Taco Cabana, Inc. History

8918 Tesoro Drive, Suite 200
San Antonio, Texas 78217

Telephone: (210) 804-0990
Fax: (210) 804-1970

Wholly Owned Subsidiary of Carrols Holdings Corporation
Incorporated: 1978
Employees: 4,000
Sales: $159.6 million (2000)
NAIC: 722211 Limited-Service Restaurants

Company Perspectives:

Our restaurants feature generous portions of freshly prepared Mexican food at an exceptional value. Infused with a festive Mexican theme, the interior and patio dining areas are a great place to relax with friends and family. Each day, Taco Cabana kitchens prepare by hand homemade tortillas, a variety of salsas, grilled fajitas and other Mexican favorites. The result is great food in a relaxing atmosphere for a reasonable price.

Key Dates:

Felix Stehling opens the first Taco Cabana.
Richard Cervera joins the company.
Taco Cabana goes public.
Sales skyrocket to $127 million.
Stephen Clark is named president and chief operating officer.
Carrols Corporation purchases Taco Cabana.

Company History:

Taco Cabana, Inc., operates and franchises 123 restaurants that serve Mexican and Tex-Mex food in Texas, Oklahoma, and New Mexico. Started as a taco stand in 1978, the company pioneered the concept of "patio cafes," which are semi-enclosed patio dining areas decorated in festive Mexican themes. Taco Cabana restaurants serve such items as quesadillas, salad entrees, marinated rotisserie chicken (otherwise known as "Chicken Flameante"), traditionally prepared Mexican breakfasts, enchiladas, margaritas, and flame-grilled chicken, beef, pork, or shrimp fajitas served on hot iron skillets. Each year, over 46 million guests in Texas, Oklahoma, and New Mexico are patrons of a Taco Cabana restaurant. Carrols Corporation purchased the chain in January 2001.

Early History

Taco Cabana was founded by Felix Stehling, a businessman who figured prominently in the San Antonio area and owned numerous restaurants and taverns throughout the city. One of his most popular establishments was the Crystal Pistol Bar situated on the corner of Hildebrand and San Pedro avenues. Students from Trinity University frequented the Crystal Pistol Bar on a regular basis; every weekend, and some weekday evenings as well, the place was crowded with people. In fact, the bar was so crowded on certain nights that parking became a major problem. With the convenience and comfort of his customers in mind, not to mention the growing profits from the bar, Stehling decided to purchase the lot across the street on which sat an abandoned Dairy Queen and turn it into a parking lot.

After he purchased the lot, Stehling took the next natural step. Since the property had previously been used for a restaurant, he would transform part of lot and use it to open a taco stand to feed ravenous students as they left the bar. Anticipating success with his new taco stand, Stehling was overwhelmingly disappointed when he woke up after the first night's business only to find all of the patio furniture stolen. Not knowing what to do, Stehling's first thought was to close the operation and go back to what he knew would work. However, the entrepreneur in him refused to let go of the idea for a taco stand in the parking lot, and soon Stehling came up with a solution to the problem, namely, keeping the place open through the night. This decision would ultimately give rise to Taco Cabana becoming a round-the-clock operation.

Not surprisingly, with Stehling's organizational ability and his talent for implementing all the appropriate operating systems and accounting mechanisms, in addition to his experience in hiring the right personnel and extensive background in restaurant design, Taco Cabana was a rapid success. From its inception, Stehling was committed to purchasing and selling the highest quality food for his customers. Made from fresh meat and produce delivered by vendors to the small restaurant three times per week, the menu was prepared fresh every day. Stehling was convinced that this would significantly set his restaurant apart from other traditional Mexican restaurants and fast food establishments that heavily depended on serving pre-prepared, pre-packaged, and frozen food to maintain their large customer base.

