This “nouveau Mex” restaurant chain opens about 75 locations each year. Richard Pugh describes how it’s done.

When the first Qdoba restaurant opened in Denver in 1995, the company dreamed of taking its nouveau Mex concept—traditional Mexican flavors presented with untraditional flair—nationwide. Twelve years later, with 346 locations in 40 states and about 75 locations opening each year, that dream is coming true.

According to Richard Pugh, COO of the quick-serve restaurant chain, Qdoba is well positioned for growth in an industry where demanding consumers are raising the bar. “Americans are moving beyond hamburgers and French fries. They’re demanding higher quality ingredients, more menu choices, and unique flavors. We do that at a price point above the typical fast-food restaurant, but below full-serve.”

Splitting the responsibility
To achieve its current growth rate, Qdoba adopted a business model whereby roughly 80% of its restaurants are owned and operated by franchisees. Unlike many other franchises that take on hundreds of franchisees, each operating one or two locations, Qdoba recruits restaurant industry veterans who have the knowledge and financial wherewithal to take on five to 20 locations over a period of time.

These franchisees form their own organization under the Qdoba umbrella that grows as they fulfill their commitment to open anywhere from one to five locations each year. “Rather than the corporation managing growth in 20 or 30 markets across the country and staffing 75 to 80 new restaurants each year, our franchisees are managing that process,” said Pugh, adding that on occasion, the company will take on a one- or two-location franchisee, depending on the marketplace.

In return for their commitment to the Qdoba brand, franchisees receive numerous benefits. For starters, instead of building a business from scratch, franchisees are handed a complete kit—all they need to do is assemble the pieces. The company helps franchisees identify prime locations and design them to fit the brand; shares recipes; provides marketing materials, including print, radio, television, and online media; assists with training and development; and more. “When franchisees sign up, they get support at every level to grow their business successfully,” said Pugh.

The other 20% of Qdoba’s restaurants are owned and operated by the corporation, and that side of the business opens 15 to 20 restaurants per year. “If the company owned and operated all of our locations, we couldn’t grow as quickly as we are. But operating our own stores is a testament to our faith in our brand.”

With the burden of rapid growth split between dozens of franchisee organizations and the corporation, Qdoba will reach its short-term goal of having 500 to 600 restaurants within a few years. “I suspect that as we continue to grow, we’ll find plenty of opportunity to go beyond that. But at our current size, that’s a doable challenge.”

Developing departments
Qdoba has come quite a way since its Denver days when employees wore multiple hats. Pugh said that the company has always had R&D and quality assurance functions but only recently developed departments around them. In fact, in November of 2005, it hired its first director of R&D, followed by its first director of quality assurance a few months later. “As the company grows, the need for people to be specialists rather than generalists becomes more obvious. We’ve expanded every department, including IT, marketing, and training/development,” he said.

In particular, the IT department has grown dramatically in the past few years. Not only does it keep all company-owned and -operated stores up and running, but it provides support services for about 90% of the franchise operations. Those who choose not to receive IT support from Qdoba often go through a third-party vendor that functions on an as-needed basis. “They don’t have to sign up for an entire year of service at once,” said Pugh. But no matter how each location chooses to handle IT, they all use the same hardware and software for easy integration.

Qdoba’s secret weapon in the IT arena is Bill McMillan, who joined in 2001 as vice president of IT. McMillan has dedicated his career to the IT side of the restaurant industry. “He understands the needs of the people using the cash registers and assisting customers all day,” said Pugh.

Qdoba uses MenuLink, a general yet customizable restaurant software package. McMillan and his team have streamlined MenuLink to meet the chain’s needs and have integrated unique features, such as the Q card, a customer loyalty program that offers customers a free entrée after X number of purchases. “Bill has done that inhouse as opposed to outsourcing it, which is what most companies do with their loyalty programs,” Pugh said. The innovative spark of Qdoba’s IT department won the company the 2005 Breakthrough Award for Productivity and Efficiency from Hospitality Technology.

Ace acquisition
In 2003, Qdoba Restaurant Corp. was acquired by San Diego-based Jack in the Box, Inc., one of the nation’s leading hamburger chains with more than 2,000 quick-serve restaurants in 17 states. The $45 million purchase not only expanded Jack in the Box’s footprint, but provided Qdoba with the capital required to maintain its growth rate.

“As a privately owned company, we were always searching for new capital,” said Pugh, who pointed out that although Qdoba now has a parent company, he still considers it an independent operation. “Jack in the Box focuses on its business, and we focus on ours. The only difference is that we have access to resources only available through a larger company.”

For instance, Qdoba was able to implement Voice of the Guest with Jack in the Box’s financial backing. Pugh explained that customers are invited to call an 800-number to offer their feedback, a service offered by Synovate, the market research arm of communications specialist Aegis Group. “Without Jack in the Box’s buying power, we could not offer that to our customers so early in our development. If we weren’t part of a larger company, doing so would have been cost prohibitive.”