to “own a piece of the Peso.” Two Pesos stock reached a high of $14 a share in September of 1987 and is now trading at around $3. The fluctuation in price reflects the public’s endorsement of the patio trend tempered by caution: The concept has yet to prove itself outside the Southwest, and increased labor and food costs and rapid expansion have chewed up Two Pesos’ revenue.
Felix Stehling of Taco Cabana watched McDermott’s success with growing restlessness. He finally decided to take on McDermott mano a mano. In late January 1987 Taco Cabana International filed suit against Two Pesos for allegedly duplicating Taco Cabana’s “Trade dress,” a legal term that encompasses everything from festive, brightly colored interiors to tortilla-making machines, counter design, and menus. Oddly enough, the strongest legal precedent for fighting such alleged copying involved McDermott’s former company, Fuddruckers. In that case it was Fuddruckers that had been wronged and that had successfully sued two competitors for duplicating Fuddruckers’ trade dress.
Once the legal battle was joined, Two Pesos countersued Taco Cabana, alleging that the restaurant had hindered Two Pesos’ ability to grow and asking for damages. Fuddruckers has also sued McDermott for alleged breach of corporate opportunity, meaning that McDermott developed his patio-dining concept while working for Fuddruckers.
In addition to stirring up a legal hornet’s nest, Taco Cabana itself has started on an aggressive expansion campaign. In September 1987 the company announced a joint-venture agreement with Dallas-based Chili’s. Norman Brinker—the restaurant-industry leader who once headed Steak and Ale and now head’s Chili’s, which he founded in 1975—described Taco Cabana as a “vibrant company with a solid track record” and expressed confidence in the future of the Taco Cabana patio-dining concept. “The price value is so good,” he said, “and Mexican food is eaten across America.”
Although it has not matched the blistering pace of Two Pesos’ expansion, Taco Cabana has opened restaurants in Houston, Dallas, El Paso, and smaller Texas cities. Two locations will soon be open in Southern California, where the climate, highway culture, and large Hispanic population combine to create the most promising market yet for patio dining. The success of Taco Cabana has even attracted the attention of people outside the restaurant industry, including officials of the Immigration and Naturalization Service, who announced last February that the agency intended to fine Taco Cabana $4,500 for alleged violations of the new immigration law. When asked why Taco Cabana hired so many illegal Mexican workers, a company spokesman replied, “They’re the only ones who can tell if the beans are burned.”
Even though no one knows whether patio dining will catch on outside the Southwest, there are a number of good reasons why an ever-increasing number of “eater occasions”—to use an industry term—will take place at Two Pesos, Taco Cabana, or TaCasita. First is the price. A family of four can eat breakfast, lunch, or dinner (and the adults can have a beer or a margarita with their food) at a patio restaurant for around $14, a price that compares favorably with that at any of the other franchise eateries that line America’s roadways—and most of those don’t serve alcohol. The second reason is the atmosphere. Patio dining is perhaps the most kid-friendly eating environment in the country today. Babies love the bright colors and the busy , open layout; toddlers and older children can scream and run around the patio without disrupting other diners (well, not very much); teenagers can find their own table away from their boring relatives; and parents can relax, have a drink, and pretend they are in a bar, away from the kids. And even if the restaurant is not crowded, the abundance of knickknacks on the walls, the piñatas, the chile-shaped Christmas lights, and the recorded Mexican music still make the restaurant seem busy and inviting.
The third reasons for the success of patio dining lies in the service: Accommodating but—and this is key—impersonal. Most Americans are, I am convinced, uncomfortable being waited on. It goes against our democratic grain. Patio restaurants strike a happy medium between franchise and formal service. You don’t have to queue up at a stainless-steel counter, and you don’t have to deal with an eager-beaver waiter whose name you didn’t want to know in the first place. And for the 30 percent of the patio diners who choose to take out their Mexican food, the drive-through windows are an added attraction, offering speed and entertainment: Operating the second of the two windows involves pushing buttons and watching trays on conveyor belts whisk away money and return hot food. It’s almost like being served by a friendly robot.
The lawsuits between Taco Cabana and Two Pesos, the first scheduled for trial this fall in a Houston federal court, may determine who will win the fight for America’s patio-dining dollars. Each side does seem to have a grievance against the other. The Two Pesos restaurants do closely resemble Taco Cabana, and Two Pesos may have a point that Taco Cabana’s lawsuit has hindered Two Pesos’ ability to grow: Taco Cabana has refrained from suing other patio restaurants, such as Alfonso’s in San Antonio (which also serves Mexican food) and the Houston-based Chinese eatery Two Yen.
Aside from the lawsuits, the style of the principals involved in the patio-food fight may decide who wins the national crown. Marno McDermott has had at least two blockbusters in the restaurant business, Chi-Chi’s and Fuddruckers. McDermott rapidly expanded both chains, experiencing great success at first, followed by serious financial trouble. “Timing is everything with Marno,” says Malcolm M. Knapp, the head of a New York-based marketing-research firm specializing in food service. “He has a real gift for concepts that are going to work. But how long will he stay with them? That is an open question.”
Taco Cabana is more conservative, financing its growth with franchise and joint-venture agreements rather than with debt and public stock offerings. Felix Stehling’s join-venture partner, Norman Brinker, probably best personifies the company’s management style. Malcolm Knapp describes Brinker as a “builder,” someone who can take a company, enhance its value, and keep it running profitably. “And in the long term,” Knapp says, “I have to go with a builder.”
I ate and drank my way along the highways of San Antonio, Austin, and Houston in an attempt to choose the best patio-dining chain from a customer’s point of view. I concluded that as far as food quality, price, and service were concerned, it was a toss-up. All three organizations offered consistently good food, relatively strong margaritas, and fast service. Differences among them were small. Two Pesos supplies a hot sauce in addition to mild sauce and pico de gallo at its salsa bar and caters more to a margarita-drinking crowd. Taco Cabana and TaCasita have more-colorful decorations, in addition to green-tiled bathrooms that make post-margarita stops a pleasure.
I would have to say that for my dollar, the best patio restaurant is the one that is closest when I get the urge for Mexican food. And I am not alone in that verdict. In El Paso, Taco Cabana is doing better business than Two Pesos, because it is closer to UTEP; in Houston, Two Pesos has better locations and thus gets more business.
In Austin, TaCasita is the closest to my home and therefore my favorite. By staying out of court, Mike Stehling has the advantage of being able to devote his full attention to the business. He operates his five restaurants with the quirky hands-on management style that was largely responsible for the original success of patio dining. And he has something that money can’t buy—family loyalty. “Brother Bill manages the store on Research in Austin,” he explains, “Brother George operates the store on Ben White, and Sister Virginia Crowe operates our Houston location. Brother Pat is, um, well, looking for locations in Puerto Vallarta.”
Mike’s sister Corinne Danysh accompanies Margie Lopez Abonce, the woman who created the Taco Cabana recipes, as she does quality checks at each TaCasita every two weeks. “The only way to tell if the food is good is to eat it.” Margie explains. “It is not good for my figure, but it is part of my job.”
The folks who run TaCasita won’t make a killing in the stock market, but they won’t go broke either. They will continue to serve high-quality, low-priced Mexican food—at least as long as Mike and Margie have anything to do with it.
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