To Empire Builders,
First off…how about that USA hockey team? It doesn’t get much better than a matchup with our neighbors to the north in a game of puck! A great win for our country 🇺🇸🇺🇸🇺🇸
Today’s email is chock full of good stuff:
🌮 Breakdown of the new brand backed by the early Dave’s Hot Chicken team
💪 Behind the scenes of my convo with a 48-location Club Pilates owner
… & more
Before we get into it:
As always, please forward this to anyone in your network who would enjoy reading it. Franchise owners, franchisors, investors, etc. are all welcome! 🙏
Let’s dive in 🫡
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What’s on My Mind 🧠
Mike’s Red Tacos
While I’ve known of Mike’s Red Tacos for a few months now, they finally went “public” with their franchising efforts earlier this week, and boy did they make a splash…
The Concept
Founded as a food truck in San Diego, they opened for business in 2021. After quickly seeing success (read: the founder was quoted saying they sold out every weekend), Mike Touma opened the 1st brick & mortar unit in 2022.
That location did an astounding $2,963,621 in revenue out of 920 square feet in 2024.
Franchised locations are going to be bigger at around ~2,400 sq ft, but the corporate unit success - in the most competitive Mexican food market in America - shows what’s possible.
In 2023, they were named in Yelp’s Top 100 places to eat, and today the brand boasts a buzzy instagram following of 28.3k followers.
But what I love most, is it’s a highly focused menu built around 1 product: birria.
For the uninitiated: traditional birria is a beef or goat stew, slow cooked with spices and chiles to give the meat lots of flavor. At Mike’s, they use the slow-braised beef (not goat meat lol), to fill their tacos, burritos, crunch stacks, and loaded nachos.
I’m simplifying, but what I’ve been told is they’ve created what’s basically a commercial grade crockpot system to cook the beef in, so they can pump out birria in a fast-casual format.
But wait…who is “they” ?
The Team
Mike’s Red Tacos has some familiar faces you may have seen elsewhere.
The two big names, are Phelps and Feghali:
Bill Phelps: co-founder of Wetzel’s Pretzels, founding investor in Blaze Pizza, and founding investor + [former] CEO of Dave’s Hot Chicken. He led Dave’s from 2019 when they started franchising, through to their ~$1 billion exit last year. As far as I’m concerned, this guy is the modern day Ray Kroc
Andrew Feghali: A big time franchisee of Little Caesars and Jersey Mike’s, he also was the original franchisee (with his partners) of Dave’s Hot Chicken. They’re signed on for dozens if not 100+ units of Dave’s alone. Feghali was there from the beginning with Touma when the food truck first launched
The duo is paired up via their own investment firm, and made a majority investment in Mike’s last year with the plans to franchise it.
Beyond them however, other notable names involved are:
President & COO: Vincent Montanelli, former Wetzel’s Pretzels COO from 2017-2024
Manager/advisor: Jim Bitticks, current CEO Of Dave’s Hot Chicken, and the “right hand man” to Phelps
It’s important to note that founder Mike Touma is very much still involved. He’s a board member and franchisee now, and will be opening his 3rd store in the San Diego area this March.
Everything I’ve shared up to this point is why Mike’s Red Tacos has already sold 200+ territories.
A viral following, great unit economics, capital, and most importantly - the best team you could have in modern day franchising - has led to many established operators from the Dave’s Hot Chicken world, and Jersey Mike’s, to buy in.
But who are they up against?
The Category
The Mexican category is ripe for a new player to take marketshare.
Taco Bell is the master of value, and at ~8,000+ locations, good luck competing with them at this point.
On the other end of the spectrum…
For all the noise around Chipotle lately, let’s give credit where it’s due: they have 4,000 locations and a $3.1M AUV. They are the leader of premium fast-casual by a wide margin.
Qdoba is the clear #2, and is frankly becoming a very formidable player. The brand is hitting it’s stride with big development agreements, and 800+ locations open with a $1.8M AUV as of the current FDD.
But beyond that…it’s highly fragmented.
**Torchy’s Tacos AUV cited is from 2021, it is likely much lower these days as they’ve struggled in certain regions.
The more established brands (Moe’s, Del Taco) have had negative growth the past few years. While Bubbakoos is emerging, their AUV is at $903k in the current FDD.
