Fiesta Restaurant Group, Inc. (NASDAQ:FRGI) Q2 2018 Earnings Conference Call August 6, 2018 4:30 PM ET
Raphael Gross - MD, ICR LLC
Richard Stockinger - CEO and President
Danny Meisenheimer - COO and SVP
Lynn Schweinfurth - CFO and SVP
Will Slabaugh - Stephens Incorporated
Nick Setyan - Wedbush Securities
Brian Vaccaro - Raymond James
Joshua Long - Piper Jaffray
Greetings, and welcome to Fiesta Restaurant Group Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Raphael Gross, Managing Director at ICR.
Thank you, and good afternoon, everyone. Fiesta Restaurant Group's second quarter 2018 earnings release was issued after the market close today. If you have not already accessed it, it can be found on the company's website, www.frgi.com, under the Investor Relations section.
Before we begin, I'd like to inform you that during the call today, the company will make various statements that are not based on historical information. These forward-looking statements include, without limitation, statements regarding the company's future financial position and results of operations, business strategy, budget, projected costs and plans, and objectives of management for future operations.
Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements and the company can give no assurance that such forward-looking statements will prove to be correct. Important factors that can cause actual results could differ materially from those expressed or implied by the forward-looking statements can be found in the company's SEC filings.
Please note that during today's conference call, certain non-GAAP financial measures will be discussed which the company believes can be useful in evaluating its performance. Any discussion of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliation to comparable GAAP measures is available in the company's earnings release.
On the call today are President and Chief Executive Officer, Rich Stockinger; Senior Vice President, Chief Operating Officer and Pollo Tropical President, Danny Meisenheimer; and Senior Vice President and Chief Financial Officer, Lynn Schweinfurth.
And now I will turn the call over to Rich.
Thank you, Ralph. We are pleased with the progress we are making at both brands through the acquisition of The Strategic Renewal Plan, and believe its positive impact is reflected in our second quarter and July comparable sales results. Importantly, we also continue to be encouraged by the rising net promoter scores that point to increasing guest engagement and brand affinity. But there is still much work left to do to drive ongoing improvements and performance that we can build on as we move forward.
At Pollo, we reported our second consecutive quarter of comparable sales growth with a solid 3.4% gain. Similar to the first quarter, our core markets continued to exhibit solid sales trends with comparable sales growth of approximately 4.9% in Miami-Dade County and 3.3% in Broward County respectively, exceeding the Florida Black Box quarterly industry benchmark by a 190 basis points and 30 basis points respectively. The sales trajectory for Southwest Florida where we have been testing initiatives before rolling them out to the rest of the system continues to have the strongest performance overall. Positive sales growth continued in July with the company-owned comparable restaurant sales gain for Pollo up 2.2%.
Turning to Taco Cabana, let me start by expressing how pleased I am with the significant headway we are making. Chuck and his team have worked tirelessly implementing Taco Cabana strategic renewal plan. And their efforts bore fruit during the second quarter with the 3.1% increase in comparable restaurant sales. This was our first quarterly comparable sales gain since the second quarter of 2016. With the July relaunch of the brand, we saw an acceleration in trends to an 8.8% gain, which also extended our comparable sales growth performance to four consecutive months.
I will provide more color on Taco Cabana in a minute, but first I would like to turn the call over to Danny for an update on Pollo Tropical's initiatives.
Thank you, Rich. I am pleased and encouraged with the great progress we are making at Pollo Tropical. Our citrus-marinated crispy chicken platform introduced earlier in the year has helped to broaden the brand's demographic appeal. Crispy chicken purchases currently represent 15% to 20% of all transactions. To further build on the momentum, we have experienced with this platform, we expanded the product line in June with the introduction of three crispy chicken sandwiches, including the Crispy BLT Chicken Sandwich, which has already become the brand's highest selling handheld item.
We're using a mix of broadcast, social and local store marketing to support our new product introductions, engage with our guest and drive awareness and frequency. For instance, we recently introduced our crispy chicken sandwiches utilizing broadcast media and extended billboards in strategic locations. We promoted our daily deals for specific days of the week such as Marination Mondays, TropiChop Tuesdays, Wildcard Wednesdays and Pollo Time Weekends through digital channels.