One of the most attractive features of his taco stand was the inexpensive price for every item on the menu. This policy of Stehling's was intentional, since he thought that Taco Cabana could garner a loyal following by pricing its menu lower than for comparable fare sold in sit-down Mexican restaurants where traditionally prepared food was the primary attraction. Home-tested recipes and authentic Mexican cuisine, along with alcoholic beverages such as beer and margaritas, were a hit at their low-selling price.

Soon Stehling came to realize that he was sitting on top of a potential gold mine. He decided therefore to open up a chain of the Taco Cabana restaurants throughout the city of San Antonio. However, Stehling knew that he could not expand without additional help. As a result, he asked two of his brothers to assist him in expanding the business. Brought in as equal partners, the two brothers worked hard to make the Taco Cabana concept successful. Within a short period of time, the brothers' hard work paid off handsomely. Under the direction of the family partnership, Taco Cabana grew to include nine restaurants in and around San Antonio. Just as important, revenues were increasing at a dramatic rate.

Growth and Expansion in the 1980s

Throughout the early 1980s, Taco Cabana continued to provide its customers with fresh food and efficient service. At first, Stehling and his brothers had an informal and close-working relationship, with each of the siblings assuming certain responsibilities related to the business. From one small taco stand, the brothers had built up what was regarded across the city as a highly successful restaurant business. However, as the company grew larger and its revenues increased, the brothers began to express significant differences in their vision for the expanding firm. Most of these disagreements centered on management issues, but as time went on they encompassed other areas of the business. Finally, in 1986, Felix Stehling's two brothers left the company, and the founder of Taco Cabana was once again solely in charge.

The disagreements among the brothers had not hurt Taco Cabana's revenues at all, and Stehling decided that he did not want to wait any longer to expand the firm's operations in a dramatic way. The first step in his expansion plan was to hire a right-hand man who would help him in the endeavor. Stehling found the perfect candidate in Richard Cervera. Cervera had been working as a middle management executive at Fuddruckers, a national restaurant chain based in San Antonio. More importantly, Cervera was a regular customer at Taco Cabana, sometimes eating there six times a week, and had inquired about franchise opportunities at the company. Intrigued with Cervera's passion for Taco Cabana food, as well as impressed with his executive management capabilities, Stehling decided to bring him on board.

Taco Cabana prospered under the dual leadership of Stehling and Cervera. Hired as the executive vice-president in 1987, Cervera was responsible not only for implementing a strategic expansion plan that he and Stehling conceived, but the new manager also had oversight of many of the day-to-day operations at the firm. By 1990, the company had added a number of new restaurants to its chain and began expanding into neighboring states. For his effort and accomplishments, Cervera was appointed president of the company in 1990 and in this capacity continued to pursue an aggressive expansion policy. A strong supporter of franchising, he made a comprehensive support system available to people who arranged franchise agreements with Taco Cabana. The company was now experiencing explosive growth with a private placement in 1991 and the purchase of four restaurants owned and operated by Sombrero Rosa. Another private placement was made the following year, with the acquisition occurring during the early part of 1992. By the end of that year, the company had gone public with its first stock offering and counted 17 restaurants that were managed and operating under the name Taco Cabana.

Growth and Transition in the 1990s

Taco Cabana's quick growth and success had inspired many imitators, and some of these decorated their restaurants and patio cafes in the same bright pastels as those of Taco Cabana. Stehling and Cervera brought a lawsuit against the most flagrant of the imitators, a restaurant chain based in San Antonio named Two Pesos. In 1992, the Supreme Court decided the case in favor of Taco Cabana and awarded the firm $3.7 million in damages. The lawsuit had severely damaged the financial viability of Two Pesos, and Taco Cabana acquired the firm that had grown to include 30 restaurants in the city of San Antonio and its suburbs.

Having succeeded in protecting its niche in the local restaurant market, Taco Cabana flourished. The acquisitions made during the early 1990s began to pay off enormous dividends in sales and an ever-larger customer base. From 1989 to 1993, sales for the company rose from $29.1 million to $96.9 million. In 1994, sales skyrocketed to $127 million. There was no doubt that Cervera had done his job well, and, assured that the company was in good hands, Stehling resigned as chairman of the company in 1994. Succeeded by Cervera, there was no interruption in the operations of the firm.

