Moe’s Southwest Grill: ObamaCare Won’t Slow Our Growth

It may be the ‘baby brother’ in the Mexican fast food category, but if recent trends continue, Chipotle and Qdoba are in for some intense sibling rivalry.

Moe’s Southwest Grill is opening up one new location across the country every five days, and recently beat out both Chipotle and Qdoba in Technomic’s Consumer Restaurant Brand Metrics Report in the Mexican restaurant category. The survey evaluates brands in service and hospitality, unit appearance and ambiance, food and beverage, convenience and takeout, and value.

Moe’s may be growing fast, but the franchise has planned for this type of expansion, according to President Paul Damico. After hitting its 500th opening this week, it is moving right ahead with deals for an additional 400 restaurants in the works to be opened over the next several years.

The brand has nearly 200 franchisees across the country, each with an average of 25 employees per location, and of course, they have ObamaCare on the brain. Even though single stores may have fewer than 50 employees, those franchisees with multi-store deals will likely be subject to the employer mandate of ObamaCare—offering insurance or paying a $2,000 penalty per worker, per year.

“We are preparing them with education about what is coming,” Damico said. “Auntie Anne’s is a sister company, and they have taken the lead of gathering the data and are sharing under the private equity umbrella—we are all learning from this bill.”

But the health-care overhaul isn’t holding potential franchisees from moving forward on inked multi-store deals to avoid hitting the 50-employee threshold, Damico said.

“If you have purchased a five or ten-pack of franchises, you have obligations to open them on a schedule,” he says. “If you chose to hold back, I won’t lose money if they miss an opening milestone.”

The bigger issue for Damico and Moe’s is finding real estate. While it’s not an availability issue, Damico says there is a ton of competition.

“There are many A+ sites, but a lot of competitive behavior with our ‘share of stomach’ competitors,” he said. “We fight with Starbucks, Panera, Five Guys—it’s our biggest challenge right now.”

But it’s the freshness and quality of Moe’s products that is allowing it to stand out in the crowd, Damico said. Compared with the competition, he said Moe’s is more family-friendly and kids meals are all made from the same hormone-free dairy products and cage-free chicken in 100% of its stores.

“We have fresh free ingredients for every salad, and when you look at the offerings, we think it does matter,” he said. “Our customers choose us because of that. Over the next few years, people will be making dining decisions [about quality and freshness] and we will continue to increase the quality of our ingredients over time.”

Meanwhile, shares of Moe’s competitor, Chipotle Mexican Grill (NSYE:CMG), have rallied close to 30% in 2013. But at this point, Moe’s has no plans to go public, Damico said.

“We have an umbrella company in Focus Brands, including Cinnabon and Auntie Anne’s, and all of the brands have great growth happening right now,” he said. “We coexist with our other two brands, and there is a strong consumer base in our hundreds of locations across the country. We are bringing another offering.”