Taco John'S International Inc. Business Information, Profile, and History

History of Taco John'S International Inc.

Taco John's International Inc. franchises and supports a chain of Mexican-style fast-food restaurants. In the mid-1990s the company was supporting more than 400 outlets in 30 states, and was centered in the upper Midwest and West. Through an emphasis on food seasonings, good service, and fair prices, the company has become the second-largest Mexican quick service chain in the United States. In the 1990s, Taco John's was expanding through alternative distribution systems and by updating the image of its existing stores.

The sprawling restaurant chain dubbed Taco John's was born as a single, tiny taco stand. The "Taco House" as it was called, opened in 1968 in Cheyenne, Wyoming. It was started by a high-plains cowboy rancher named John ("Taco John") Turner and his wife. The Taco House was a big hit with the locals in Cheyenne because it offered good-tasting Mexican food, fast. An important ingredient in the taco stand's success was the spice that the Turners used in the food. They ground various spices and prepared all of the seasonings in their basement and garage. They used the seasonings to flavor traditional Mexican fare, including tacos and burritos.

Intrigued by the success of the bustling taco stand, Cheyenne businessmen Harold Holmes and Jim Woodson purchased the franchise rights to the fledgling venture in 1969. They believed that they could transport the concept to other cities in the region and, if the new restaurants were as popular as the first Taco House, profit handsomely. They realized that the special seasonings developed by the Turners were important to the chain's success. In fact, the Turners' seasonings became a closely guarded trade secret that continued to be used by Taco John's restaurants throughout the 1980s and into the 1990s.

Holmes and Woodson immediately began franchising restaurants based on the Taco House concept. They changed the name of the outlets to "Taco John's," but left many other elements the same, including much of the menu. They opened their first franchised stores in Rapid City, South Dakota; Scottsbluff, Nebraska; and Torrington, Wyoming. Like the first Taco House, the new Taco John's outlets were a big success. Holmes and Woodson knew that they were onto something. Throughout the 1970s, then, they expanded throughout the upper Midwest and West, franchising Taco John's outlets primarily in small towns.

The decision to target small towns evidenced a new strategy that became characteristic of the Taco John's organization. The franchising concept was relatively new at the time, and most companies up to that period had focused on opening franchise outlets solely in larger urban areas. In contrast, Holmes and Woodson decided to open their stores in small towns, which were often devoid of competition. Their goal was to bring to those small towns a unique eating experience, including good-tasting Mexican food, served fast, at reasonable prices. The overall strategy was ultimately a big success. Each Taco John's eatery developed a loyal customer base in its town, and also managed to attract regular patrons from outlying regions that would become desperate for a Taco John's "fix."

In fact, Taco John's loyal fans played an important role in the company's growth during the 1970s and 1980s. Many customers in outlying areas would write to the Cheyenne headquarters, begging the company to open an outlet closer to them. In some cases, those same customers became franchisees, owning and operating their own store. Likewise, some Taco John's fans that relocated to other regions, realizing that no Taco John's existed in their area, would open their own Taco John's franchise. The result was that the company gradually blanketed many parts of the upper Midwest--South Dakota, Minnesota, Nebraska, Wisconsin, Iowa, Wyoming--with Taco John's outlets.

Taco John's prospered during the 1970s and 1980s by cultivating a win-win partnership with its franchisees. Franchisees paid Taco John's a franchise fee, plus royalties on income from their stores. In return, they got complete support from Taco John's. In the early years, Taco John's would ship a prefabricated 12-by-30-foot taco stand from Wyoming; the stand was complete with kitchen appliances and other necessary fixtures. Later, the company built or outfitted larger structures with seating, rather than shipping prebuilt units. (One of the original prefabricated units was still operating in 1995 in Des Moines, where it had been a lunchtime favorite with high school students since 1973.) Taco John's would then work to ensure that its franchisees were given the training and support they needed to make their stores prosper. When the franchisees profited, so did Taco John's. As the word got out that a Taco John's franchise was a good investment, the company found a steady supply of franchisee candidates.

Thus, it was the enterprising franchisees that became the engine for Taco John's growth. Those entrepreneurs typically toiled long hours to make their restaurants successful, and often opened other Taco John's outlets in their areas. Representative of the franchisees who helped to grow Taco John's during the 1970s and 1980s were Bill Byrne and Dean Neese, owners of one of Taco John's largest franchise groups. Byrne, who was in his late 20s when he opened his first Taco John's, was working as a branch manager of a Dain Bosworth Inc. stock brokerage in the early 1970s. He became interested in the emerging Taco John's concept, and convinced 38-year-old Neese to join him in investing $39,500 to open the first Taco John's outlet in Des Moines, Iowa (one of the first Taco John's opened in a larger urban area).