In spite of increasing revenues and expanding operations, however, Taco Cabana's stock price had dropped rather precipitously. Stockholders blamed Cervera for the nose-dive in stock prices, and there was mounting pressure for him to be replaced. In 1995, Cervera resigned from his position at Taco Cabana and became the new president of the House of Blues restaurant chain. He was replaced by Stephen Clark, who was appointed both chief operating officer and president in the same year.

Prior to his work with Taco Cabana, Clark had worked over 18 years for Church's Fried Chicken, Inc., rising in the company to senior vice-president and concept general manager. His responsibilities included oversight of the company's day-to-day operations for nearly 1,100 firm-owned and franchised restaurants with a sales volume of $600 million. Upon his appointment, Clark immediately began a comprehensive review of the firm's operations, scrutinizing its expansion strategy, marketing plans, and relations with franchisees, as well as analyzing in detail the sales and profitability trends within its network of restaurants.

The review did not take much time, and the consequences for Taco Cabana's operations were far-reaching. Clark decided to close a number of the company's restaurants, restructure some of the franchisee debts, bring in his own management team, get rid of many non-restaurant related assets, revamp the firm's marketing strategy, and, most importantly, slow down all current plans for expansion, including the opening of new restaurants and the extension of any further franchise agreements. The overall plan was to streamline the company's operations, introduce economies of scale, and implement accounting systems and management standards which would enable Taco Cabana to continue growing in the most cost-efficient way.

Perhaps the best example of Clark's strategy to improve Taco Cabana's position within its market was his concern with the layout of the company's restaurants. Near the end of 1996, under Clark's direction, Taco Cabana opened up a new type of restaurant in Dallas to test non-traditional market locations and prototypes for smaller, community-based units. Incorporating new designs and features that set it apart from the usual design of a Taco Cabana restaurant, the prototype unit in Dallas featured a rounded front, clay tile roof, a trellis shading the patio area, and aged wood paneling and distressed stainless steel counter tops that gave the customer the impression of walking into an old Mexican café. One of the most important additions to this prototype design was a neon sign on the exterior of the building to advertise the Taco Cabana menu. Designs kept from the original Taco Cabana restaurants included the bright pink signature paint used generously throughout the restaurant, an open cooking area where patrons could see their food being prepared, and retractable garage doors so that the dining area could be opened to the outside during good weather.

Clark's strategy worked well. The newly designed prototype attracted more customers than expected, and plans for a series of these new designs to be built in Texas were underway in the late 1990s. The implementation of a new vision and mission statement, the writing of the company's first business plan, and the installation of new operating principles for managers and employees at all the company's restaurants had tangible results. While growth slowed, more cost-effective financial systems improved employee accountability and profit margins, and a more streamlined administrative and management system garnered a more effective operating structure.

With the dramatic growth of Taco Cabana brought under control by Clark's leadership, the restaurant appeared to be poised for steady growth and increased profits. The company planned for such growth to be measured and calculated, so that construction costs were minimized, customer service was enhanced, operational efficiency was improved, and the image of Taco Cabana as a unique type of Mexican restaurant would be assured.

Changes in the Late 1990s and Beyond

Clark's strategy continued to pay off in the late 1990s. With sales and income back on track, Taco Cabana once again began to expand outside of Texas. New restaurants were opened in Tulsa and Oklahoma City, Oklahoma, as well as in Phoenix, Arizona. These stores were 500 square feet smaller than most Taco Cabana locations and included a covered patio instead of the trademark open air concept. Clark commented on the new store design and expansion strategy in an April 1999 Nation's Restaurant News article. "Going outside of Texas with the new units, we realized we were going to have to drive more business in the lunch and dinner dayparts. We don't know if we'll have has much success with the Mexican-style breakfast, which is a big part of our sales in Texas." He went on to state, "We wanted to increase the capacity in the lunch and dinner dayparts, so we've gone to the covered patio with a lot of fans and heaters. It gives us a lot more use of those 45 seats in either cold or hot weather."

