develop promotional advertising, increase
awareness, and generate trial in new markets.
In addition, Rubio’s plans to hire local pub-
lic relations firms to help establish brand
awareness in the new markets.
Broadcast advertising, both television and
radio, coupons, and in-store point-of-pur-
chase displays have been used as marketing
tools to increase brand awareness, attract
new customers, and build customer loyalty.
The promotional theme is designed to por-
tray Rubio’s as a high-quality, quick-service
Mexican food restaurant, as well as to publi-
cize special offers.
All of the marketing strategies employed
are designed to help accomplish and rein-
force the business objective of becoming the
“leading high-quality, quick-service Mexican
restaurant brand nationwide” (Rubio’s 10-K,
2000).
Competition
The restaurant industry is fiercely com-
petitive and segmented, based on the type of
service, food, and price being offered. In the
quick-service, high-quality Mexican food seg-
ment, Rubio’s direct competitors include
Baja Fresh, La Salsa, and Chipotle (see
Exhibit 3). Rubio’s indirect competitors in-
clude full-service Mexican restaurants such as
Chevy’s and El Torito, as well as fast-food
restaurants, especially those concentrating on
Mexican food offerings such as Taco Bell and
Del Taco. Although Rubio’s is able to com-
pete favorably in the restaurant market, many
of its competitors are better established
nationwide with greater financial, marketing,
and management resources.
Franchise Opportunities
To enhance the company’s expansion strate-
gy, Rubio’s implemented a franchising pro-
gram in 2000 (see Exhibit 4). Management
and financial resources will be provided by
Rubio’s to build the infrastructure of the
newly franchised units, and franchisees will
in turn pay area development fees, new store-
opening fees, and royalties to Rubio’s. As of
February 2001, Rubio’s had two signed fran-
chisee agreements, one to open eight units
and the other to open six.
Financials
Exhibit 1 reports the financial highlights for
2000 and prior years. Rubio’s had 90 units
open the entire year, which generated an
average sales per unit of $896,000, an aver-
age operating income per unit of $130,000
(14.5 percent of sales), and an average cash
flow per unit of $166,000 (18.6 percent of
sales). Comparable restaurant sales (for units
open and operating over 12 months)
increased 0.6 percent in 2000, much lower
than the 6 percent increase from the previous
year. Overall sales increased 40.9 percent
over 1999 sales, an increase that is partially a
result of the opening of 36 new restaurants in- Of the 90 units open the entire year,
22 are located outside of California. Those
22 units generated an average sales per unit
of $733,000, an average operating income
per unit of $36,000 (4.9 percent of sales),
and an average cash flow per unit of $75,000
(10.3 percent of sales).
In May 1999, Rubio’s made an initial
public offering in order to raise capital for
the operation and expansion of the business,
yet does not anticipate paying any cash divi-
dends in the foreseeable future. Unfortu-
nately, although restaurant revenues have
continued to increase, Rubio’s stock price has
been spiraling downward (see Exhibit 2
below).
Rubio’s attributes the depressed stock
price to higher labor, energy, and food costs,
which have led to a number of underper-
forming restaurants
A LOOK TO THE FUTUREAlthough Rubio’s has been reasonably suc-
cessful thus far in the highly competitive
restaurant industry, the company has some
challenges to face in the near future. The
company already plans to raise menu prices
and focus its marketing efforts to improve
sales in order to offset some of the cost pres-
sures. Although the long-term plan is to462 ENTREPRENEURSHIP CASE