DF&R gears to expand Don Pablo’s concept

DF&R gears to expand Don Pablo’s concept – DF&R Restaurants Inc., Don Pablo’s Tex-Mex

Ron Ruggles

BEDFORD, Texas — DF&R Restaurants Inc., the company based in this Fort Worth suburb that went public in January, is putting the new cash into expanding its Don Pablo’s Tex-Mex concept into the Midwest and the East.

With Don Pablo’s opening last month in Lexington and Louisville, Ky., and a new unit expected to open in Fairfax, Va., early next year, DF&R is completing its push into new markets outside its Texas base.

“We believe there is a really terrific demand for Mexican food right now,” said David P. Frazier, president and chief executive of DF&R Restaurants, which also operates 12 Harrigan’s casual dinner houses. “Don Pablo’s is casual, exciting and fun without being too gimmicky.

“We believe there’s a nationwide demand for this, so we’re putting energy into finding the markets and satisfying demands in those markets.”

DF&R, which raised about $18 million in its initial public offering, is focusing its expansion on the Ohio cities of Cincinnati, Columbus and Toledo as well as Oklahoma City abnd Tulsa, Okla., and Indianapolis. The openings in Kentucky last month brought the company’s total to 19 Don Pablo’s and 12 Harrigans.

Harry Venezia, an analyst with Raymond James & Associates in St. Petersburg, Fla., said, “DF&R is well-positioned in one of the faster-growing areas of casual dining — that being the authentic Mexican full-service concept that American customers are showing a preference for.”

Venezia forsees three or four national chains emerging in the Mexican arena, citing PepsiCo’s recent acquistion of Chevys in California and Morrison Restaurants Inc. signing a development agreement late last month with the 10-unit Tia’s chain in Texas.

“With DR&R we’re looking at a potential player in the future of a national chain of Mexican dining,” Venezia said.

Frazier said Don Pablo’s major competition in the Midwest is Chi-Chi’s and Cantina Del Rio, a Bob Evans Farms concept.

“Being the smaller company that we are,” Frazier said, “we’re putting a great deal of emphasis on being established in the markets that we’re in, devoting our capital to the expansion of the Don Pablo’s concept.” DF&R, for example, is looking at several more sites in Columbus and expects to have four or five units in Cincinnati.

Venezia said that as an analyst, he has been pleased with DF&R’s financial results since the public offering. “The new restaurants opening since their IPO continue to do extremely well, with average sales higher than their system sales in Dallas,” he said. “They’re opening in excess of the $2.2 million sales average, more like $2.8 million. When you go outside of Texas — Indianapolis, Oklahoma City, Cincinnati, Toledo, Columbus — they have a fair number of restaurants doing sales at or just on either side of $3 million. Those are pretty good results.”

Check averages, Frazier said, remain at about $5.50. Analysts predict DF&R’s sales will continue increasing. Sales in fiscal 1993, which ended last May 31, were $44.6 million. Venezia saw sales rising to $67 million in 1994, $92 million in 1995 and $124 million in 1996. “Most of their growth is coming from new units, which are coming on at higher volumes,” Venezia said, adding that earnings are growing in line with those of the best restaurant chains. He projected earnings growth to be 45 percent in 1994 and 40 percent in 1995 and 1996.

“They are a small enough company both in terms of management and number of units that they are flexible if they need to modify the concept,” Venezia said. “Since they are not a franchisor, we’re not dealing with set rules for operating, menu and pricing. We’ve seen them increase prices slightly in the Don Pablo’s in Texas in the last few months.”

DF&R also is tweaking its Harrigan”s concept — lightening and broadening the menu — but not adding any more units. “Harrigan’s is not the jazzy, sexy part of the story,” Venezia said. “But it does provide significant cash flow to expand and grow the company.”

Harrigan’s was Frazier’s first restaurant, opening in Lubbock, Texas, in 1977. Don Pablo’s opened within a mile of Harrigan’s in 1985 with many of DF&R’s current management team involved in both restaurants.

“We’ve been together a long time as a management team,” Frazier said. “Most of our key people have been with us more than 12 years, starting in our first restaurant in Lubbock.”

That tight-knit group is an advantage, Venezia said. “This company grew up in the restaurant industry,” he explained. “If you look at upper management, that’s been basically their whole profession.”

Even though Harrigan’s is not DF&R’s growth vehicle, he added, it contributes to the company.

“It provides them a deeper management pool,” Venezia said. “Historically, managers have come up through the ranks in the Harrigan’s system and have helped grow the Don Pablo’s chain and become area directors.”

Frazier said DF&R’s nearly 12 months as a public company have been challenging.

“It puts a lot of pressure on us to meet the expectations of the public market,” he said, “but the reason we became a public company is that we wanted to grow.”

Little has changed, however, in the way the company approaches the business, Frazier added: “We’re just old-fashioned restauranteurs, very committed to having good food and good service. At the day’s end, that’s what’s going to be important, the basic blocking and tackling to get the job done.”

COPYRIGHT 1993 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.

COPYRIGHT 2004 Gale Group