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As it grows, Chuy's fights to keep its original Austin vibe

Barry Harrell
bharrell@statesman.com

For most CEOs, it would seem like a dream scenario.

Starting with a single restaurant, a brand has so much success that it swiftly opens multiple locations — some in other states — even as the nation's economy struggles.

But for Chuy's, the Austin-based group of funky and iconic Tex-Mex restaurants, that situation presents a dilemma.

As the company born on Barton Springs Road grows into something much more, how do you keep it from picking up the dreaded "chain restaurant" label?

"We're a localized brand; we're not a chain," said Steve Hislop, CEO of Chuy's Opco Inc. "We don't want to be a Chili's. We don't want to be a (TGI) Friday's. We don't want to be one of the restaurants that look the same. I don't want to be thought of as a growth company or a chain. At all. Whatsoever."

That struggle between expansion and maintaining a unique flavor will be an ongoing battle for the company.

Founded as a single restaurant in 1982, Chuy's is in the midst of a major growth spurt that shows no signs of stopping.

By the end of the year, the company will have 31 locations in six states — and plans for more are in the works.

Creating 'hubs'

Hislop has been the architect of the company's growth.

He was hired as CEO in 2007, not long after New York-based private equity firm Goode Partners in 2006 bought a controlling interest in Chuy's from the company's founders, Mike Young and John Zapp.

When Hislop came on board, Chuy's had eight restaurants . And while another was about to open, Hislop said the company had not shifted into growth mode.

Hislop had a two-prong plan to grow the company: creating geographic clusters of stores that would allow the company to maximize efficiencies and lessen expenses, and investing in training programs to maintain the Chuy's culture.

The "hub" concept, as it exists in Texas, used Austin as a center point, with Dallas, Houston and San Antonio as spokes from the hub.

The idea, Hislop said, was to avoid placing single restaurants in far-flung markets, which would increase transportation and staffing expenses.

Instead, Chuy's would build multiple restaurants in individual markets, lessening costs and trying "to dominate in the number of units and the volumes, and to use the efficiency of that growth to help our (profit) margins," he said.

The southeastern U.S. was a logical place for a second hub, Hislop said, because of the dearth of quality Mexican restaurants.

In Texas, "you have a Mexican place on every single corner. You've got a huge demand for it, and you obviously have a huge supply. As you move up into the Southeast, you have less of a demand, but you really have no supply," Hislop said.

When Chuy's started to expand into the Southeast about three years ago, the Nashville, Tenn., area was the place to start, Hislop said.

"The No. 1 place we got the most comments from, saying, 'Hey, come to this area,'" was actually Nashville," Hislop said.

With Nashville as the center, Chuy's executives identified nearby Louisville, Ky., Birmingham, Ala., and Atlanta as the three spokes in the hub. Chuy's restaurants have since opened in Louisville and Birmingham, and an Atlanta restaurant will open by year's end, Hislop said. As the company grows, it will "backfill" in towns between those hub cities, as it has done in Texas, Hislop said.

'A people company'

The increased focus on training began as soon as Hislop walked in the door, he said. In fact, he told the ownership group that he wouldn't take the CEO job unless the company's training and human resources budget was doubled.

"And they didn't bat an eye," he said. "They understood that this company is a people company and we have to invest every single day in our culture and our people."

The training's focus is to ingrain the Chuy's culture — the vibe that comes with its hubcap-adorned ceilings, Elvis shrines and focus on green-chile dishes — into every new hire, especially for managers at Chuy's sites in new markets.

"As we move forward, we're going to make the investment that anybody that's hired outside of Texas will always spend some time in the heart of Texas, which is Austin as far as I'm concerned, and in our market understanding our concept," Hislop said. "If you don't understand where we've been, you can't grow with us."

Looking ahead

There is no end in sight to Chuy's growth plans. With the company reaching 31 locations by year's end, the plan from there is to open six to eight stores next year, with 20 percent growth each year for the next five years, Hislop said.

"As we fill out those (Southeast) markets, our next move will be over into the Carolinas in 2012," he said.

Chuy's, which is privately held, now has close to 2,000 employees, said Ashley Ingle, the marketing director. Company officials declined to release revenue figures.

What's clear is that Chuy's is using its "cult-like following" — as Ingle called it — to buck the national trends for casual dining restaurants. That category has seen 11 consecutive quarters of traffic decline, said Bonnie Riggs, an analyst with NPD Group, a research firm that has studied the restaurant industry since 1976.

Chuy's growth during that difficult economic time "would suggest they are likely to survive better than most" going forward, Riggs said.

The challenge, Hislop said, will be making sure that the company doesn't lose sight of its roots.

"Really, I don't like the word 'national,'" he said, "We're going to do that, and we're going to grow, but I'm almost hesitant to talk about our growth because I don't want to take away from our connection with our localized people.

"As we get big, we have to remain small in our mind and our thinking."

bharrell@statesman.com; 912-2960