The acquisition of Fresh Burritos is a ‘transformational’ step for Tortilla, offering the group a foothold to kickstart expansion in mainland Europe.
Speaking on an investor call yesterday (25 June), CEO Andy Naylor said the 32-site business – the second-largest Mexican fast casual group in Europe, after Tortilla – will allow Tortilla to expand more rapidly than through organic growth, with lower early year losses.
Discussing the strategic rationale behind the deal, he explained that it expedites the path to profitability while minimising entry risk into a new market as well as easing entry into other European markets.
“Fresh Burritos is a great business with some really cracking locations,” Naylor said. “It’s a springboard for franchise growth across Europe.
“Tortilla has a successful franchise business already and we know it’ll work in other countries as well.”
The group yesterday (25 June) announced its acquisition of Fresh Burritos for €3.95m (£3.34bn), in a deal that includes 13 company-owned leasehold restaurants across France and a network of 19 franchised locations.
The 13 company-owned sites will be converted to the Tortilla brand in a process expected to complete by the end of the year.
“With franchising, it’s important to establish proof of concept, and this gives us something we can immediately showcase to new partners,” Naylor added. “We have supply chains in place [in Europe], it’s enormously beneficial to tick that box.
“This also provides immediate scale and enables faster future growth than a greenfield rollout…it’s transformational for Tortilla. We were already the leading player and this really consolidates that position.
“Our plan has always been a capital-light European franchise story. This gives us the franchising infrastructure to enable us to launch in other European countries nearby.”
Fresh Burritos furthermore comes with some of the best locations in France, with sites on busy high streets, transport hubs, and shopping centres.
It offers a proven operational model and improves the group’s buying power in both the UK and France, on top of brand and supply chain synergies, with a similar product, customer, and equipment to Tortilla.
Naylor added that while the group already has a franchise partner in the Middle East, Fresh Burritos provides an opportunity to “really own” the Mexican cuisine category in Europe, with the enlarged estate now standing at more than 100 sites across the continent.
“We believe grab-and-go, takeaway, and delivery will continue to grow in Europe,” he said. “People think of France as a country not typically suited to fast food, but it has a phenomenally successfully QSR scene. We want to catch the opportunity in that space.”
Naylor further pointed out the market for Mexican food continues to grow. The group is in the process of establishing a central production unit in Lille – close to the French border with Belgium – by November this year, and therefore cementing a supply chain in place before launching in other parts of Europe.
With business rates and VAT significantly lower in France, the company is confident of an uplift on margins.
“We have the experience from buying Chilango; we’ve done this previously,” Naylor pointed out.”
Tortilla founder and non-executive director Brandon Stephens and CFO Maria Denny, who were also present on the call, further outlined the brand’s intentions for the Fresh Burritos estate.
“Franchisees are not under obligation to convert to the Tortilla brand,” Stephens said. “They have the choice.
“We will visit every store and franchisee to also make sure they have the financial and operational calibre and are not negatively impacting the group.
“We would love to convert as many of them as possible to Tortilla,” Naylor added. “We’re very keenly priced in the UK and will do work on pricing in France as well. Even if the price comes down, we’ll still have a higher gross profit margin due to buying power.”
The group sees the opportunity to improve unit economics considerably in the Fresh Burritos brand. This will include replacing an outsourced supply chain of lower quality and a high-cost structure with the CPU in Lille. While the fully fitted stores come with kiosk solutions, Tortilla sees an opportunity to increase visibility of food through its counter-service model and improve interactions between staff and customer.
It will also replace the Fresh Burritos offer with the “more comprehensive” Tortilla menu, and shift the brand voice and ambiance away from “Mexican cliché to more California cool,” Stephens said.
The board has also put in place a new team responsible for European operations, with a new MD to join in September. Fresh Burritos founder Timothee Tronet will remain on board as an advisor to ensure a smooth transition.
According to Denny, Fresh Burritos expects FY25 normalised sales of £10m.
“Once we build efficiencies get to a cash-positive position asap, we’ll be building on a franchise network we already have,” he added. “This is not just a French deal, but a European deal we’re looking at.”
“This is a real transformational day for Tortilla,” Naylor added. “We think this is really smart way of making gains and launching in a new market…it ticks a lot of strategic boxes for us.”