Lastly, we held numerous unique and targeted social media events across all of our markets during the quarter. Operationally, we continue to focus on hospitality and guest and team engagement. We recently rolled out an improved reporting platform that allows our general managers to review net promoter scores and guest feedback to address areas of opportunity more quickly.
We also recently conducted round tables with all of our general managers to reinforce our operations capabilities and better-than-ever service training and to improve communication and collaboration. Additionally, we are upgrading our POS tablets to securely accept credit cards, which will improve speed-of-service especially in our busiest restaurants. We are also focused on improving food and labor cost through better cost control reporting management and accountability.
We will be testing kiosk at a few restaurants this year that may help to decrease cost, increase ticket average and improve accuracy. As Rich mentioned, there is still much work to do. We have several growth initiatives underway that we plan to implement in the second half of the year, including the introduction of a new loyalty program to build guest engagement and frequency and building our off-premise business.
We're planning to pilot our new loyalty program in the third quarter. We have hired an experienced off-premise leader to spearhead a successful implementation strategy across catering, third-party delivery and gift card sales. We're refining our catering program ahead of the holiday season and are in the process of hiring catering managers who will be solely focused on growing our catering business. We have also dedicated one of our senior operators to support our catering segment.
For delivery, we are currently pursuing partnerships with third-party vendors and estimate starting a pilot test later in the year. Taken together, we believe that the investments we are making in building our off-premise business should be fully in place and gaining traction by year-end 2018.
Before I turn it back over to Rich, I'd like to thank each one of our team members for their hard work in delivering improved sales and enhanced hospitality that we can build upon. Rich?
Thanks, Danny. As I mentioned earlier, we successfully relaunched Taco Cabana in July with the completion of numerous menu and service enhancement. These consisted of improvements to the breadth and depth of our menu so that we can deliver on our promise of high quality, authentic and freshly prepared cuisine inspired by our original recipes and an upgraded hospitality experience.
Note that within our 3.1% comparable sales gain for the second quarter, we still experienced a meaningful decline in comparable transaction. To reiterate what we have said in the past, our strategic direction with Taco Cabana is to involve our guest base by repositioning the brand and offering higher quality menu and promotional items at reasonable prices, while eliminating deep discounting.
We believe this will create more profitable and growing transactions over time. Momentum is well underway with sequential improvement in monthly transaction trends every month since January. Training is a key area of focus for the brand that we believe will improve the guest experience, build our operations leadership bench and increase employee retention and engagement. In fact, we are in the process of onboarding a new experienced industry leader to oversee this area at Taco Cabana.
With that, let's now review the progress we made thus far on Taco Cabana's renewal plan. As you know, product improvements are critical to the brand's turnaround effort. We have, therefore, improved most core products, through ingredient, and recipe quality upgrades, affecting almost 90% of Taco Cabana's menu. In particular, our enhancements are centered around proteins that are utilized across menu categories, USDA Choice steak, Applewood-smoked brisket, Chicken, ground beef and shrimp. We have introduced loaded tacos to deliver flavorful recipes consistent with our promise of high quality and fresh ingredients.
All-day breakfast and tacos by the dozen continued to build traction and deliver relevant meal solutions to our guests. Our TC Patio Program has already been rolled out to approximately 40 restaurants, with some additional locations to follow. Revisiting our roots as the original Mexican patio café, we have amplified our patio with patio parties, with entertainment including musicians, karaoke, game nights and other fun activities for our guests. To complement this experience, we also introduced several new alcoholic beverages offerings including frozen raspberry vodka lemonade made with Tito's handmade vodka, draft beer and sangria in seasonal Margaritas as well as shareable appetizers.
Similar to Pollo Tropical, we'll be testing in-restaurant self-order kiosk this fall to further improve upon our guest service and efficiency. And we'll soon pilot MY TC!, the new Taco Cabana loyalty program. We continue to focus on improving margins. Initiatives that are in progress include among other things improved labor scheduling, forecasting and tracking processes, updated batch cooking guides and reduced over time.
