Tortilla Flat

Last year Houston’s Ninfa Laurenzo saw her venerable restaurant chain go bankrupt. Will new ownership be a recipe for success?

Few restaurant chains in Texas are as storied as Ninfa’s. When her husband died suddenly of a cerebral hemorrhage in 1969, Ninfa Laurenzo found herself with the family tortilla factory to run and five children to support. To supplement her income, she gathered up some pots and pans from her kitchen and in 1973 opened Ninfa’s, a ten-table Mexican food restaurant in the front room of the factory on Navigation Boulevard, in Houston’s east side barrio. By 1995 Ninfa’s owned or licensed more than 35 restaurants around the state and in Louisiana. Ninfa herself had come to symbolize the Hispanic success story, greeting the pope in Puerto Rico as a U.S. goodwill ambassador in 1986 and nominating George Bush for president at the Republican National Convention in 1988.

But what seemed to be an entrepreneurial success story was really a troubled business. In October 1996 Ninfa’s was forced into involuntary bankruptcy by its primary food suppliers in Houston, Sysco Food Services and Southern Produce. At press time, the company was in the process of being sold to the Serranos Group, which owns the Austin-based Serranos Café and Cantina Mexican-restaurant chain, and its partner, Houston investor Niel Morgan.

How did Ninfa’s run into trouble? Like many small companies that find themselves with a hot product or concept, Ninfa’s bit off more than it could chew. To fuel its expansion, it borrowed too much money at high interest rates. To pay the interest on the debt, the company tried to generate more sales by opening more restaurants and diversifying into different restaurant concepts, for which it had to borrow even more money. Eventually, the hole Ninfa’s dug for itself became so deep, there was no way it could climb out. Along the way, Ninfa’s food began to suffer, making the chain vulnerable to competition. “It got tired,” says Phil Romano, a Texas restaurant entrepreneur who has launched such successful chains as Fuddruckers, Romano’s Macaroni Grill, and most recently, the take-out restaurant Eatzi’s. “People want something different, something they haven’t seen or tasted before, not the same old Ninfa’s.”

Ninfa Laurenzo didn’t set out to be a restaurateur. But after her husband died, the family tortilla business faltered, and the regulatory agencies were on her back to modernize. In 1972 her eldest son, Roland, who was fresh out of broker training at Merrill Lynch in New York and selling stocks from its Corpus Christi office, came back to Houston to help save the family business. Ninfa thought that opening a restaurant could bring in more revenue. “I thought if I opened a little taco stand, I would survive and support my kids and keep them together,” she says.

So, with only $16 in her pocket, Ninfa mortgaged her house, borrowed equipment from a vendor and $5,000 from a friend, and in June 1973 opened her little restaurant. It was slow going at first, and a few months after opening, a taco-shell machine that was accidentally left on nearly burned down the restaurant. With no money and no insurance—she had let it lapse because she couldn’t afford the premiums—it was one of Ninfa’s worst moments. “We sat in the living room and cried,” she says. “But I said, ‘Look kids, the Good Lord knows why he does these things—so we can draw some more strength. So tomorrow, we get up and we repair everything ourselves.’”

Within days, the restaurant reopened, and by and by, through word of mouth, the food—specialties included an addictive creamy green salsa, sizzling beef and chicken fajitas, and tacos à la Ninfa, soft flour tortillas bursting with flavorful grilled meat—began to catch on. It was far more authentic and homey than the No. 2 dinners Texans were used to. And the fact that Ninfa’s was a hole-in-the-wall in a rough part of town only added to its appeal. It was common to see mink coats next to blue collars on a Friday night.

The restaurant was so successful that it eventually crowded out the tortilla business, which Ninfa sold. Three years later, the Laurenzos opened a second restaurant, on Westheimer. By 1980 they had nine Houston restaurants, which they funded with cash flow from the first two. Encouraged by the popularity of Ninfa’s in Houston, the family business—now led by Roland as chief executive officer—began to enter new markets, a decision that would prove to be the chain’s undoing. In 1980 and 1981 Ninfa’s began opening outlets in Dallas, one of the most competitive restaurant markets in the country.

Ninfa’s had a good concept but a bad business plan. The company opened four restaurants in as many months, picking poor locations and underestimating its opening costs. Unable to get cheap financing, it funded the restaurants with $2 million in loans from RepublicBank at 20 percent interest. More important, it didn’t do a good job of selling the Ninfa’s mystique. “Dallas didn’t buy into it,” says Roland. Having spilled millions of dollars of red ink, the company closed three of the four restaurants a year or two after they opened.

Ninfa’s never really recovered after that. It eventually paid off the debt with its remaining reserves. But it had to keep borrowing money to keep going. The company was able to negotiate a revolving credit line with its primary banker, Houston’s Metro Bank, and payment extensions and additional credit from its vendors, including food distributors such as Sysco. But Ninfa’s fell into the same trap it had before—trying to grow its way out of its capitalization problems. In 1985 the company formed an alliance with McFaddin Ventures, a Houston nightclub operator, to share in the costs of opening new restaurants. But within a year the deal had fallen apart. Ninfa’s also tried to generate additional revenue by selling Ninfa’s franchises and expanding into different restaurant concepts: cajun with Atchafalaya River Cafe, Italian with Bambolino’s, and steakhouses with Bradley’s and the Lonesome Steer. But none of them caught on. In the early nineties the company also opened new Ninfa’s restaurants in smaller

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