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Rubio’s Will Test The Waters in Florida

Carlsbad-based Rubio’s Restaurants Inc. will soon open the first East Coast locations in its 32-year history, with the company set to acquire and rebrand eight Florida locations of Lime Fresh Mexican Grill, currently owned by Ruby Tuesday Inc.

Co-founder Ralph Rubio said the company’s Rubio’s Coastal Grill rebranding, which began last year with the remodeling of most of its local Mexican-style restaurants to emphasize seafood items, will now become a bicoastal strategy.

The Big Eight

“Eight locations gives us some scale in Florida, which is important when you are starting in a new market,” said Rubio, who continues to spearhead the privately held company’s culinary planning but does not take a formal corporate title.

The tougher alternative, which Rubio’s has faced in cities outside San Diego County, would be to open one restaurant at a time, slowly building a clientele while fending off numerous competitors already established in the market.

Rubio said he and CEO Marc Simon had recently been scouting the Tampa area for potential expansion, so the company had already done its homework on Florida before the opportunity to purchase the Lime Fresh locations arose.

According to Tennessee-based Ruby Tuesday, Rubio’s will be purchasing eight leased, corporate-owned locations of Lime Fresh for $6.3 million, in a deal expected to close in January and subject to customary closing conditions. The restaurants are in Miami, Fort Lauderdale, Tampa, St. Petersburg and Orlando, with plans to reopen them as Rubio’s in spring 2016.

When completed, the Florida deal will bring Rubio’s total to 201 restaurants. It currently operates 193 locations in California, Arizona, Colorado, Utah and Nevada, employing more than 4,000 people.

Ruby Tuesday officials said the move to sell the eight Florida locations of Lime Fresh, and close 11 other corporate-owned restaurants in that chain, was due in part to a company decision to focus resources on its flagship Ruby Tuesday full-service restaurants.

Industry observers note that Ruby Tuesday and other full-service eateries have steadily been losing customers in the past decade to the growing category known as fast-casual — generally restaurants with no drive-through or full table service, and tabs averaging around $10.

The category includes Rubio’s and is led by national players such as Panera Bread and Chipotle Mexican Grill. In the “fresh Mexican” segment of fast-casual, Rubio’s competitors also include Moe’s Southwest Grill, Wahoo’s Fish Taco and Qdoba Mexican Grill, the latter a division of San Diego-headquartered Jack in the Box Inc.

Darren Tristano, executive vice president with the restaurant industry consulting firm Technomic Inc., said fresh-Mexican restaurants continue to see rising sales, with customers seeking out spicier foods made with better ingredients than those found at fast-food outlets. However, there is a burgeoning contingent of more than 20 regional and national players now in the game, with a mixed record when it comes to nationwide expansion.

Going Too Far?

For example, Tristano said the once-booming Baja Fresh Mexican Grill and La Salsa eventually scaled back from national to regional strategies, and Qdoba has recently encountered obstacles when expanding into Chicago and other markets.

While Rubio’s will be challenged in its geographic jump, the task is not impossible, though results going forward will be decided by factors including the quality of its new locations.

“It’s somewhat unusual, although it has started to happen more often recently,” Tristano said of cross-coastal restaurant expansions. “Usually, the expansion pattern for companies is to stick within one region — for instance, Denver first, then Scottsdale, etc.”

While Rubio’s does not report financial figures, Technomic reported that Rubio’s tallied an estimated $200.9 million in 2013 sales, up 4.1 percent from the prior year.

Rubio’s since 2010 has been owned by Connecticut-based private equity firm Mill Road Capital LP. Nearly all Rubio’s locations are leased and company-operated, though the company has said in the past that it would consider working with experienced franchisees in key markets.

Often credited with inventing and popularizing the fish taco, starting in 1983 with its first restaurant at Mission Bay, Rubio’s in recent years has been adding to its seafood-oriented versions of tacos, burritos, bowls and salads — including more items with grilled fish, lobster and shrimp.

Shrimp Is Big

Rubio said shrimp has proven to be among the most popular items at its restaurants and will likely be showing up more frequently on future menus. Also, at the company’s test-kitchen restaurant in Kearny Mesa — the one on Clairemont Mesa Boulevard near Interstate 805 — the company is experimenting with more customizable options, letting customers choose the ingredients for their tacos, burritos, bowls and other items.

The changes are in part to keep pace with what has worked well for the category leader, Denver-based Chipotle, but also with overall consumer preferences for healthful foods and more control over what they eat.

Reconnaissance and Remodeling

Rubio said the company in coming months will continue to scout new sites on both U.S. coasts while progressing on its Coastal Grill remodelings in California, starting in Orange County and heading northward. It has also recently been expanding into new markets, such as Cupertino, in part by acquiring locations vacated by its rivals.

“You have to be opportunistic,” Rubio said. “This business is very competitive, especially on the real estate side.”

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