‘Optimistic’: Guzman y Gomez cashing in on demand for Mexican with local IPO

Guzman y Gomez founder Steven Marks (centre), with employees at his Mexican chain.

Guzman y Gomez founder Steven Marks (centre), with employees at his Mexican chain. Photo: GYG

Australian Mexican chain Guzman y Gomez has unveiled ambitious plans to open hundreds of new stores amid what experts describe as a surge in demand for Mexican food Down Under.

The fast food business said late last week it wants to float on the Australian Stock Exchange (ASX) to raise $242 million for an expansion – mostly across Australia, but also globally too.

It wants to move from 185 stores to 1000 over the next two decades, which would put GYG in league with the likes of titan McDonald’s, despite its brand being less than two decades old.

“Our vision to reinvent fast food and change the way the masses eat will remain central to what we do,” Guzman y Gomez founder and co-chief Steven Marks said in a statement on the IPO.

Guzman y Gomez local success

GYG has been among Australia’s fastest-growing fast food chains over the past decade in what Quick Service Restaurant Advisory founder Andy, who did not want his last name published, described as a winning formula in the market.

“They’ve focused on doing a couple of things well and their messaging to consumers has been very clear – touching on the healthy, fresh and good [produce],” he explained.

“They’re speaking the language consumers want, and as far as execution is concerned it has been relatively consistent.”

But Andy said GYG’s plan to open up to 1000 stores in Australia remains “extremely optimistic” because the Australian market is unlikely to be large enough to support so many locations.

GYG plans to open 30 stores next year alone, scaling to 40 annually within the next five years.

“Australia is a small market – burgers are biggest, then it’s chicken and pizza,” explained Andy, who advises businesses in the fast food industry.

“In the QSR category Mexican is very small. It’s less than 5 per cent of the QSR spending.”

Retail Doctor Group chief Brian Walker said GYG’s success in Australia has been underpinned by Australian customers increasingly taking a liking to Mexican cuisine.

“Customers [in Australia] have voted pretty strongly that they like the brand,” Walker explained.

“The key for these models is to produce a good product and be highly replicable in the model; they’ve certainly achieved that.”

Australian brand going global

But Walker agreed GYG would be unable to hit 1000 stores in Australia alone and would need to leverage global expansion, namely the United States.

That’s a much larger market, he explained, with more than 47,000 Mexican restaurants and annual revenues of almost $US90 billion.

Both Walker and Andy said the US market will be challenging for GYG, however, because it’s a more mature category in North America with tough competitors like Taco Bell and Chipotle.

GYG’s current US expansion, still in its early days, has already been beset by setbacks, including legal dramas over the treatment of staff and unprofitability at most of its four stores.

“The challenges are there,” Andy said.

“It’s not a market where just because it’s America with a bigger population base that the brand will do well.

“You have to line up everything perfectly and do everything right and the competition is a lot more intense than Australia.”

Walker said for GYG to hit the earnings targets outlined in its latest pitch to investors it will need to take some market share from existing players in the US, which won’t be easy.

“I don’t think it will be as aggressive a rollout as they were hoping,” Walker said.

“It’s going to take more capital.”

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