La Salsa to gobble up small rivals.

Fresh-Mex fast-food chain scores with healthy food in high sales-volume outlets

La Salsa, already capturing a fast-growing niche in the fast-food business with its high sales-volume Mexican food outlets, is poised to acquire smaller competitors, according to one major investor.

La Salsa is the only large, quick-service chain in an emerging segment of eateries that specialize in fresh, healthy Mexican food. Furthermore, La Salsa is likely to acquire smaller rivals to expand, said Dan Skaff, chairman of San Francisco-based Sienna Holdings.

Sienna Holdings and Menlo Park, Calif.-based InterWest Partners joined together in 1992 to acquire a majority stake in West L.A.-based La Salsa for an undisclosed sum. Since then they have injected equity growth capital and recruited other investors to sign on.

Altogether the investors have injected about $15 million into the company. Investors with smaller stakes include Los Angeles-based Hughes Aircraft Co.'s pension fund, Skaff noted.

The investors' most recent capital investment in La Salsa, $2 million in equity financing, was made in April, said the chain's president and chief executive, Chuck Boppell. He was president of Irvine-based Taco Bell Inc. from 1982 to 1985.

La Salsa was founded in 1979 by entrepreneur Howdy Kabrins, who opened an eatery on the corner of Pico and Sepulveda boulevards in West L.A. that resembled the taquerias in Mexico, Boppell said.

A taqueria is an open-air stand, usually made of plywood, where a vendor sells only authentic soft-shelled tacos that have nothing but meat in them. The vendor provides fresh salsa, cilantro and onions for customers to put on themselves.

Kabrins' outlet differed only in that it was indoors in a strip center, Boppell said.

Today, La Salsa has 43 outlets -- 21 company-owned, 22 franchised -- and offers a much-expanded menu, complete with burritos, enchiladas and tostadas, among other things.

The management plans to open eight company-owned stores in California and 16 franchised restaurants west of the Mississippi River this year. In 1995, they plan to add 12 more company-owned restaurants in California and 47 more franchised outlets nationwide, Boppell said.

La Salsa, with 1993 revenues of about $25 million, is operating in the fastest-growing segment of the quick-service food industry, fresh Mex, Skaff said.

"It is obviously the leader in that category today," said Janet Lowder, president of Restaurant Management Services, a Rancho Palos Verdes-based restaurant consulting firm.

Fresh Mex eateries serve Mexican food that isn't canned, frozen or pre-cooked, Boppell said. They also cook without butter, lard or fat.

While growth in the fast-food hamburger and chicken segments has basically been flat over the past five years, the Mexican quick-service segment has been growing by more than 10 percent each year. Fresh Mex has been growing even faster than that, he said.

"The concept of fresh is a terrific selling point," said Nancy Kruse, executive vice president of Technomic Inc., a food-service consulting and research firm based in Chicago.

Larry Sarokin, La Salsa's vice president of development, added that a recent survey contending that Mexican food is unhealthy does not apply to fresh Mex. That survey was conducted by the Washington, D.C.-based Center for Science in the Public Interest.

In addition, the quick-service fresh Mex segment in the U.S. is fragmented, filled with many small chains -- which La Salsa could easily acquire to grow rapidly, Skaff said. He would not elaborate on any current acquisition plans.

The only other large chain in the fresh Mex segment is a full-service one -- San Francisco-based Chevy's, a division of Taco Bell. But Lowder noted that Taco Bell and Orange-based Del Taco Inc. also sell some healthy soft tacos, competing with La Salsa's fresh Mex concept.

Skaff said La Salsa locations are relatively small and don't need expensive tenant improvements or equipment. A typical build-out costs about $200,000 up-front, he said.

The stores average 1,000 square feet in size, and a typical store yields about $700,000 in annual sales, Sarokin said. That's above average sales for the square footage, Lowder said.

Boppell and La Salsa Chairman Charles Lynch have both been recruited since the investors bought control of La Salsa in 1992. Lynch was previously chairman of Saga Corp., a large food service company based in Menlo Park.

The two are making sure the eateries are operating efficiently, and using their experience to implement La Salsa's aggressive expansion plans, Skaff said.

After opening the first La Salsa in 1979, founder Kabrins expanded the company slowly. By 1987, he had opened 10 taqueria-like outlets in Southern California, Sarokin said.

Then Kabrins started to franchise and by 1992, when the investor group acquired a majority stake, had developed 10 franchised stores in Southern California, Nevada and Arizona, Sarokin said.

The management opened 10 more company-owned and franchisee-owned stores in California during 1993.

Now La Salsa is embarking on an extensive franchising program. The company placed an ad in Nation's Restaurant News offering franchise opportunities to investors who have a minimum net worth of $1.5 million and would develop at least three outlets.

One upper-level Taco Bell employee noted La Salsa's accent on seeking large investors might bring in people who aren't as involved in the eateries' day-to-day operations as would be franchisees who invest their life savings and might work harder to make their investments successful.

But La Salsa is requiring franchisees to provide at least one person to be trained by La Salsa, and that person would be required to run the outlets on a day-by-day basis, Boppell said.

Besides, franchisees with high net worths would be more likely to keep their outlets afloat during times of crisis, for instance, if an earthquake hit the area, he added.

Throughout all this activity, founder Kabrins still is a franchisee of eight restaurants and sits on La Salsa's board, Boppell said. Kabrins is not involved in the company's day-to-day operations.