January/February 2008
Editor's Note: How do you build a restaurant business from scratch in a fiercely competitive market? Rodney Anderson of Panchero's Mexican Grill did it with a simple, back-to-the-basics approach. He focused on just five core items - burritos, quesadillas, tacos, fajitas and salads - all made with only fresh, high-quality ingredients. Even the tortillas are homemade and fresh-pressed. Anderson's approach has produced a loyal following in the fast casual, fresh-Mexican segment. He shares his story below.
Panchero's Mexican Grill has earned its reputation the hard way. It didn't get its start in the bright lights of big cities where the sheer size of the population makes it possible for many food concepts to find success simply by opening their doors.
Panchero's has built its respected name in the fresh-Mexican arena by succeeding in Midwestern cities like Ames, Iowa, and Lansing, Mich., where you can go a mile without having a neighbor and people aren't prone to foolish spending. When people eat out, it's only because the food is good and worth their hard-earned money.
With more than 45 locations in 14 states, Panchero's is positioned for a breakout year, with plans to open approximately 25 new locations in mostly upscale suburban areas in 2008. The chain expects to grow to 100 locations by the end of 2008. For Panchero's, whose corporate headquarters is in Iowa City, Iowa - the blueprint for success has Midwestern stick-to-it-ive-ness written all over it.
"Our product and service has had to be good," says Rodney L. Anderson, a native Chicagoan who founded Panchero's in 1992 with his late father, Thomas R. Anderson. "Some of the Midwestern cities we were in didn't have large populations or much exposure to new concepts, so we couldn't afford to be sloppy. But the stress and pressure to succeed was a good thing, because we were able to fine-tune things much faster."
Panchero's is hitting its stride at the right time. According to figures in an online report from Technomic, Inc., the fast-casual restaurant category will be a $15 to $17 billion segment by 2010.
The fresh-Mexican segment has been riding the same wave. In 2004, Mexican food at fast-casual restaurants grew at 8.7 percent, double the industry rate, according to the report. Panchero's sales growth has mirrored that success. System-wide annual sales have increased an average of 35 percent during each of the last three years.
"Fresh-Mexican is almost the mainstream way of looking at Mexican food now," the 40-year-old Anderson says. "Before we had to show customers that we use real steak, not ground beef, and that we don't sell hard-shell tacos. But now that fresh-Mexican has matured, it has become the mainstream way of eating Mexican food."
Sixteen years ago, Anderson was 24 and had just earned his MBA from the University of Chicago. As a Windy City native, he had frequented the city's Chicago-style taquerias and thought he could successfully transport the idea to college towns.
He was young and had prospered investing in Blockbuster stock while still a student. He also was able to call on the experience of his father, who had retired as CEO of Kemper Financial.
"Fortunately, I had more money than the typical 24-year-old and I thought I would give it a shot," Anderson says. "If I failed, I would have at least learned from the experience and I would have been young enough to try something else."
The first two Panchero's opened in the college towns of Iowa City and East Lansing, Mich. The simple, taqueria-style restaurants gained a cult-like following with students who loved the signature, oversized, skirt-steak burritos filled with fresh ingredients.
For the next six years, Panchero's generally thrived with about 10 locations in Midwestern college towns. But Anderson also came to a realization: While Panchero's had an ardent following, it was also limiting.
"It was the perfect male college student concept," Anderson says. "But to go further, we needed to have some suburban appeal - something that would also appeal to women and families - so that we could grow outside of college towns."
Starting in 1998, Anderson revamped the menu, changed recipes, and upgraded ingredients and the decór. Most importantly, Panchero's introduced its homemade tortillas pressed from dough balls in front of every customer.
"We would bring in sororities to our locations once a week and go to banks and invite all the tellers for a free lunch," Anderson recalls. "Everyone loved the food. You could tell it was a different product appealing to a more wide-ranging customer base." Panchero's is the only restaurant in the fast-casual, fresh-Mexican segment today that serves homemade tortillas prepared fresh for each customer in a special tortilla press, Anderson says.
Panchero's opened its first suburban location in Iowa in 2000 and its first franchised location in Minneapolis in 2003. Today, with a 17-member corporate staff that is continually expanding, Panchero's is branching out from its Midwestern roots. The company plans to open stores in Virginia and New Jersey in 2008, almost all of them in upscale suburban areas.
Most Panchero's franchisees now operate or plan to open multiple locations. The company expects multi-unit operators will continue to fuel Panchero's aggressive growth - especially those with prior restaurant industry experience.
Prospective franchisees see a concept that is fresh and exciting, but one that has proven experience behind it. "We know how to be profitable," Anderson says. "The reputation we have for our tortillas has proven to be a tremendous draw not only for customers, but for attracting franchisees."
Attention to detail also attracts franchisees, whether one is talking about Panchero's training and support program, its site selection process, or the on-staff designer Anderson employs to give the restaurants a consistent look that includes exposed ductwork and track lighting, warm colors, eye-catching artwork and padded booths.
"Fast-casual has continued to become more upscale and we want to continue to stay ahead of the curve and keep our store designs up to date," Anderson says. "We don't always necessarily change a lot, but we also don’t want anything to become obsolete."