Additionally, we are increasing our use of shift leaders to remote leadership development with the added benefit of reducing costs. Looking ahead, we also see great potential in delivery and catering that is yet to be realized at Taco Cabana. And we'll therefore be addressing these opportunities in the back half of this year and beyond.
We believe that our Dozen Taco Boxes are especially well positioned for delivery, starting with breakfast and continuing throughout the day and evening. We also appreciate that as important as it is to build and solidify our sales base, while recognizing the investments we already made in four-wall operations, we also must optimize our food and labor cost to shore-up margins, and that work has begun as well.
Lastly, I'd like to thank all of our employees for their hard work and passion in this renewal effort. Much has been done with much still to accomplish. But together, with all our team members, I feel confident we will succeed.
With that, let me turn the call over to Lynn to go over our financials in greater detail.
Thank you, Rich. During the second quarter of 2018, comparable restaurant sales at Pollo increased 3.4% compared to a 7.7% decrease in the second quarter last year. This year's gain included a 4.4% increase in average check, inclusive of 4.5% in pricing, partially offset by a 1% decrease in comparable restaurant transactions.
At Pollo, restaurant-level adjusted EBITDA and related margins, non-GAAP measures, as defined in our SEC filings, decreased by $2 million and 240 basis points respectively, primarily due to the negative impact of an increasing cost of sales as a percentage of sales and higher advertising expense, primarily driven by initiatives under the plan to improve the guest experience, partially offset by higher comparable restaurant sales and the positive effects of closing unprofitable restaurants during 2017. Note that we experienced improvements in labor and other restaurant operating expense margins, more than offsetting material investments we have made in staffing and maintenance over this past year.
Comparable restaurant sales at Taco in the second quarter of 2018 increased 3.1% compared to 4.7% decrease in the second quarter last year. This year's gain included a 10.2% increase in average check, inclusive of 6.3% in pricing and positive sales mix associated with higher price promotions and new menu items related to the brand's repositioning.
Comparable restaurant transactions decreased 7.1% with the elimination of deep discounting related to the brand's repositioning and the reduction in overnight operating hours. However, as Rich stated, the transaction trend, while still negative, improved throughout the second quarter just as it did in the first quarter.
At Taco, second quarter restaurant-level adjusted EBITDA decreased by $2.2 million and related margins declined by 340 basis points. Restaurant-level adjusted EBITDA margins were negatively impacted by higher cost of sales as a percentage of sales due to upgrades to food quality, higher labor costs due to increased staffing hours to improve hospitality and higher incentive-based compensation, partially offset by higher comparable restaurant sales and lower other restaurant operating expenses.
During the quarter, consolidated adjusted EBITDA, a non-GAAP measure defined in our SEC filings, declined to $20.2 million, primarily driven by lower restaurant-level adjusted EBITDA at both brands, partially offset by lower G&A expenses. While I will not review every line item on our P&L, I did want to mention the $3.5 million net gain in other income. This consisted of $2.8 million in additional insurance recoveries related to Hurricanes Harvey and Irma, the hurricanes and $1.1 million in total gains on the sale of two restaurant properties. These gains were partially offset by a write-off of site development cost and cost for the removal, transfer and storage of equipment for previously closed restaurant.
We may recognize additional insurance recoveries from the hurricanes in the third quarter or fourth quarter. As previously mentioned, we are keenly focused on improving our restaurant margins, while continuing to deliver a great guest experience. In addition to the programs already described, we are refining our theoretical food cost and inventory procedures to better manage the business. We are also refining our labor models and processes to optimize how and when we are staffing our restaurants with increased visibility and reporting. In fact, while it is still early, a new labor initiative recently underway at Taco has generated improved labor costs.
While wage rate inflation continues to be in the low-single-digits in the second quarter, we are experiencing higher overtime with increasing staffing pressures due to the competitive labor markets in which we operate. This environment may result in higher increases in wages going forward, while we concurrently focus on employee engagement and leadership development to reduce turnover and improve retention.
