The potential to scale Bartaco is huge for Del Frisco, given the concept's high profit margins. But if the CEO sees the 18-unit taco chain becoming a 300-unit behemoth in the future, it's going to take a lot of smart real estate decisions to get there.
— Erika Adams
As large restaurant chains survey the industry in search of smaller acquisitions, Del Frisco Restaurant Group got a jump on the competition when it made its move earlier this year.
The chain bought Barteca, which included Barcelona Wine Bar and Bartaco, a fast casual taco chain, in June 2018 for $325 million in cash, and quickly got to work with closing underperforming locations and charting a new path of growth.
At Bartaco, that means measured expansion in markets that make sense for the brand. Del Frisco’s CEO Norman Abdallah said on the company’s third quarter earnings call that he expects to open six to seven Bartaco locations in 2019, and continue on a similar growth pace in subsequent years. At an investor conference in New York last week, Abdallah said that he sees Bartaco growing to a 200- to 300-unit chain and that there’s a lot of opportunity for development up and down the East Coast with the concept. Bartaco operated 18 locations at the end of the third quarter this year.
“If you look at the consumer base, you can come in and [pay] a $22 dollar check and that’s even with having a margarita or two to feel great about the day,” Abdallah said at the conference. He reiterated that Bartaco wouldn’t be raising menu prices in the foreseeable future, as sales are entirely driven by volume at the concept.
Bartaco’s growth plan under previous ownership involved testing a handful of locations in markets way outside of Bartaco’s core restaurants, but under Abdallah’s leadership, the Bartaco brand will likely expand much more rapidly in nearby markets where it is easier to scale. “I’ve already killed the rest of the real estate that was coming for Illinois and Texas, because why go there when we have so much that we can do at a low risk?” Abdallah said.
When it comes to off-premise dining, Abdallah noted that Bartaco would “never do delivery at home” but the company is testing an office delivery option. The infrastructure for office delivery will be constructed entirely in-house, to avoid relying on a third-party delivery service that could jeopardize food quality and would take a bite out of sales along the way.
“We’ll control the product 100 percent without having third-party delivery, so we make sure that the product is executed [well] in those office caterings,” Abdallah said on the company’s third quarter earnings call.
Bartaco reported $22.6 million in revenues during the third quarter, compared to $20.3 million in the same period last year. It reported an operating profit margin (measured as earnings before interest, tax, depreciation and amortization) of 27.8 percent in the quarter. For comparison, Double Eagle and Grille, two of Del Frisco’s other restaurant concepts, reported EBITDA margins of 15.5 percent and 9 percent, respectively, in the same period.