When most people think about opening a Mexican restaurant, the Northeastern region of the United States doesn’t normally come to mind.
The folks at Tio Juan’s Margaritas might consider that a bit shortsighted.
Although the restaurant chain is based in Portsmouth, New Hampshire, and all 25 of its units are in the Northeast, the intent is to transport diners south of the border.
“We want to make guests feel they are on a Mexican vacation without taking a suitcase,” says company president Hugo Marin. The food and quirky décor are influenced by the culture of Guadalajara in west central Mexico, although the company adds its own twist.
“We like to say we serve Mexican food made our way,” he says, referring to a variety of different menu items from the United States’ southern neighbor. “The inspiration comes from our trips to Mexico and the extensive research and development that we do.”
The design and layout of the restaurants don’t come from a cookie-cutter plan, either. Many of the units—where seating ranges from 200 to 300—are the result of taking over and renovating existing facilities, and the specific, colorful décor differs from location to location. The ambiance is always a reflection of authentic Mexican culture, with many elements imported and used as defining features in the restaurants. For instance, the chairs and tables are made with ceramic tile brought in from Mexico.
“The biggest part of what makes us unique is the artwork,” Marin explains. “Every piece of art is from an artist in Mexico. We sponsor those artists and bring one here twice a year.”
The result for Margaritas is that “a lot of people don’t realize we are a chain,” he notes. “They will view their restaurant as a local spot, and our managers run it that way.”
Fresh Success
Keeping the menu and each restaurant fresh may be one reason Margaritas recorded a 5 percent increase in same-store traffic last year, bucking the sluggish trend across the country that has been the norm for the full-service casual-Mexican restaurant segment.
According to market research firm NPD Group, guest counts at casual-Mexican eateries were off 2 percent for the 12 months that ended in October, as they suffered from some of the same issues the overall casual-restaurant industry faces.
“Millennials used to be the heaviest users of casual restaurants, but not now,” says NPD restaurant analyst Bonnie Riggs. “The value is not there for them. They are looking for fresh ingredients—quality ingredients—and an experience to go along with that.”
[pagebreak]
Many Mexican restaurants, particularly chains, “don’t have a real, competitive point of difference,” she adds. “And casual restaurants of all stripes usually have at least one Mexican-style item on their menus.”
But with an average ticket of $22, Margaritas is a price point or two above most casual restaurants, and Riggs says this type of polished-casual restaurant chain is perceived as having higher-quality food than traditional casual brands.
That implied value, Marin says, is a big reason for the company’s traffic growth. Menu items, including the namesake drinks, are made-to-order with fresh ingredients that—when combined with great service—create a memorable and impressive experience.
“We want our guests to know that, even if we may have to take some price increases due to higher commodity prices, there’s real value in visiting our restaurants,” Marin says.
The cost of ingredients is an issue for Margaritas just as it is for most operators. In addition to soaring prices for meat and shrimp, the cost of limes quintupled last year.
“It’s something we look at on a daily basis,” he says. “An advantage is we work with one distribution house for all of our locations, so we’re working through this together.”
Another advantage: Forty-five percent of the company’s gross sales are from higher-margin beverages, with margaritas making up more than half of drink sales. The menu has nearly two dozen margaritas made with various tequila brands, liquors, and fruits.
As a result, the company’s earnings (before interest, taxes, depreciation, amortization, and rent) stand at a healthy 21 percent.
Building the Brand
Margaritas was created by John Pelletier, who began in the industry as a dishwasher at age 16. He became a young manager at a Chuck’s Steak House unit in Concord, New Hampshire, in 1982, and the owner, Kukai Inc., converted it to a Mexican concept.
“We had a basic menu that went over well,” Pelletier recalls. Four years later, he decided to launch his own business, and Kukai offered him a lease-purchase deal for the Concord restaurant. Renamed Tio Juan’s Margaritas Mexican Restaurant, the eatery is housed in the city’s old police station, and the dining room is located in what were the jail cells.
“Guests sit at tables in the cells, and the doors are still attached,” he describes, indicating what was the first of Margaritas distinctively individualistic design motifs.
Pelletier, along with his brother, David, and another partner, Stan Bagley, converted a small store in Orono, Maine, into a second restaurant in 1987. A third unit opened two years later in Portland, Maine.
Between these store openings, the owners made their inaugural trip to Mexico, a trip that changed everything, Pelletier says. After being enveloped in the culture, food, beverages, and artwork of Mexico, particularly from Guadalajara, they drove home with truckloads of tiles, light fixtures, and other objects to fill their restaurants.