Adjusted net income, also a non-GAAP measure was $6.8 million or $0.25 per diluted share compared to the prior year period adjusted net income of $8.1 million or $0.30 per diluted share. Please refer to our earnings release and SEC filings for all related non-GAAP reconciliation tables.
In terms of capital allocation, we are now expecting capital expenditures for 2018 to be at the high-end of our previously announced range of $60 million to $70 million. This is due to additional investments in our restaurants to improve food quality and consistency and to support our catering and [Technical Difficulty] reminder, this includes $22 million to $25 million for the development of new restaurants. Other capital spending will primarily include deferred and other capital maintenance and restaurant remodels.
Turning to our 2018's development plan, we expect seven new company-owned Pollo Tropical restaurant openings in Florida, four of which have already been opened as of the end of the second quarter. We also expect seven new company-owned Taco Cabana restaurant openings in Texas, six of which have already been opened as of the end of the second quarter and one that opened in July.
Of those seven restaurant openings, two new Taco Cabana restaurants in superior locations in the same trade areas replaced two closed restaurants during the second quarter. As a reminder, these Taco Cabana openings include five closed Pollo Tropical restaurant conversions with lower investment cost.
In the third quarter of 2018, we will be lapping the anniversaries of Hurricanes Harvey and Irma from the prior year. In the third quarter of 2017, 43 Taco Cabana restaurants and two Pollo Tropical restaurants in the Houston Metropolitan area and all 149 Pollo Tropical Restaurants [Technical Difficulty] metropolitan area were closed and affected by hurricanes in varying degrees.
We estimate that the hurricanes negatively impacted comparable restaurant sales and transactions at Pollo by approximately 5.5% to 6.5% and at Taco by approximately 2% to 3%. We also estimate that the hurricanes negatively impacted adjusted EBITDA at Pollo by approximately [Technical Difficulty] (0:20:01) Taco by to [Technical Difficulty].
In closing through our renewal plan, we are elevating our brands are developing a strong long term business model to build shareholder value. We are going to continue working hard to maintain our momentum and have a lot of exciting things planned the balance of this year and the years ahead.
With that, we will open up the line for questions. Thank you.
At this time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Will Slabaugh with Stephens Incorporated. Please proceed with your question.
Yeah, thank you. First question was on Taco Cabana and congrats on the churn there - here especially more recently. I was curious if you could talk just about the July acceleration and what you'd most credit that to? I know you mentioned there was a brand relaunch that happened in the month. So I was curious if you felt like that was just a big - a bit of a bump from the immediate being turned back on? If there were something else happening inside the restaurant that we weren't necessarily able to see.
I think - it's Rich Stockinger, how are you Will? It's been a culmination, because it's not something that just happened overnight. Even though we show each month, it's been each week has continued to show improvement and getting in more profitable guests. There is no doubt that our guest profile has been changing. We're seeing more families and younger people coming to our restaurants.
So it's not just one thing that's happened, it's a culmination over time, and especially since now we have all our proteins in place. And each one of our proteins represents about the same as a percentage than any other one. So it's not like one protein is overshadowing the other, but there was nothing special or in addition that we did different in July that we haven't done in the recent months.
Got it. And thinking with Taco for a second, you mentioned, your LTOs and likely future LTOs are going to involved more full-priced items versus some deep discounts that have been there previously. Can you talk about how you feel like that positions you as a brand versus some of the peers and larger peers in particular that are more aggressive on advertising price points.
Sure. I think what we've done as we try to position ourselves and this means no negative to these competitors at all, but in between the Taco Bell, Taco Blanco guest and below the Tour Cheese [ph] type guest, where we feel that there is an opportunity there to go after people with full spare pricing for high quality items. I would say we're getting a lot of guest complements that call it restaurant quality which it is. So that's why I put us in between those two types of categories.
