El Pollo Loco, Inc.

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El Pollo Loco, Inc.

3333 Michelson Drive, Suite 550
Irvine, California 92612
U.S.A.
Telephone: (949) 399-2000
Fax: (949) 399-2025
Web site: http://www.elpolloloco.com

Private Company
Incorporated: 1983
Employees: 3,600
Sales: $396.0 million (2003)
NAIC: 722110 Full-Service Restaurants; 533110 Owners and Lessors of Other Non-Financial Assets

El Pollo Loco, Inc. (EPL) describes itself as the nation's leading quick-service chain specializing in flame-grilled chicken. EPL owns and operates nearly 140 El Pollo Loco restaurants while franchisees control nearly 180 restaurants. The restaurants are located in California, Arizona, Nevada, and Texas. A majority of the units—roughly 80 percent—are located in California. The restaurants offer a variety of Mexican entrees and side dishes, including chicken burritos, chicken quesadillas, tacos al carbon, and EPL's signature dish, the Pollo Bowl. The company's majority owner is a New York-based equity investment firm, American Securities Capital Partners, L.P.

Origins

During EPL's first 25 years of development, it experienced several periods of powerful growth, recording surges of expansion that stood in sharp contrast with long stretches of time in which the company languished. The company was started in 1975, when Juan Francisco "Pancho" Ochoa opened his first roadside chicken stand in Guasave, Mexico, a small town on Mexico's Pacific Coast whose residents first experienced Ochoa's "El Pollo Loco," as his dining concept was called from the start.

To the residents of Guasave, Ochoa's style of cooking was not novel, but it was enormously popular. Using a recipe he learned from his mother, Ochoa marinated his chicken in a combination of herbs, spices, and citrus juices before flamegrilling it. The result became a local favorite, fueling the rapid growth of the El Pollo Loco concept. By the end of the decade—four years after the first chicken stand opened—Ochoa and his family and friends had established 85 restaurants in 20 northern Mexico cities, making full use of the opportunity before them. El Pollo Loco demonstrated enviable strength as a dining concept, encouraging Ochoa to make a bold geographic leap into the United States.

In later years, EPL experienced considerable difficulties when it attempted to export its restaurant concept into new geographic regions, but the company's initial foray proved to be an unmitigated success. In 1980, Ochoa opened an El Pollo Loco on Alvarado Street in Los Angeles and enjoyed greater success than he had with the first unit in Guasave. The Los Angeles restaurant, which had seating for 38 diners, drew crowds of patrons, collecting $2 million in revenues during its first year. The initial success fueled aggressive expansion, much as it had five years earlier in northern Mexico. Ochoa opened an average of four new restaurants a year in Los Angeles for the next three years, by which time the performance of the El Pollo Loco concept had attracted the attention of a U.S. corporate suitor.

1983 Acquisition by Denny's, Inc.

EPL never faltered under the stewardship of Ochoa. The chain began to experience its first difficulties when under the control of corporate parent companies, the first being Denny's, Inc. The operator of a massive chain of inexpensive family restaurants, Denny's acquired Ochoa's 12 El Pollo Locos in Los Angeles in 1983 for $11.3 million. Ochoa and his family retained control of the concept in Mexico. The transaction marked the beginning of a new era for EPL, one that would see the company benefit and suffer from the tutelage of much larger parent companies. The homespun business that began in Guasave had matured, for better or for worse, and now faced a future of great expectations in a decidedly corporate world.

EPL existed as a division within Irvine, California-based Denny's throughout the mid-1980s. In 1987, the company was swept up in corporate maneuverings beyond its control when TW Services, Inc., one of the largest restaurant companies in the world, acquired Denny's and EPL. The transaction gave EPL a new parent, one that, like Denny's, saw the concept as a growth vehicle. From 1983 to the end of the decade, EPL, under the control of Denny's and TW Services, grew to be a nearly 200-unit restaurant chain. The growth was impressive, but it was achieved almost entirely in California. Under TW Services' control, an attempt to greatly broaden the chain's geographic presence had scored only moderate success in Arizona, Nevada, and Texas. Elsewhere, the efforts to export the concept failed, leading to the closure of units in Florida, Hawaii, and as far away as Japan, by the beginning of the 1990s.

EPL opened its 200th restaurant in 1991, but celebrations for the milestone were muted. The failed forays into markets out-side California aside, the chain was beginning to perform slug-gishly as it exited the 1980s. The onset of a national recession in the early 1990s only served to exacerbate the company's woes. Some members of the business press at that time observed that TW Services was willing to sell EPL, but the restaurant conglomerate was unable to find an interested buyer. EPL's fortunes did not improve until Raymond Perry took control of the chain in 1993, the same year TW Services changed its name to Flagstar Corporation. Perry, a foodservice veteran who served for years as the day-to-day operations chief of the Carl Jr.'s burger chain, added an important new dimension to EPL's business. Since its inception, EPL had operated almost exclusively as a dinner establishment, attracting only a limited lunchtime crowd. Perry changed that, introducing an expanded menu featuring barbecued chicken, new varieties of burritos, and tacos al carbon that attracted lunchtime patrons.

Its business invigorated by soaring lunch sales, EPL began to exude strength again as it entered the mid-1990s. Perry used the opportunity to start an ambitious remodeling program in 1994. The restaurants' exteriors were refurbished and salsa bars were added, among several other alterations that cost between $60,000 and $100,000 for each location. When Perry left the chain in mid-1995, his efforts to broaden EPL's appeal beyond a narrow ethnic niche created a vibrant enterprise that represented the jewel of Flagstar's holdings.