All in all, there's no other brand that is super compelling in terms of recognition, loyalty, unit scale, or AUV’s.
Ultimately, it’s a category where the winners thus far have “taken most” when it comes to marketshare.
Taco Bell dominates the value end, and Chipotle the premium end.
Mike’s Red Tacos, much like Dave’s Hot Chicken, aims for premium fast-casual in terms of their product. But pricing wise, they shouldn’t be on par with Chipotle, hence their position being a bit lower on the chart (that’s a positive!).
To this point, they’re primed for a viral run in this space with their modern approach to marketing, differentiated product, and unit economic potential.
Birria + hype marketing will give them novelty value, while the team and franchisees should be strong enough to turn it into repeat business.
So….Can Lightning Strike Twice?
I won’t drag it out -
I don’t think so.
I’m not expecting a billion dollar acquisition by 2031.
But that’s not the point, nor is this a game of binary outcomes. It’s not “Dave’s Hot Chicken 2.0” or bust.
A lot of things went right for Dave’s to achieve the quick success that they did. Perhaps none more-so than their timing of launching franchising coinciding with the rising trend of Nashville Hot Chicken.
I know that birria is a trending menu item at the moment as well, but I have a hard time seeing it get to the level of Nashville Hot Chicken.
Dave’s is also playing in a chicken category that can achieve the highest AUVs in all of QSR (Chick-Fil-A, Cane’s, etc.). As you saw, the Mexican category doesn’t seem to scale that way.
I also think a Nashville Hot Chicken sandwich, is a much closer cousin to the typical fried chicken sandwich, than a birria taco is, to say, a typical chicken/steak taco.
I could be totally wrong on that, but that’s just my gut feeling. It’s worth calling out that I haven’t even tried the product, so my opinion isn’t worth much!!
Regardless, as the great Todd Graves says, the most important thing for restaurant brands in this space to get right is to have a craveable product.
If Mike’s Red Tacos is doing that, then it doesn’t matter if it’s a birria, chicken, steak, or other type of taco. Customers will come back.
They already have the hype, the team, and legitimate franchisees building for them.
I wouldn’t bet against them.
Live on Empires 🎧
He Quit His Job To Go All-in on Pilates
Jon Smith - Club Pilates
This is one of my favorite conversations I’ve had on Empires.
Jon Smith is a top 3 Club Pilates franchisee in the country. He bootstrapped his way to 24 units from 2017-2025, at which point he took a majority buy-out from private equity. Now he has 48 studios, and is rolling up more on the path to 100.
No matter what franchise you own, this conversation has plenty to offer you:
• The importance of picking the right brand
• Deciding when and if to partner with private equity
• Focusing on dominating the constraint in your business (for Jon, it was pilates instructors)
It was also just fun to learn the economics of Club Pilates - where Jon was an open book (the EBITDA margins are insane).
QSR Corner 🍔
Wingstop Reports FIRST same-store-sales decline in 22 years
System sales increased by 12% to $5.1B, but SSS were down from $2.1M to $2M. On a multi-year basis, they are still crushing it, and are targeting a $3M AUV as their next goal.
Subway Removing Free Footlong Offer
Let’s be honest, this was a doomed promotion from the start! Not surprised that franchisees pushed back on it.
Sardar Biglari is pushing to unseat board Chair Davie Goebel, and it might be gaining momentum…
The forgotten child of Yum! Brands believe these changes can change SSS this year, after decreasing by 1% in 2025…
Dairy Queen Partners with Savannah Bananas
The viral banana baseball team is partnering with DQ via fan experiences, and a Banana Split shake that will be available at all DQ’s starting this coming week.
Best of the Rest 🏰
Sunoco C-Store Growth is Coming
Their $9.1B acquistion of Parkland in October, helped them cross 300+ c-stores in North America. Traditionally focused on fuel, Sunoco is not only holding onto the Parkland C-stores, they’ve acquired 92 c-stores already this year!
Walmart Reaches 72% Grocery Penetration
Financial insecurity has never been higher, which is a tailwind for Walmart’s grocery business…
Ace Hardware Hits $10B Revenue
It’s a record for the home improvement retailer, who saw annual revenue rise 5.8% from a year earlier..
That’s it for today’s newsletter, if you enjoyed it, please forward to anyone else in your network who would benefit or find it interesting!