Got it. And lastly you mentioned South Florida continuing to lead the way at Pollo. And then you also in the same breadth said a lot of that is because of what you're sort of testing down there and doing. Can you go into a little bit more detail in terms of what you feel like is maybe a main drive or to entail sort [ph] of that maybe leaking into the rest of this system as we work throughout the year?
Yeah, this is Danny. I think there are two things that drive this. And that they really come from the Crispy platform. The Pollo Bites have been a really a remarkable new product introduction for us after having grown the crispy platform the bites have done terrific for us. And not only as an entrée but also as an add on or as an appetizer. And then we've also introduced the crispy sandwiches which we introduced within the last two to three months.
And really it's the combination of both of those that have really driven some of the incremental sales and menu mix shift here as well as transaction. So we're seeing combo meals on the sandwich purchases and overall the platform has just really elevated our sales and our traffic gain.
Great. Thank you.
Our next question comes from Nick Setyan, Wedbush Securities. Please proceed with your question.
Hey, thank you for taking the question and congrats on another great quarter. My question relates to more kind of beyond just the near term, and how you right size the business, or just largely right size the business. How should we think about some of the metrics kind of medium to longer term with respect to unit growth, with respect to maybe the margins at Pollo and the margins at Taco?
Yeah, it's Rich, and thanks, Nick. I think in terms of unit growth, and we haven't come out officially, but I don't see next year being that much more different than the current year, because, again, you got to be 18 months in advance. And we know the plan is not done. We have a lot of work to do, a lot of our investment that we put in, especially in technology, we're now starting and ready to implement. We brought these outside experts to come in to help us and we set up a new loyalty program, on both brands.
In terms of delivery, we're working with closely partnering with a national company that will really give us a real punch in the arm, regarding the delivery which we do minimal at Pollo and basically none at Taco. And the last part is catering. There's such an opportunity for catering in both these two brands and when I look at Pollo, down here in South Florida it's really incredible and I look at Taco and its major markets being San Antonio and Houston and Dallas, there is a huge opportunity to do catering, very profitable.
So we have minimal in terms of - we're not going - we're going to do open the same about same units this year. I'm really looking in the opening and future growth is the year after, not so much next year, but it's really the sales opportunities in the existing markets in existing restaurants that are really exciting to us.
In terms of the margins, Pollo margins we're working on. We're working with our vendors, especially the produce companies. I think we'll see - not produce, the poultry companies. I think we'll see some improvement over the next 12 months in the chicken costs to us. And then Taco, we've already announced that the improvements in the labor are happening as we speak, because of the work that they've done it at Taco, and we'll also see some help in the food cost area Taco.
So I don't see barring any unforeseen issues that aren't related to the industry right now. I don't see food costs right rising. I see them coming down a bit at both brands.
That's helpful. Thank you. And when you first joined, when we got the Revitalization Plan. I think one of the points was potentially looking at franchising a little bit more. We haven't heard much about it over the last 12 months, understandably, as you focused on turning the business around. But how are you thinking about franchising going forward from here on?
Sure. We're not ready to go full blown on franchising. And while I say, I think tomorrow we will be filing our franchise document for Pollo and then Taco will be shortly thereafter. We're still doing the renewal, but I wanted to get the groundwork to be done on the franchising side and licensing side. But we are working with several companies on potential licensing both brands.
On Taco, we already have a successful franchise in New Mexico. And we'll be looking at that surely down the road. We haven't come out and formally announced what our franchising program maybe, but I think, as you can tell at Pollo, we have a huge opportunity now that we've right sized it at Taco, we are turning the corner and the success, the recent success of some of our converted Pollos in to Tacos might open a new opportunity where you don't have to do a ground up with the higher investment costs that you can spend less on doing conversions may open that door to us in the near future.
That's very helpful. And then Lynn on G&A. How should we think about G&A for the year, maybe just kind of directionally in the back half?
We're continuing to find opportunities to leverage our G&A. Certainly as we get into the back half of the year. We will have a benefit associated with lapping the hurricane third quarter. So that's going to certainly drive some leverage as we look out to the balance of the year.