EPL was performing admirably by the mid-1990s, but the company had recorded only negligible physical growth since the start of the decade. The chain increased from 12 units to 200 units between 1983 and 1991. During the next five years, only 16 units were added to the chain. Flagstar's management, which had viewed EPL as a hindrance earlier in the decade, now looked at the chain as one of its primary growth vehicles. The parent company's executives declared their intention in 1996 to make EPL a 600-unit chain by the end of the decade. To give themselves an opportunity for international growth, they acquired the foreign development rights for the El Pollo Loco concept from Ochoa, who retreated again, this time retaining the rights for only two small territories in Mexico. Flagstar's grand plans never materialized, however. Within months the company found itself in a severe financial crisis, leaving its well-performing subsidiary, EPL, to suffer from its parent company's malaise.

Flagstar had the desire to expand EPL, but not the capabilities to follow through on its goal. The company's other foodservice holdings—family dining chains Quincy's Family Steak-house, Denny's, Carrows, and Coco's—were producing lackluster results. Further, the company itself was awash in debt, occupying a precarious position as it entered the late 1990s. Roughly a year after proclaiming its intention to triple the size of EPL, Flagstar filed for bankruptcy, leaving the thriving EPL chain to wait for its parent company's attempt to recover. Flagstar emerged from bankruptcy in 1998 under a new name, Advantica Restaurant Group, Inc., and with a revamped strategic focus, one that did not include EPL within its scope.

A Change in Owners in 1999

In 1999, Advantica's management began to sharpen its focus on its restaurant brands. EPL, as the only quick-service holding within its portfolio, no longer fit within the parameters of the conglomerate's operating strategy. Midway through the year, Advantica, in dire need of cash to aid in the redevelopment of its full-service restaurant chains, hired an investment banking firm to find a buyer for the 268-unit EPL chain. There was no shortage of interested buyers. The chain continued to perform well despite the financial troubles of its parent company. In May 1999, at approximately the same time Advantica decided to divest the chain, EPL announced that it intended to open 32 new restaurants during the year, its most aggressive expansion in a decade. More than 100 suitors inquired about acquiring the chain before a deal was struck. In November 1999, a New York-based equity investment firm named American Securities Capital Partners, L.P. acquired EPL, paying $128 million for the chain. American Securities, whose only other foodservice holding was a 132-unit Burger King franchise in Puerto Rico, managed a $350 million fund that included six companies.

EPL entered the 21st century with a new sense of confidence. Under the stewardship of Advantica and its predecessors, the chain's development had been stunted. The menu, aside from incorporating lunchtime items early in the 1990s, changed little during the decade. Physically, the chain had not expanded as much as it could have, particularly into new regions. The beginning of the new century and its new freedom as a relatively independent company marked the beginning of a new era, one that would take its direction from a new leader. In 2001, Stephen Carley was appointed EPL's new president and chief executive officer. Under his leadership, the chain pressed forward during the first half of the new decade, attempting to seize opportunities that it previously had been unable to exploit.

Company Perspectives:

Our Vision: Produce sustained great results by building a culture of self-disciplined people who take action fanatically consistent with our mission. Our Mission: To passionately serve "Perfect Pollo" every time.

Carley, a Chicago native and graduate of Northwestern University's Kellogg School of Management, made several important contributions to EPL during his first years in control. Carley was in his late 40s when he took the helm at EPL, leaving his post as president of a digital photography company named PhotoPoint Corp. to join the restaurant chain. Although Carley also spent three years as the head of Universal City theme park in Los Angeles, the bulk of his professional experience corresponded with the duties he assumed at EPL. Carley spent more than a decade as an executive at Taco Bell and its parent company, PepsiCo, Inc., gaining the experience he would rely on in running EPL.

Carley inherited a profitable enterprise when he joined EPL. His challenge was not to restore a troubled company's fortunes, but to help EPL realize its potential. One of his first actions was to initiate a remodeling program in 2001, an extensive program that took two years to complete. Once the remodeling program was underway, Carley turned his attention to the chain's menu. Between June 2002 and June 2004, eight new items were added to EPL's menu, including the Chicken Quesadilla, Caesar Pollo Salad, and Twice Grilled Chicken Burrito. Sales rose as a result of the new product offerings and the remodeling program, increasing more than 4 percent in 2003.

Carley injected EPL with new vitality during his first years in command, but his most challenging objective remained unfilled as the company entered the mid-2000s. For years, EPL had struggled to establish a meaningful presence outside California. Carley was determined to complete such a geographic leap, and he turned to his hometown as the proving ground for EPL's ability to thrive outside the West. In January 2004, Carley signed an agreement with a pair of operators in Chicago that called for the establishment of ten El Pollo Loco restaurants in Chicago during the ensuing ten years. If Carley achieved success in exporting the concept outside California, the development of a national chain was likely, but much remained to be determined as EPL prepared for its future.

Principal Subsidiaries

B D M Enterprises; Arizona Colorado Enterprises LLC; Cal-Sin Enterprises, Inc.; Lilend International Inc.; Minovitz Enterprises Inc.

Principal Competitors

Boston Market Corporation; Del Taco, Inc.; KFC Corporation.

Key Dates:

1975:: Juan Francisco Ochoa opens the first El Pollo Loco in Guasave, Mexico.
1980:: Ochoa opens an El Pollo Loco in Los Angeles, the first unit in the United States.
1983:: Denny's, Inc. acquires Ochoa's restaurants in Los Angeles.
1987:: TW Services, Inc. acquires Denny's and El Pollo Loco.
1993:: TW Services changes its name to Flagstar Corporation.
1998:: TW Services emerges from bankruptcy with a new name, Advantica Restaurant Group, Inc.
1999:: American Securities Capital Partners, L.P. acquires the El Pollo Loco chain from Advantica.
2001:: Stephen Carley is appointed president and chief executive officer of El Pollo Loco.
2004:: Carley signs an agreement to expand the chain in Chicago.