Struggling with a large debt load and customers who are tightening their spending in recession, the new owners of the El Torito family of restaurants Tuesday named a new chief executive to help turn the firm around.
Real Mex Restaurants Inc. has tapped industry veteran Richard E. Rivera to lead the Cypress-based company, whose holdings include the El Torito, El Torito Grill, Chevys Fresh Mex and Acapulco Mexican Restaurant chains.
Rivera is the former president and chief operating officer of Darden Restaurants Inc., which owns Olive Garden and Red Lobster, among other chains. He replaces Frederick Wolfe, who left Real Mex in December after a restructuring engineered by private equity firm Kohlberg Kravis Roberts & Co. and hedge funds Farallon Capital Management and Canyon Capital Advisors. Those firms took a controlling stake in the company in November.
Rivera's task will be to boost slumping sales and earnings at the 189-store Real Mex, which faces deadlines next year to refinance $105 million of debt.
"We have challenges ahead, but I don't think what we are working our way through is any different from other restaurant companies right now," Rivera said.
The recession has taken a bite out of the restaurant industry, affecting nearly every category. Consumers are eating out less and choosing cheaper fare when they do.
But so-called casual dining establishments such as the Real Mex chains have been among the worst hit. Restaurants in this segment typically offer table service, alcoholic beverages and large menus. They've seen sales slide as bar tabs plunge and customers defect to less expensive eateries and fast-food chains.
"The edge is really off the casual dining segment right now," said Randall Hiatt, a Fessel International restaurant industry consultant. Sales in that portion of the industry have fallen 8% to 10% from a year ago, he said.
Rivera said Real Mex needed to differentiate its three main restaurant brands -- all of which serve Mexican food -- to attract more distinct segments of the market. He said the company also had not paid enough attention to value.
"We maybe let our prices get out of whack with this economy," Rivera said.
Turning the company around in the middle of a recession won't be easy, analysts said.
Real Mex continues to face "severe economic head winds," said Jon Zhao, an analyst with Moody's Investors Service. The company has a high risk of defaulting on its debt over the next 12 to 18 months, he said.
