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Rubio's founder tells business students how fish tacos spelled success

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Ralph Rubio turned his appetite for Baja California’s fish tacos into a restaurant chain 25 years ago.

The founder and chairman of Rubio’s Restaurants Inc. (Nasdaq: RUBO) spoke to students at the California State University, San Marcos, on Wednesday about how the restaurant chain became the brand they know today.

During the business school’s speaker series course, “In the Executive’s Chair,” Rubio spoke about the challenges of expansion, franchising and repositioning the company’s brand.

In the early 1980s, Rubio bought a space on Mission Bay Drive with the help of his father for $15,000. Since opening its doors in 1983, Rubio’s Restaurants currently operates more than 42 locations in San Diego. The Carlsbad-based company has 170 locations in five states with 3,000 employees.

As a San Diego State University student, Rubio discovered fish tacos in San Felipe, which he could not find anywhere else. After college, he brought the recipe over the border as a signature menu item.

“I fell in love with fish tacos,” Rubio said. “I thought everybody else would too. But then I came to find out ... for a lot of people, fish tacos was a really weird idea.”

Rubio learned to take advantage of the market research tool later in his business venture.

After spending about half a million dollars doing consumer research, Rubio said the company has a better understanding of their target customer, which is someone who has a higher education and income. This demographic tends be found in larger metropolitan areas.

Rubio said these people are going to have a predisposition to fish tacos, “which is a unique, high flavored product” and are interested the “fast casual” segment of the industry, not fast food.

Rubio’s Restaurants previously aimed to grow eastward, but struggled to keep the new locations open.

“We grew too quickly; we made some mistakes,” Rubio said.

In 1995, Rubio’s Restaurant raised $10 million from venture capital and $22 million when it went public in 1999 to continue to grow the brand.

Rubio advised students, “Before you make that big step to grow your company, make sure that you are tied into your consumers.”

Rubio’s Restaurants recently had to reposition the company. Rubio spent the last two weeks doing qualitative research and holding focus groups in Salt Lake City, Denver and Las Vegas -- locations that were closed due to the re-positioning of the brand.

Along with knowing the target consumer, Rubio said starting a business in California requires a focus on compliance. As regulations constantly change, the company has been faced with lawsuits.

Rubio’s Restaurant just settled an overtime class-action lawsuit filed in 2005 for $7.5 million. The company was sued for more than $20 million, which Rubio said would have bankrupted the company.

However, the company continues to face lawsuits. Rubio’s Restaurants is currently dealing with a regulation that requires a 30-minute meal break after every five hours, which Rubio said is difficult in the industry.

“Sometimes it's better for the business to work a longer shift than five hours before you take your break,” he said.

As Rubio’s Restaurants moves forward with expansion, opening new locations proves to be another difficult task as property values continue to decline.

“Sites that we would have done three months ago, we’re turning down now,” Rubio said.

He added a restaurant needs to have the population density and income to support a brand such as Rubio's.

In terms of growth, the idea of franchising has been a topic of discussion at board meetings. Rubio favors company store growth over franchising because it allows the company to maintain the integrity and quality of their own product.

After attempting to franchise in 2000 with a few area developers, Rubio said a company should not franchise “until you completely have your act together, because we didn’t.”

“The second thing you have to consider is that you’re giving up some control,” Rubio said. “If you really want to protect your brand, I suggest you don’t franchise.”

Rubio said it has taken the company four or five years to get back on its feet.

As the company got back on track, Rubio helped others do the same through his efforts to support the downtown Monarch School, which offers food, shelter and education to homeless children. Rubio and his wife helped develop the Cabo Café to profit the campus and give students the opportunity to earn income for their families.

With Rubio’s guidance, a committee of students developed the restaurant from its name and concept, to the design.

“I wanted them to experience the entrepreneurial experience that I had starting my own restaurant,” Rubio said.

The café recently closed to allow more campus space and will re-open once a new location is found.

As Rubio continues to stay involved in the community and expand the company beyond the West, he relishes at the idea of “taking fish tacos from our little start in Pacific Beach in 1983 all away across the country.”

“I can’t wait to be standing in front of Rubio’s Manhattan in New York,” he said.

By next year, Rubio said the restaurants will have a new store design and menu.

“Then we’re going to open restaurants at a much faster clip than we have been and try to get to a thousand units,” he said.

“We’re fairly convinced that we could still be a regional player,” Rubio said, “… a very strong regional player on the West alone and be a $500 million a year business.”

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Online Videos

* View Ralph Rubio's class discussion here.

* View an interview with Ralph Rubio here.


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