By 2000, Taco Cabana had spent nearly $30 million upgrading and revamping its image. While the company recorded its 11th consecutive quarter of positive comparable sales, its stock price nevertheless remained stagnant. Consequently, Clark and his management team began to consider Taco Cabana's options. Carrols Corp., one of the largest Burger King franchisees and owner of Pollo Tropical, agreed to acquire the company for just over $152 million in late 2000. At the time of the deal, Carrols was eager to expand geographically as well as enter into new market segments. Taco Cabana was a good fit, and Carrols expected the chain to fuel its growth over the next several years. The acquisition was completed in early 2001. Clark left the company shortly thereafter.

Under new ownership, Taco Cabana continued to thrive. It introduced a new Mexican Grill concept in 2001 that included made-to-order, fresh-grilled chicken, pork, beef, and shrimp. While the chain was forced to close seven stores in the Phoenix area in 2002, its sales contributed to a 41 percent revenue gain for its parent company. In order to remain competitive in the fast casual segment of the restaurant industry, Taco Cabana began to develop a new store prototype in 2003 that would feature eight-foot char-grills in the restaurants. The company also began to place a stronger emphasis on its premium menu items.

During 2005, Taco Cabana operated over 120 locations. Indeed, the company had come a long way from its roots as a taco stand in San Antonio. Its success in the 1990s and the early 2000s left it well positioned for future growth. With the backing of its parent company, Taco Cabana would no doubt continue to serve its guests Mexican fare for years to come.

Principal Competitors: Consolidated Restaurant Operations Inc.; Taco Bell Corp.; Taco Bueno Restaurants L.P.

Further Reading:

  • "Carrols Finishes $153M Taco Cabana Buyout," Nation's Restaurant News, January 8, 2001.
  • "Carrols Posts '01 Loss After Unit-Closing Charges Slices Net," Nation's Restaurant News, March 18, 2002.
  • Frumpkin, Paul, and Richard L. Papieruik, "Carrols Corp. Spices Up Holdings with $152M Taco Cabana Buy," Nation's Restaurant News, October 16, 2000.
  • Liddle, Alan, "Chains Traveling Different Roads to Interactive Nirvana," Nation's Restaurant News, January 13, 1997, p. 21.
  • "Marketing Miscellaneous," Nation's Restaurant News, November 27, 1995, p. 14.
  • McLaughlin, John, "Growth Chains Are Missing the Mark on Expansion," Restaurant Business, March 20, 1995, p. 14.
  • Opdyke, Jeff D., "Taco Cabana Has New Hope for Old Ideas," Wall Street Journal, May 6, 1998.
  • Robertiello, Jack, "H-E-B to Test Whether In-Store Taco Cabanas Will Be Hot," Supermarket News, November 18, 1996, p. 21.
  • Ruggless, Ron, "Taco Cabana Expands, Opens Prototype Unit in Dallas Suburb," Nation's Restaurant News, January 6, 1997, p. 7.
  • ------, "Taco Cabana Unveils New Look, Eyes Expansion," Nation's Restaurant News, April 19, 1999.
  • ------, "Taco Closes Doors in Colorado, Turns Focus to Core Markets," Nation's Restaurant News, December 1, 1997, p. 3.
  • "Taco Cabana Eyes New Design," Restaurant Business, May 1, 2003, p. 16.
  • "Taco Cabana, Inc.," Wall Street Journal, August 19, 1997, p. B9(E).
  • "Taco Cabana Sets Buyback," Wall Street Journal, April 17, 1997, p. A10(E).
  • "Taco Cabana Opens New Test Concept," Journal Record, September 13, 2001.

Source: International Directory of Company Histories, Vol.72. St. James Press, 2005.