And then moving forward, we will continue to look for means to leverage G&A as we move forward. Controlling our costs, growing only where we need to, and certainly supporting the parts of our business that will provide a return on those expenses.
Our next question comes from Brian Vaccaro, Raymond James. Please proceed with your question.
Thank you and good evening. Starting with Pollo Tropical, just hoping we can drill down a little further on the crispy chicken product launch. And curious if you'd share further details on the sales mix, how it compares in the legacy markets versus the non-core markets and given differences in competitive dynamics and brand positioning if you will in South Florida versus Central Florida or North Florida, even Atlanta, curious if there were differences and how you positioned your advertisers' products?
This is Danny. We typically promote a little more aggressively in the Northern markets with this product. We found out through our research that we conducted that the boneless crispy, had a very high appeal in those markets, and it's not to suggest that it isn't also the same down in South Florida. But on a weighted basis, our transaction rate is higher on the crispy platform, when you get to markets like Atlanta, or you get to markets like Jackson or Orlando.
But Dayton and Broward also do very well. So when we talk about a range, that typically demonstrates the range we're talking about from South Florida being on a little bit of a lower number all the way to the high number. But it's going to accept extremely well whether it's the bites, or whether it's the sandwich regardless of market. But the further North you go, the better it performs.
Brian it's Rich. The other area that is performing extremely well, is in our license restaurants, the licensed locations for colleges and universities, where it's gone extremely well. And that is the Pollo bite program, which again just to remind you it's our fresh chicken breast, 24 hours marinated and then we cut it into six pieces. So it's real chicken, it's fresh right in the restaurant where we hand bread it and then fry it and that citrus marinate stays within the product as result of the frying process. And it's really a special flavor and that's what's caught on throughout the system.
All right, thank you for that. And I know it's still early, but have you been able to do any consumer research on crispy chicken to get a sense of how much of that sales mix is due to attracting a new customer and sort of broadening the brand appeal versus driving frequency amongst existing guests?
Yes, everything to this point has been largely anecdotal. We have done some intercepts but we will be conducting market research a little bit later in the year. We needed to get this product to chance to get to market and give the guests chance to experience it, but we will be visiting with them a little bit later.
Brian, what we did though, it's Rich again. Is before we launch this we did extensive research including focus groups and they really gave us the permission to try it and that was the citrus marinated chicken itself. And that's what according to them allowed us to get into the fried platform. And again we're about ready, we'll be doing the research to get down to the bottom of it. And where it's really been successful has been in Southwest Florida, where that leads the turnaround of everyone and that's a very diverse market there. So we're pretty excited, but we'll be doing more than just customer intercepts very shortly.
All right, that's great. Just shifting gears, I wanted to circle back on Taco, and ask about the improvement you have seen in July. Can you remind us what the quarter to-date was last year? I guess just thinking about the underlying trends, how much of it is lapping easier comparisons and maybe lapping lower add spend versus sort of true underlying improvement. If you just put some color on that?
Well last year, we are lapping a 8.9% decline in the month of July. So we were lapping a more negative period. If you recall we were off air from May, to essentially the early to mid-part of October. So we are in the middle of that period. But we continue to see this gradual improvement in our results, across really most of our major markets being led primarily by Houston and Dallas currently.
Okay, but even a modest improvement in sort of the two year trend, if you will, is encouraging. Okay. And then one last one if I could, just Rich on the Taco Cabana margins, I appreciate your comments there and sort of some of the initiatives you are pursuing to improve the margins. But from the current run rate that we're currently seeing sort of in that low double-digit run rate, where do you see a normal level of store profitability which settling out and how much of that bridge is due to a sort of expected cost savings and efficiency programs versus building sales from here? That's all from me, thank you.
Okay, Brian, that's a great question. I am going to get kicked under the table by Lynn as to how much I can say. We have definitely have room in the margins at Taco, and we're going to be working on that diligently. How much we can get from a labor perspective, we think there is right now I think there's probably a point in there that we can pretty much grab pretty quickly of the trend and then the food cost, we've locked in right now. So a lot of it has to do - I think we'll be able to get some improvements in the chicken pretty quickly.
