Danny York had big plans for Santa Fe Cattle Co. when he and David Wachtel, the one-time chairman of O’Charley’s Inc. and the founder of Logan’s Roadhouse, introduced the steak and Tex-Mex concept in 1996.
They believed demand for Santa Fe existed in small Southeastern markets that lacked steakhouses, and in four years the Brentwood, Tenn.-based chain grew to 16 restaurants.
The pair, however, hit a rough patch, and disagreed on the best way to grow the brand, with York preferring ground-up, custom-built and standardized prototypes. He was overruled, and sold his stake in the company to Wachtel, only to buy it back years later after Wachtel died. When York repurchased the company, just five locations remained open and it was $3 million in debt.
Today, York says Santa Fe Cattle Co., which trades as an over-the-counter stock, is on a growth stampede. It returned to its 16-unit count in 2007, and will add 10 more restaurants this year. Sales should total about $58 million, York said.
You have a 100-unit goal. How will Santa Fe fund that?
We plan to spend about $50 million over the next two years to build 22 stores—about $2.3 million per store. Some of that is funded internally, and some we’ll borrow, [and] some of our builders are also developers who pay to build our restaurants. When we do a secondary offering in 2009, we expect to raise a considerable about of money to go forward.
In Santa Fe’s earlier days, why were you so insistent on a single prototype?
We needed to standardize our restaurants. To grow like we want, we need to be able to take a kitchen manager from a restaurant in Oklahoma and put in him in a kitchen in Mississippi, and he won’t know he’s in a different place. That’s how we can handle [high] volume.
Real estate is so expensive, so why a ground-up build?
Two reasons: Real estate is inexpensive in these smaller towns where we go, [and] the maintenance cost on older buildings is tremendous. There’s new technology…that’s simpler to install during construction and less costly. It also makes the utility costs better on newer facilities.
Why such a focus on smaller markets?
Demand, for one. If we built one of these in Orlando, Fla., no one would stop by. But when we go to a new town in Mississippi, they’re stopping by during construction and telling us they can’t wait until we open.