[pagebreak]
It was the first of many sojourns to Mexico to buy items for the restaurants, and to sample a variety of local dishes, which led to a gradual change in the menu.
The initial restaurants were financially backed with the assistance of Kukai, but the Pelletiers and Bagley bought full ownership of the restaurants and set up Margaritas Management Group in 1996 to manage the properties.
“We did the first 10 without any financing,” Pelletier notes. “We muscled it. I cooked; my brother worked the front of the house; and Stan built (the units).”
The Margaritas Mexican Restaurants, which adopted the name Margaritas for short, returned the moniker Tio Juan’s to the official name in 2001 to avoid confusion with other restaurants using Margaritas in their names.
Staying True
Pelletier says the company tries to maintain its original spirit, even though it has grown.
“We’re a hybrid of an American casual-restaurant setup, but we operate the back [of the house] very much like a Mexican kitchen,” he says. “We prep everything. There’s no frozen beef or chicken, no bags in boiling water. It’s all from scratch. We are making guacamole six times a day. The margaritas are made with freshly squeezed juice.”
Only two entrées, enchiladas and the taco plate, remain from the original menu. The top-selling dishes are fajitas, and newer items include healthier entrées that incorporate ingredients like Ahi tuna.
“At the end of the day, what people really want is something delicious,” he says. “Flavor has not gone out of style, and, in fact, flavor is bigger than ever.”
After growing for nearly a quarter century with company-owned stores in New Hampshire, Maine, Massachusetts, and Connecticut, Margaritas began franchising in 2011. Its first franchised unit opened that year in New Jersey, but closed the following year.
Another franchisee, Mid-Atlantic Restaurant Concepts, opened a Margaritas in eastern Pennsylvania in 2012 and has added two units since then. “All are doing very well,” says Mid-Atlantic’s president, Craig W. Colby. “We’re working on several more locations right now, and we’re also working with another franchisee in New Jersey,” he adds.
Colby, whose company also operates Red Robin and Cosi restaurants, says he was looking for a Mexican concept when he stumbled upon Margaritas.
[pagebreak]
“I looked around the country and didn’t love any of the ones I saw,” he recalls. “I decided I would do my own Mexican restaurant when I just happened to go to a Margaritas while visiting Framingham, Massachusetts. I kind of fell in love with it.”
He liked everything about the concept. “The food is really, really good, all from scratch, and the atmosphere is great, the décor is great, the music is great,” he says. “I look at dinner as an overall experience, and Margaritas has that.”
He also appreciates having input with the parent company as a franchisee. “Red Robin is great, but it’s big, very big,” Colby says. “With Margaritas, I can help steer the ship. They listen to what I have to say. They don’t always agree, but they are interested.”
Margaritas’ growth plan includes opening two corporate-owned stores per year, and Marin says deals with at least two other franchisees are in the works.
The company also opened a fast-casual eatery, Tacomano Mexican Street Food, in Durham, near the University of New Hampshire. Like its full-service sister concept, Tacomano’s food is made from scratch in-house.
While most of the focus is on running the business aspects of Margaritas, the trips to Mexico are still important for finding new menu possibilities.
“We try to fit these ideas with the execution,” Marin explains. “We try to balance [new ideas] with what the guest wants. A lot of items don’t make it to the menu; they may be popular in Texas or California, but not in the Northeast at this point in time.”
New menu items are typically tested at two restaurants with different demographics: one in the company’s coastal hometown of Portsmouth, population 21,000, and the second in an urban area just outside of Boston, which has a substantial Hispanic and Latino population.
The company president says another reason for the brand’s success is that it focuses on all of its stakeholders—guests, employees, community, and shareholders. A number of the chain’s restaurant managers began as hourly staffers.
“We try to create a culture where our guests and employees can have fun and enjoy the time when they’re here,” he says. “We want the staff to work in an environment where we care about them and their development. We want them to be experts in what they do.”
Each restaurant works to build connections within its community, allowing charities to host parties at the restaurant and donating 15 percent of the event’s receipts, and involving local schools when Margaritas hosts Mexican artists.
“Every time we bring in an artist, we take them to the local schools, where they will make some piece of art, like a mask or clay figurine, and leave it with the school,” Marin explains. “It’s great to see this art created right in front of you.”
Some schools also have field trips to Margaritas to view the artwork. “I was in a meeting at one of our restaurants and a couple of kids were walking around, pointing out the artwork to their mom,” he says. “They were probably kids who came in and did tours, so they were explaining what the art was. It’s exciting to have that kind of cultural impact in the community.”
