In 2007, young Skype executives Eric Partaker and Dan Houghton quit their jobs to start Mexican casual-dining chain Chilango. Four years later the company has just opened its fifth site and should reach eight by the end of 2011. Neil Gerrard went to meet them
Chilango is one of the fastest-growing Mexican food concepts in the UK. How did you get into Mexican food?Eric Partaker (EP) I grew up in Chicago which has the second-largest population of Mexicans in the country outside of LA so I grew up with Mexican food and Mexican friends. I started working at McKinsey management consultants] in Chicago and ended up in London to work at Skype where Dan and I were placed together on a two-person team. We were having fun, but we were building someone else's business.
Dan Houghton (DH) I don't have a restaurant background at all. At school I was a geeky child and wanted to be a video games programmer. Then I went to Cambridge to study maths and did a masters in computer speech and language processing - very useful. I ended up working at Skype for two years with Eric and after about a year and a bit he started asking me weird questions about Mexican food. Eventually I quit and we started looking for a property to open a restaurant. It was kind of foolhardy.
How did you find setting up a restaurant business with so little experience in the trade?DH The first site we opened, in 2007, was in Upper Street, Islington, and we called it Mucho Mas. It was a little bit amateurish. We were finding our way, running it ourselves. We were going to the meat market at Smithfield at 4am three days a week to get the meat to run the restaurant because we didn't know that you could get someone to deliver it for the same price. It was exhausting and everything was going wrong constantly but we learned quickly.
EP The first three months of that was probably the only time where I thought life might break me down. There was even one day when we had just forgotten to wake up and go down to the meat market. It was 4:15am and Dan was like, dude, we didn't buy any meat. And I said, yeah, let's just not sell meat today. It was just such a stupid thing to say when 80% of your business volume is meat. He forced me to get it in the end but that is how tired we were at the start.
Who was backing you at this point?EP Pure ignorance. We got started and within the first five months of opening we were two weeks away from running out of money. We were lucky enough to have focused on the product more than anything else during our planning - rather than the brand or even the staff training. Every single weekend for a year was just about cooking, cooking, cooking. And that food focus kind of saved us in the end because it caught the eye of some small private equity investors. We had a couple of different offers on the table and we went with the one that was the best fit and that was an initial investment of £1.1m, five months after we started.
How did you choose to spend that money?EP There are two paths we've seen people take at that point. You could just continue to open up new restaurants, but we argued to our investor that we should spend a big chunk of that money developing the intellectual property and what the place should look and feel like and then find one place to showcase that, rather than do two more sites. We hired a branding and design agency, I-am Associates, who came with us to our favourite place in Mexico in Mexico City to get inspired by the same things that we love. Chilango is the result. It is a more contemporary approach, rather than deserts and sombreros.
How much of a change did the rebranding make to the business?EP We are complete converts to branding and now know that it is critical to a business's success. Sales at Mucho Mas were about £12,500 a week and they kind of plateaued there. Then we changed it to Chilango. It was the same food, same people, same place - all that changed was the branding and the marketing - and there was a 100% uplift. Sales doubled to about £25,000 a week in about six weeks' time.
How do you find educating UK consumers about what you do?DH It is challenging, especially outside London. Here in London we have office workers who are used to a little bit more variety with their food and also we see a strong pattern here of people coming in in groups, bringing in a friend and that has really helped us. But in our two sites outside London [Bluewater, Kent, and Sheffield] it is a lot more challenging, so we have a greeter on the door who can take a completely new group or individual through the process and explain it. But that's on the process side of it. I think the freshness and the food being on display resonates with people and they get that bit.
How are you coping with rising food prices and what is rising the most?DH Rice is the most pronounced one. It has doubled in about three years. Luckily we have got a really good operational team and they have helped us get control of portioning, wastage and so on. We also work with Fresh Direct who supply all our produce and we contract prices. But there is no magic formula. We had to do a price rise last year ahead of what we knew was going to be big inflation, and we have to be disciplined and tough this year to try and find ways to tweak recipes and save money or put prices up.
Is there anything you would have done differently since starting Chilango?DH Mine is always numbers. In the first round of fundraising we could have thought more about the fact that restaurants are very expensive to open and the process is quite dilutive, so how do we set up the scheme for the management to protect its own equity. So next time I start any business I do, I would think a little bit ahead to fundraising. We are not in a bad position but it is hard to put those things in later.
EP It also took us a while to have the confidence we now have in our own judgement. We relied a lot on the advice of external people and often questioned our own thinking. But both of those things are probably fundamental happenings with starting a new business you have never done before. But the key for us is to continue to surround ourselves with great people, whether it is people we are working with or investors, or suppliers. The best people weather the worst storm.
chilango facts and stats
Turnover £3.5m for the past year excluding new openings (projected up to September excluding Chancery Lane)
Profit margin at restaurant level Typically 20%
Typical annual sales per restaurant £1.1-£1.2m
Typical annual costs per restaurant £400,000-£500,000
Staff 80 (mixture of full time and part time)
Average spend per head (inc. VAT) £8-9
Backers Venrex Investment Management, Ambient Sound Investments (founding engineers of Skype), Mike Dowell (former MD of Costa Coffee), Kevin Bacon (former MD of Leisure in the restaurant group), Don Henshall (former CEO of Krispy Kreme), Paul Facella (used to be VP of McDonald's New York region), Laurie Morgan (former VP marketing for McDonald's UK), Jo Ramsdale (former ops director for Starbucks London)
social networking success
Chilango is known for being particularly effective on social networking sites like Twitter and Facebook. Such was the buzz that Partaker and Houghton managed to create around their food giveaway on the opening day of their Chancery Lane site on 5 May, that the term "Chancery Lane" trended nationwide on Twitter. So what is their secret?
Eric Partaker (EP) We don't subscribe to the whole "this is how you should use Facebook or Twitter". We talk about Chilango and loads of other things that are a lot more interesting, or we might just crack the same kind of jokes that we are cracking within Chilango. I guess we just use it very naturally and we are also trying to bridge the gap between virtual reality and reality. So if there is a group of twitter followers we are having a chat with, we might just invite them all in for some drinks.
Dan Houghton I've got a better example. Someone tweeted Eric on a Friday asking "have you got any special offers on?" And Eric said: "Yeah, if you come to the restaurant right now I'll buy you a beer." Three hours later Eric was downstairs with a small crowd of people from Twitter drinking beer.
EP I think what I actually said was: "If you come to the restaurant right now I will get you drunk." But we don't use Twitter to market the business at all. We might talk about an event that's happening like Chancery Lane opening - free food for everyone, no strings attached. But that's just telling people what they are going to get. We would never use it to say come in on such and such a date and you will get a meal deal for £6.50.
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