All Eyes on the Big Enchilada
The Heras family of El Paso, Tex. and Ciudad Juarez, Mexico, aren't running a billion-dollar corporation -- at least not yet, but they have a unique perspective on the challenges of international business. Hector Heras Sr. and his seven sons are the founders of El Taco Tote, a fast-growing Mexican restaurant franchise.
Hector's son, Pacifico, opened the family's first eatery in Mexico in 1988. Today, with 10 restaurants in the U.S. and Mexico, the family has launched an aggressive growth campaign and aims to open 100 franchised locations in the U.S. over the next three years. Smart Answers columnist Karen E. Klein spoke recently to Hector Heras Jr. about operating a cross-border company, family ties, and the virtues of patting out tortillas by hand. Edited excerpts of their conversation follow:
Q: What exactly is El Taco Tote? A:
Q: What exactly is El Taco Tote?
A:In Mexico, we add tote [pronounced TOE-tay] on the end of a word to mean "giant," so it literally means "the giant taco." We serve a variety of tacos made from pork, beef, and chicken, with handmade corn or flour tortillas, and quesadillas with cheese or mixtas [with cheese and meat]. Side orders are charro beans, rice, and refried beans. Customers order at the counter and their food is prepared on the grill. Once they pick it up, they go to the salsa and condiment bar and then have a seat.
Q: You operate in Mexico and the Southwestern U.S., where it seems like there are taco stands on every corner. How does your concept differ from the other taquerias out there? A:
Q: You operate in Mexico and the Southwestern U.S., where it seems like there are taco stands on every corner. How does your concept differ from the other taquerias out there?
A:Well, in Mexico the corner taco stands tend to be operated literally on the street corners, and customers stand up at a counter or squat on the curb to eat. In Juarez, it can be very hot in the summer and it snows in the winter, so just having a clean place where you eat indoors, sitting down, was a major point of differentiation there.
The other difference with us is the quality and freshness of the food. We use only sirloin and skirt steaks, all the meat is grilled to order, the cooks prepare guacamole and salsa from scratch every day -- it doesn't come out of a can -- and we have ladies behind every counter mixing up the dough and patting the tortillas by hand.
Q: That level of labor is not something you see in many chain restaurants. A:
Q: That level of labor is not something you see in many chain restaurants.
A:No, but it's what makes us stand out. When we brought in consultants to help us start the franchise operation and develop our image, they were impressed by the operation, the simplicity of the menu, and the many ways you can customize the tacos. But they hadn't tried the homemade tortillas, and they asked why we didn't use machines to press the tortillas and reduce the amount of labor. We took them to our restaurants and gave them some food, then we told them that when you use a machine, it changes the flavor, texture, and consistency. Once they had our tacos, they agreed!
Q: Who is your target customer and who is your competition? A:
Q: Who is your target customer and who is your competition?
A:Well, of course the food appeals to Hispanics in general and especially Mexican immigrants, many of whom have eaten in our restaurants in Mexican border cities. But it has a broader appeal to Anglos, too. The fast-food Mexican chains have accustomed Americans to Mexican-style food, but what we're offering is a more authentic, fresher version. Our competitors are really the small, family-owned restaurants that specialize in homemade Mexican food.
Q: You're a third-generation restaurant owner. How did your family get started in the business? A:
Q: You're a third-generation restaurant owner. How did your family get started in the business?
A:Well, all the recipes and the taste of the food came from my grandmother, Dora Heras, who is now past 75 and still cooking. She raised seven sons and one daughter in Culiacan, in the state of Sinaloa. We always say that she spoiled her kids, because at lunchtime the family all got together and each of the kids wanted a different meal, so she cooked something different for each one of them. Three of my uncles grew up and owned restaurant franchises. Then, in 1988, my uncle, Pacifico Heras, opened the first El Taco Tote in Juarez.
It was just a little stand, with three or four metal tables donated by Coca-Cola and three or four employees, but he had the concept right and we got a great response from the customers. I was 14 or 15 when it first opened, and I remember how excited we were when we made our first 1,000 pesos in a day! Pacifico opened a second location and invited another brother to join him. My dad retired from the Mexican government, where he worked for the secretary of education, in the early 1990s, and he joined the operation. Now, all seven brothers are involved in the family business.
Q: When did you decide to expand into the U.S. and how is business different on this side of the border? A:
Q: When did you decide to expand into the U.S. and how is business different on this side of the border?
A:The first U.S. restaurant we opened was in Laredo, Tex., in September, 1994. One of my uncles was living in Laredo and working in another restaurant there, so he had experience doing business in the U.S. An opportunity came up when another Mexican place closed down. The location had a bad reputation, and my uncle saw that he could buy the place very cheaply. So, we bought it, remodeled, and proved them wrong!
Our second U.S. restaurant opened in December, 1996, in El Paso, because we had a lot of Americans come to our location in Juarez -- it is very close to the border crossing, on a main road. They loved our food and kept asking us to open on the other side.
The big difference between the U.S. and Mexican systems is the payroll. In Mexico, employees work a particular shift, and they get paid by the week, so you have to hire more people to cover all the shifts. The U.S. workers work by the hour, so there is a different level of productivity, and you can schedule them according to your busy times and operate with fewer employees overall.
The other things are insurance needs, infrastructure, and regulations that exist in the U.S. but not in Mexico. The health inspections are more stringent in the U.S., and so we implemented a lot of policies for our U.S. restaurants that we also use voluntarily in our Mexican restaurants.
But the big challenge was that in the U.S., we were seen as a startup business, so we couldn't get credit or financing even though we had been operating successful restaurants in Mexico for many years. Opening in the U.S. was like starting all over again, so all of the working capital had to come from the partners. Of course, after the first few restaurants did well, we established some credibility and started being approached by bankers and investors.
Q: Your next challenge is getting the U.S. franchise established. How is that going? A:
Q: Your next challenge is getting the U.S. franchise established. How is that going?
A:We started the project two years ago, again with investments from the partners, and we've been taking it slowly so we can get all the systems in place and make them work. We hired a consultant to help us reach a new level of professionalism, but keep the feel and flavor of a mom-and-pop operation. The strategy is to start growing the franchise around our base in places like San Antonio, Dallas, Albuquerque, Phoenix, and Tucson, and then branch out to other U.S. cities that have large Hispanic populations, like Chicago.
We currently have 11 stores in the U.S. and Mexico. Ten are company-owned and one is owned by our first franchisee. We're trying to get 20 to 25 franchisees committed. So far, the concept is selling really well. We started offering franchises in April, 2003, and by December, we had 16 stores sold without doing a lot of marketing. The people who are buying in are people who know the concept, like it, and want to invest in it.