Dos Toros readying for stake sale to support expansion – cofounder

Provided exclusively by Mergermarket

Dos Toros, a privately held burrito restaurant chain, plans to secure equity financing in the next 12-24 months to expand beyond its native New York City, said Cofounder Leo Kremer.

The company has been actively fielding approaches from various financial investors, according to Kremer, who described the interest as “flattering” but explained Dos Toros would take its time finding a suitable minority investor.

Though Kremer said he prefers to continue to finance growth with debt, he acknowledged that the company’s capital requirements are now probably too great for that route.

To date, Dos Toros has yet to take on outside capital. Kremer co-founded Dos Toros with his brother Oliver. The brothers wholly own the business with the exception of a small stake held by friends and family. That backing, along with a SBA loan prior to opening Dos Toros’ restaurant in Brookfield Place, enabled its early growth, according to Kremer.

Kremer declined to disclose 2015 revenue, or average unit volume, but said it was “high” and that units serve between 700 and 1,200 customers per day on average. Media reports last year noted the company was on track to post USD 20m in revenue for 2015.

Dos Toros has 10 locations in New York City – the first opened in 2009 – and will begin expansion into other major metropolitan markets on the east coast later this year or in 2017, Kremer explained.

The company will open two additional locations in Midtown Manhattan this year, bringing the chain to 12 restaurants in size. Kremer pointed to Atlanta, Boston, Philadelphia and Washington DC as cities of interest for Dos Toros’ expansion efforts.

Kremer said the company’s expansion will take one new market at a time, but the introduction of Dos Toros to a new city will be “aggressive.”

Chipotle Mexican Grill (NYSE:CMG) is Dos Toros’ biggest competitor and the business continues to be compared to the industry giant, Kremer said. More oblique competitors in New York include Dig Inn, Maoz and Qdoba Mexican Eats.

Dos Toros’ smallest unit is less than 700 square feet, but in general the sweet spot lies somewhere between 1,200 and 2,500 square feet, Kremer noted. The company has no interest in franchising, he added. Dos Toros’ average ticket price is between USD 10 and USD 15.

Kremer described the rate of menu innovation at Dos Toros as “glacial,” explaining that the company is averse to making changes to its offering. The objective is to keep pricing competitive while securing operating margins of at least 30%, he explained.

Sales growth will not be focused on upselling, but instead on improving volume at stores, according to Kremer. For this reason the restaurant has begun prioritizing lunch over dinner, he added.

Catering accounts for 10% of the business, Kremer noted. Delivery is also significant, and growing, but the executive said the company wants to do less of it. Dos Toros has approximately 400 employees.

Glass & Dooley and Golenbock Eiseman Assor Bell & Peskoe provide accounting and legal support to Dos Toros, respectively.

by Siobhan Brett

As seen in the mergermarket newsletter on 29/04/2016

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