“Being from the Midwest and from Iowa, we didn’t have a lot of people around here,” recalled Anderson, Pancheros president and co-founder.
“We didn’t have a lot of room for error. If a customer doesn’t come back, there aren’t a whole lot of other people to draw from.”
Anderson, now 44, was fresh out of the University of Chicago’s MBA program when he and his partners opened the first restaurant in the fresh Mex chain in 1992, near the University of Iowa at 32 St. Clinton St., in Iowa City.
The restaurant was in an old, narrow storefront with brick walls and tin ceilings that had been an outdoor apparel and equipment store. It was so busy that it rang up $1,800 in sales even though it didn’t open until 2 p.m.
“There were six or seven of us who worked nonstop until close,” Anderson said. “I didn’t get home until 4 a.m.”
As the company expanded, it capitalized on the pedestrian traffic and late-night business near college campuses, with locations at many Big 10 universities.
In 1998, the company revamped its concept to make its tortillas fresh on-site daily, and it began expanding beyond university towns and into suburban locations.
Pancheros was one of the early entries in the food category that became known as “fresh Mex” — Mexican food that is custom-cooked quickly right in front of the customer’s eyes to their specifications and from fresh ingredients.
The appeal to Pancheros’s customer Kris McKay of Marion is a quick, tasty meal without the guilt of fast-food, with its lack of nutritional value.
“It’s fast, it’s fresh,” said McKay, a real estate agent who stopped in at the 4701 First Ave. SE Pancheros in Cedar Rapids for a burrito bowl Thursday afternoon. “It’s not fried.”
Another customer, Mike Miroux of Spring Valley, Ill., didn’t hesitate to explain his loyalty.
“It’s the size of the burrito,” said the security company employee. “It’s made fresh in front of you, and they’ll put on whatever you want.”
Anderson said the inspiration for Pancheros were the little Mexican restaurants he encountered during his college years in Chicago.
“We had eaten at these Mexican restaurants in Chicago, these burrito places, said Anderson. “It was very popular, kind of a cult thing. Everybody had their favorite taqueria (taco shop), and they would go to them all the time.”
Pancheros has never had the fresh Mex market to itself, and hasn’t kept up with the growth of some of its larger rivals such as Chipotle Mexican Grill and Qudoba Mexican Grill, which got their starts in Colorado. It also faces competition from smaller chains, including Rubio’s Mexican Grill.
Two of the cornerstones of Pancheros’s successful growth has been serving up consistently great Mexican food and identifying high-traffic, high-visibility real estate, according to Anderson.
But Pancheros also was on the cutting edge of something else that contributed greatly to its success. It was in the first wave of “fast-casual” restaurants, a kind of hybrid between full-service dining and fast-food.
Customers order and pay for their meal at the counter and, depending on the version of fast-casual, either pick their food at a window or have it brought to their table by the kitchen staff.
Fast-casual dining yields cost savings for the restaurant because it doesn’t require a wait staff. Customers tend to save time and money because they don’t have to wait for their server and menu prices tend to reflect the lower staffing costs.
Fast-casual has been the dominant growth segment of the restaurant industry for years now, with a version for just about every different cuisine. But at first, Anderson said, “people didn’t know what it was,” and had to have it explained to them.
Pancheros has kept the prices low — about $6.25 for a burrito, $4.75 for two tacos, or $5.75 for a salad in local stores.
The basic Pancheros concept hasn’t changed much over the years. Anderson said the chain avoids unnecessary changes because a simpler system makes execution less difficult.
Among the significant changes was the adoption of a simple kitchen tool that mixes burrito ingredients as they are spread.
Pancheros dubbed it “Bob the Tool” and promoted it as a competitive advantage, claiming it helped ensure customer would get a bit of every burrito ingredient in virtually every bite.
Anderson said Pancheros is updating its outdoor signs with larger lettering that makes the signs more easily identifiable, particularly important for locations where zoning codes require smaller signs.
Anderson started the restaurant chain right out of a MBA program. His partner sold out to him after six years to opt for a more predictable life with his family.
Investors from the Iowa City, Coralville and North Liberty areas have played an important role in Pancheros’s growth by participating in ownership of new corporate restaurants, Anderson said. After 1998, Pancheros began opening restaurants through a network of franchisees, while continuing to selectively open corporate stores.
The early franchisees were people successful in other areas of business who wanted to get into restaurants, Anderson said. In the past few years Pancheros has attracted franchisees who already operate other restaurant concepts and are seeking to bring in a new concept that doesn’t compete with their existing restaurants in the same market.
Pancheros announced five new franchise agreements on Aug. 1 for a push into California, Nevada and Oregon that has promising growth potential.
“We should be at about 75 units by the end of next year and at 100 by the end of 2014,” Anderson said.
Pancheros isn’t feeling the heat of other fresh-Mex concepts in Iowa, he added, and plans to open a new Burlington store in October.
“I think others will try to come in and do this, but I don’t think anybody will get the consumer acceptance we have,” Anderson said.
Pancheros will celebrate its 20th anniversary, as it has some previous anniversaries, on Aug. 28 by offering $1 burritos from 4 to 6 p.m. Anderson said the promotions have sometime been so popular that customers often line up out the door and down the street.
Pancheros has to be careful, he said, to see that entrances to adjacent stores don’t get blocked.
