Sun Holdings grows quickly thanks to its diversity, solid brands and smart acquisitions.
By Mark Lawton, Knighthouse Media
On July 10, CEO Guillermo Perales helped cut the ribbon on a new Popeye’s restaurant in Dallas, the 1,000th store of Sun Holdings, the Dallas-based company Perales founded.
That is a significant milestone, driven by Sun Holdings’ recent fast rate of growth. Only five years ago, the enterprise was limited to 550 stores. In the last three years, the company has built more than 200 stores and remodeled another 200. Most of the growth was organic though some came from purchasing stores.
Pretty good for a company that started in 1997 with a single Golden Corral restaurant.
Perales was born in Mexico City, earned a degree as a CPA in Monterey, Mexico, and then went to work for food producer Gruma – then called Group Maseca – in both Los Angeles and Dallas. In the mid-1990s, he decided he wanted to open his own business. He approached Golden Corral about opening restaurants in Mexico and gained franchise rights but it didn’t work out.
“In 1994, Mexico was going through a rough patch and they had a huge [currency] devaluation,” Perales says. “Some of the banks went under, including ours. I was able to convince Golden Corral to switch from Mexico to Dallas.”
Sun Holdings steadily added to that first restaurant. Today the company has nine brands of franchises in eight states plus another brand under development. The existing brands are Arby’s, Cici’s, Golden Corral, Krispy Kreme, Popeye’s, Burger King, T-Mobile, GNC and Taco Bueno.
“Multiple brands help you get bigger, faster,” Perales says. “It’s good to be diversified but I don’t think it’s good to be in too many states. Every state is different and has different complications.” Sun Holdings has 60 percent of its stores in Texas, with the second largest concentration in Florida.
This year, Sun Holdings bought the Tex-Mex chain Taco Bueno, which had declared bankruptcy last November. The brand is solid, insists Perales, who believes he can do better than previous ownership with the chain’s 148 restaurants, 30 of which are franchises.
“We have a responsibility to create new products and advertise them,” he says. “And hopefully bring in new franchises to make money. Our hope it to get back to where Taco Bueno was the king. It’s Tex-Mex gourmet.”
Since Sun Holdings took over, it has promoted the chimichanga and taco brisket with good results, and plans to launch tamales during the next quarter. The company has increased the advertising budget for Taco Bueno, switched from Pepsi to Coke products and improved the recipe for its tortillas.
Taco Bueno is Sun Holdings’ first effort at being a franchisor. Perales says that of all the Mexican quick-service restaurants, Taco Bueno has the best unit economics. “Taco Bell is an option but it is very expensive,” he says. “[With] Taco Bueno, the food costs are a bit lower and labor is a bit lower. The goal is for us to get there with having a better-tasting product and a little more innovation in the quality of the product.”
Sun Holdings is willing to work with potential franchisees, offering them a geographic territory to develop and either building them restaurants to lease or selling them a restaurant outright. For larger franchisees, Sun Holdings is willing to negotiate a reduced royalty or franchise fee.
“We are open and flexible to creating growth for the brand,” Perales says.
A team assists new Taco Bueno franchises with training and opening the restaurant. Sun Holdings’ franchise service consultants regularly visit stores and offer help in increasing sales.
Over the next two years, Sun Holdings plans to remodel or refresh all 118 existing restaurants, build more restaurants and look to franchise more locations. “At the same time, we have to be smart with new products and marketing,” Perales says. “At one time it was the best Tex-Mex in the country. It has lost some traction and I want to get it back.”
Even with more than 1,000 stores, Sun Holdings faces many of the same challenges it did as a smaller company including finding labor, dealing with competition and negotiating commodity prices. “They all take a toll,” Perales says. “You fix one – you raise the prices and then you get competition so you start discounting more. It’s a constant rebalancing.”
Perales says the trick is to persevere although he acknowledges there is always something new to deal with. “Sometimes I feel like a firefighter,” he says. “Every day it’s fighting a fire and trying to eliminate a fire.”
But there are advantages as well. As the third-largest franchisee in the United States, the credibility of Sun Holdings has grown, making it easier to be accepted by other brands and to get bank loans.
For his peers in the franchise world, Perales has three pieces of advice: diversify, operate close to home and, most important, pick solid brands.
While there has been chatter about an economic downturn, its solid brands have kept Perales mostly focused on growth. “I think our brands are best-in-segment to be recession-proof,” he says. “We usually perform better than fast-dining or fast-casual. We are not totally immune but we are not hurt as much as other businesses.”
Perales looks forward to continuing to grow the company. “For 20 years, we have been constantly building and growing and creating jobs,” Perales says. “It’s been a great year. We added Taco Bueno and moved into a new headquarters. We are aggressively looking for our next chapter.”