Hispanic Boom Sparks Wal-Mart Turn to Tacos

Pollo Campero and Taco Maker Represent First Ethnic Concepts to Score Franchise Agreements With Retail Giant

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CHICAGO (AdAge.com) -- For years, Wal-Mart has worked with two major fast-food companies to put restaurants in its stores: McDonald's and Subway. But now, in a move that reflects the changing demographics of its shoppers -- and the country -- the retail giant is making room for three new chains in its stores, two of which have a Hispanic flair.
Rodolfo Jimenez, exec VP-business development, Pollo Campero USA
Rodolfo Jimenez, exec VP-business development, Pollo Campero USA

While their footprint within Wal-Mart will be small compared with Subway and McDonald's, the additions of Pollo Campero and Taco Maker are significant, since they represent the first ethnic concepts to score franchise agreements with the big-box retailer.

"I think that [Wal-Mart is] looking to offer diversity, variety for the customer and products that are relevant for them," said Rodolfo Jimenez, exec VP-business development, Pollo Campero USA. His company opened its first Wal-Mart location in Rowlett, Texas, this month and expects to be in 20 stores by the end of 2009, with the goal of appearing in stores nationwide.

The former Coca-Cola marketing executive likened tacos eating into Wal-Mart food service with salsa's ability to erode the ketchup business. "There's a lot of salsa in the space that used to be for ketchup," Mr. Jimenez said of the supermarket aisle. "And it's not just Hispanics buying them."

Signing Wal-Mart is a big break for the Guatemalan chain, which entered the U.S. in 2002 and has 40 locations across the country. But the brand will also boost Wal-Mart's standing with shoppers who remember the restaurants from their homeland. Pollo Campero serves grilled and fried chicken and sides such as rice and beans, fried plantains and flan in addition to french fries.

'Next logical step'
Wal-Mart spokesman Lorenzo Lopez said the retailer has a history of catering to the Hispanic population, offering fresh tortillas, multilingual signage and celebration of holidays like Dia de los Muertos in areas where it makes demographic sense. "It's a recognition that different customers have different wants, different needs, different tastes," he said.

While Wal-Mart works with McDonald's and Subway in different parts of the country, Mr. Lopez said adding Hispanic-themed franchises was "the next logical step for us." The retailer offers locations to franchises as leases become available, sometimes at new stores and sometimes at pre-existing locations. Wal-Mart charges rent based on the restaurant's sales. Depending on the location and the concept's check average, an executive familiar with the matter said, an in-store restaurant could gross as much as $1 million annually.

Tex-Mex concept Taco Maker, based in Utah with 180 stores, will open six Wal-Mart locations this summer. Four more are planned for 2009, and another is on the books for 2010. Taco Maker's menu offers a host of Mexican fare, including tacos, burritos and nachos, along with American fast food such as tater tots.

Rita Torres, VP at Taco Maker, said Wal-Mart locations give the brand enormous exposure. "They bring a lot of people into our stores, and a lot of people will be able to see Taco Maker inside."

On the opposite end of the spectrum, Wal-Mart is also bringing on Camille's Sidewalk Café, a 117-store concept featuring wraps and salads that has a laser focus on soccer moms. CEO David Rutkauskas said Wal-Mart offered him locations in the first and second quarters, but franchisees have been "standoffish."

"They're very protective of the brand. They see it as upscale and affluent," he said. "Maybe Wal-Mart was more blue-collar years ago, but that's changed."

Taste explosion
Wal-Mart's in-store restaurant business took off for outside vendors in 1993, when McDonald's opened its first restaurant. Before that, Wal-Mart relied on its own food-service business. Subway joined in 2002 and has 1,500 locations to McDonald's 1,000. Wal-Mart has about 3,000 U.S. stores, but not all have restaurants. Blimpie, Dunkin' Donuts and Nathan's Famous also have Wal-Mart locations.

With the influx of concepts and slower store growth projected in coming years, it only stands to reason that the chains in Wal-Mart will lose locations. Mr. Lopez declined to say which of the existing franchisees would be affected by the shift.

Subway spokesman Les Winograd said his chain's store count continues to grow at Wal-Mart, although at an incremental rate. McDonald's spokesman Bill Whitman said the Golden Arches cherry-picks in-store locations.
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