Byrne and Neese labored to make their first Taco John's a success. Once the store was up-and-running and the Taco John's name began to catch on in Des Moines, they added a second outlet. They added one restaurant at a time, making sure that each store was a success before they opened another unit. In 1978 they opened the first Taco John's that sported both a drive-up window and indoor seating. The unit became a model for the next generation of Taco John's stores. They also helped to pioneer Taco John's mall stores. Over time, Byrne gravitated toward the finance and operations end of the business, while Neese focused on real estate and site location. Both partners also became involved with Taco John's International in Cheyenne, helping to formulate and implement corporate strategy. By the late 1980s, Byrne and Neese were operating ten Taco John's outlets in Des Moines, compared to six units operated by their nearest competitor. Those ten outlets consumed ten tons of beef and two tons of cheese each month.

Also demonstrating the importance of Taco John's franchisees were husband-and-wife team Charles and DeMaris Mathison, the owners and operators of one of Taco John's International's most successful stores. Charles grew up in Rapid City, South Dakota, where his parents operated a diner. After getting a degree in engineering and working in sales for a few years, he and DeMaris purchased a Taco John's franchise in 1976 for the city of Marshalltown, a small city in Iowa. They set up shop in an A-frame building and went to work. The first three years were "tough, real tough," DeMaris recalled in the March 14, 1994 Des Moines Register. "We were both exhausted for three years. One of us was there all the time. He would close one night, and I would close the next."

Despite various setbacks, the Mathisons managed to get the store off the ground by focusing on quality food and good service. They also worked to develop a loyal customer base, and were known for being able to greet more than half of their customers by name. Over time, the Mathison's Taco John's developed a regular clientele that spanned all socio-economic groups, from businessmen to laborers whose ethnic heritage ranged from German and Swedish to Hispanic. The couple moved their store to a larger space in 1985, and in 1988 added an atrium that boosted seating capacity to 114. With help from a professional restaurant manager, they were able to grow their Taco John's into one of the most successful units in the history of the company. In 1994, in fact, the Marshalltown Taco John's, after leading all other units in sales volume for four straight years, became the first unit to generate more than $1 million in receipts during a single year.

The efforts of franchisees, with support from headquarters staff in Cheyenne, allowed Taco John's to post big gains. By the end of the 1980s, in fact, Taco John's comprised a network of approximately 400 units, most of which were located in the upper Midwest and West. Those stores were generating annual sales approaching $150 million. States with the greatest number of restaurants included Minnesota, Wisconsin, Iowa, the Dakotas, Nebraska, and Wyoming. But the chain had also extended into both large and small towns in Missouri, Montana, Illinois, and other states in those regions. At the same time, Taco John's was branching out with units in other parts of the nation, including (by the early 1990s) Tennessee, Florida, Arkansas, and New York.

Taco John's managed to sustain its growth during the 1980s, despite an onslaught of competition that knocked many of its competitors out of the industry. Notable was the threat posed beginning in the 1980s by Mexican-style fast-food behemoth Taco Bell, which was a subsidiary of the giant Pepsico. Taco Bell used its parent's deep pockets to fund an aggressive expansion drive, often penetrating markets where Taco John's had long been established. Taco John's executives realized that its franchisees couldn't compete with Taco Bell on price. Instead, they chose to buck the industry trend toward "value pricing" and stick with Taco John's proven strategy of offering larger portions of high-quality food in an attractive, friendly setting. Taco John's nacho chips, for example, were made fresh in each store, daily. "We'll leave it to the other guys to sell the bite-sized items," said Taco John's president, Pieter Roelofs, in the March 14, 1994 Des Moines Register.

Taco John's also retained its long-time philosophy of establishing win-win relationships with its franchisees. For example, to confront increased competition, the company stepped up its advertising efforts and began working more closely with franchisees to develop multimedia campaigns. Taco John's reputation for treating its franchisees fairly was rewarded in 1994, when Taco John's received the first-ever "Fair Franchising Seal of Approval" from the America Association of Franchisees and Dealers. At the same time, Taco John's was named by Dow Jones' National Business Employment Weekly as one of the best franchise buys in the country.

By 1994, Taco John's was operating 430 units in 30 states. It was still privately owned, and the original founders remained active in the company, although they had handed control of day-to-day operations to restaurant industry veteran Roelofs. Under Roelofs' direction, Taco John's initiated a number of changes in the early 1990s. For example, its menu was broadened to incorporate a variety of new items, including several "Heart Smart" items that proffered low-fat ingredients. In addition to those newer items were Taco John's more traditional, popular features, like the Beef Burrito, Taco, Taco Burger, Mexican Style Rice, and various platters and combos. Taco John's was also moving to grow through new distribution channels, such as "Mexpress" kiosks and small food court units.

Going into the mid-1990s, Taco John's was updating its image. Among other moves, the company replaced its long-time logo and character, Juan, a cartoon-like Mexican with a big hat. The new character, dubbed John, was less representative of the stereotypical Mexican image, and "more of a contemporary person who probably has a broader agenda, if you will," according to Byrne. The logo change was part of Taco John's "Image 2000" program, which also included updating the chain's stores with new, brighter colors and completely remodeling the stores. The first franchisee to completely renovate his stores under the new program was Byrne, who by 1994 was operating 12 units in Des Moines.