I don't anticipate significant price increases or any price increases at all at Taco. I think we have done enough right now. It's now going to be in some of the combination of items doing combos et cetera. We'll be doing certain LTOs to get people in. But it's not going to be anything from a price increases, now going to be going after just better controls within the units.
As a reminder, we are now conducting a question-and-answer session. [Operator Instructions] Our next question comes from Joshua Long, Piper Jaffray. Please proceed with your question.
Hey, thank you for taking my question. I wanted to dig into the opportunity for both off-premise sales through catering and then also delivery. It seems like a pretty exciting piece of the business, and you had mentioned reinvesting into or putting in some catering managers at the store level. So curious on just kind of how that process works if those are net adds or maybe if you think that at the end of the day we've been able to kind of offset some positions as you've taken kind of a look at where operating hours are?
And then just longer term, I know you said it's not - it's still a little early to start thinking about re-accelerating unit development, but as we think longer term, how do you start taking into account the large off-premise opportunity and then balancing that with what the size of the store footprint should look like going forward?
Okay. This is Danny. Let me start with the catering piece and then we'll go to development. The - in the catering piece, the managers that we're adding, there is an offset for that because they're revenue generators. And so the way we will do this at Pollo first is to establish that program from a catering standpoint. We're doing that because of where we are with the renewal plan, where we are in terms of staffing not only from an operations standpoint, but from a sales standpoint. And so those two will converge coming into fourth quarter as we make our first big catering push for the brand during that time of year. And then of course, Taco Cabana will follow suit from a catering standpoint.
The same is true for the delivery side of the business. Anything that we do in terms of investment whether it's capital investment at the unit level, whether it's in the services that we provide and the partners that we choose, that's offset clearly by - more than offset by the gain that we pick-up from the sales and the opportunity of that. So these two things are hinged to one another, catering first, third-party delivery second, and then Pollo will be the first off and Taco will be the second.
In terms of the development, again, next year is going to be at least similar to this year, but we're already looking at ramping that up a year after. And not so much that there is not opportunity locations, we are not done with the renewal program. We still have a lot of work to get within the four walls of where we currently operate our businesses. But we've already started what we're going to do past next year and the year after that to accelerate our growth. And we have not yet as to where and when and outside of Florida and Texas, but we're [Technical Difficulty] (0:38:51)
Great. Thank you for that. Curious on the repositioning of Taco, you talked about bringing in more families, younger consumer. Curious if those were maybe new to the brand or maybe perhaps a bit lapsed just given the fact that you've got a strong core brand equity in a lot of these Texas markets? And then what your research is telling you in terms of the ability to kind of push the brand even further.
You had mentioned two brands in particular that you wanted that you kind of have benchmarked yourself against. Just curious if the consumer is viewing that as well and kind of giving you permission to be may be move up the menu from a new product or mix perspective of just kind of how you're thinking about that?
Sure. I will tell you we are bringing in new guests to Taco that haven't been there in several years because of the lack of deep discounting and going more for quality at full price. What's driving them in I believe is the quality and the quality of our advertising, which is all about freshness and quality of ingredients as well as our social media. We've really started a major social media effort which is bringing in more and more followers and we're seeing that with some of our daily deals et cetera.
So again, not at all discrediting any competitor that is doing the 3.99 or 4.99, more discrediting the people above us. We just think there is a market and know from our research, there is a market in between those two for a very high-quality good value full price which means full profit guest. So we expect to do some more research starting the end of this year and then going into next year, looking at these new guests that are coming in. But by going to the restaurants and speaking with Chuck and his team, we're getting new guests, we're getting some guests that haven't been to us in a while, but now they're enjoying coming to the patio.
They're coming enjoying to having either an alcoholic beverage with a sharable item and some of our newer items and bringing the children at the same time. So not just are we looking at the people are coming in for take-out or drive through we're now concentrating more and more effort on the people that want to enjoy PC within the four walls of PC.
Great. Thank you.
Ladies and gentlemen we have reached the end of the question-and-answer session. And this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.