Mexican-themed Guzman Y Gomez struggles to break into saturated US market

Guzman Y Gomez’s popular $8 breakfast burrito has once again been credited for driving sales growth in Australia, but cracking a heavily-saturated market in the US is proving a challenge.

The company’s Australian segment — which also includes restaurants in Singapore and Japan — achieved 9.4 per cent same-store sales growth in the first-half, driving $573 million in sales. The result was driven by its bigger push into the breakfast segment and expanded all-day trading hours at 11 stores.

“(For) $8 I don’t think you can get that high quality clean food at that value anywhere in Australia,” founder and co-chief executive Steven Marks told The Nightly of the breakfast burrito.

“It’s just a huge part of growth for us. Obviously we’re always focused on lunch, dinner, late night but breakfast is obviously performing extremely well and we’re really proud of it.”

The Mexican-themed restaurant chain on Friday said it was on track to beat its full-year profit prospectus forecast of $6m as sales momentum translated to strong earnings growth.

Group earnings before interest, tax, depreciation and amortisation was 3 per cent below market consensus at $26.8m, with net profit at $8.1m, an improvement from the $4.3m loss recorded a year ago. Group revenue jumped 27 per cent to $212.4m.

Guzman — set up in 2006 in Sydney by Mr Marks, a former hedge fund manager, and Robert Hazan — has ambitious plans to open 1000 stores in Australia over the next two decades.

The company opened 19 new stores in the half to take its total to 239 across Australia, Singapore, Japan and the US, operating in a variety of formats including at universities and drive-throughs.

It aims to open 31 restaurants in Australia this financial year.

Guzman is also taking what it says is a measured approach to expansion in the US, where it wants to have 15 stores over the next few years.

“We know things take time and I think where brands get it wrong is they rush,” Mr Marks said.

Network sales in the US — where Guzman currently has five stores — fell 12.7 per cent to $4.9m, a result Mr Marks conceded was “a little lighter than we’d like”.

But Mr Marks is confident in its ability to crack the US, where it’s facing stiff competition from major players like Chipotle and other independent Mexican restaurants.

“We think our food is far superior . . . we have breakfast, lunch and dinner, we have drive-throughs, so there’s so many points that differentiate us from Chipotle,” he said.

“And the people that have been to Guzman says they love it, we’ve just got to get more and more people into the restaurants like we did here in Australia, Singapore and Japan.”

Guzman will open its sixth US store in Evanston, Chicago next month.

Guzman listed on the Australian Securities Exchange last June, with shares this week hitting $45 — more than doubling its IPO price of $22. The softer result in the US sent Guzman shares down 14.2 per cent to $38.58.

Mr Marks said he had not seen the impacts of higher cost-of-living pressures on its customers.

“When people are doing it tough, they trade out of fine dining into GYG. When things are going great, they still love GYG,” he said.

“(Customers) can have minis, we got $3 tacos, we do a $12 chicken mini meal deal so there’s great value.

“We play an integral role regardless of what the economy is doing and I think that’s why we really enjoy this business.”

In the first seven weeks of the second half, the Australian segment’s comparative sales growth was above expectations at 12.2 per cent.