This story is part of “Post-Close: An Inside Look at Franchise M&A Outcomes,” a digital series in which Franchise Times revisits past Dealmakers winners to explore how they’re putting investment dollars to work, if integration of that acquisition is going as planned and what they’ve learned in the process.
Before Daniel Smith took the job as the new president of Rusty Taco, he dined roughly 20 times at its various restaurants in Dallas and San Antonio, each visit becoming more impressed with the food and speed of service.
“This little brand, they’re really trying to do it right,” said Smith. “Nobody talks about it, but Rusty Taco is fast and fresh.”
Smith is talking about it now, and if he and the team are successful, many more people will know—and want to grow—the brand launched in 2010 by Rusty and Denise Fenton.
Gala Capital founder Anand Gala says Rusty Taco is primed to establish its position as the neighborhood taco joint.
Acquired by Gala Capital Partners in December 2022 in a deal that earned a Franchise Times Dealmakers award alongside Gala’s purchase of Dunn Brothers Coffee, Rusty Taco got its start in Dallas and went through multiple owners over the last decade. Buffalo Wild Wings bought a majority stake in 2014 and later rebranded it to R Taco. The fast-casual concept tagged along when Inspire Brands acquired BWW in early 2018, and within a few months Inspire reverted to its original Rusty Taco name.
When mega-platform Inspire put Rusty Taco up for sale two years ago, Anand Gala, founder and managing partner of Gala Capital, saw an opportunity to bring some specialized attention to a concept that added only a handful of new units under the prior owner.
“I still believe to this day tacos will be one of the hottest segments in restaurants, fast casual in particular,” he said. “When we looked at where Rusty could really carve out its niche, it was as your neighborhood taco joint.”
When it joined Gala Capital’s portfolio—started in 2017 and including Mooyah Burgers, Fries & Shakes, Cicis Pizza and Dillas, among others—Rusty Taco had 35 units. After what Gala called some “strategic closures,” it’s now at 30 following a recent opening in Atlanta. Another new restaurant, this one in Salt Lake City, will open this summer.
Restaurants had average sales of $1.15 million in 2023, compared to an AUV in 2019 of $994,134.
Gala Capital in April hired Patricia Perry as director of franchise development and sales for all its brands. She comes to the company after stints at Bagel Brands (Einstein, Bruegger’s, Noah’s and Manhattan Bagel) and Edible Arrangements.
Before joining Rusty Taco as president, Daniel Smith spent six years as COO at 46-unit Hopdoddy Burger Bar.
“One of the big changes, or improvements, candidly, is we’ve brought development in house,” said Gala, a move meant to streamline and accelerate franchise growth.
Smith, meanwhile, joined Rusty Taco in May, replacing Brendan Mauri to lead what he described as the “go-forward plan.” Reached in early June, Smith said his first several weeks were spent getting to know and understand his team, folding tacos in restaurants and talking with franchisees, some of whom he acknowledged are “disgruntled.”
“I want to learn everything that’s wrong and everything they want to see change,” he said, with the understanding that adjustments will come with a clear focus on driving profitability.
Smith spent the past six years as chief operating officer at 46-unit Hopdoddy Burger Bar and is also a former multi-unit Pieology franchisee. That franchisee experience, he said, helped instill in him the importance of listening to owners about what they see in their businesses.
“We didn’t get a lot of support,” Smith said of his time as an operating partner. “It was MOD, Blaze and Pieology coming out of the gate and we didn’t get the support we needed.”
At Rusty Taco, Smith said he sees the upside and thinks the concept can compete with fellow Texas-based brands Torchy’s Tacos and Velvet Taco. Early steps will include a menu and flavor profile review and adjustment of the brand positioning.
“I don’t believe that the brand is positioned right. When I see the marketing assets, I’m not impressed,” said Smith, who noted he grew up in Huntington Beach, California, and often visited local taco shops. “Rusty has that beachy feel. That grabbed me and I think that can be leveraged.”
The operational model, too, is due for a review as Smith looks for opportunities to improve the unit-level economics for existing franchisees and attract new operators. “At Hopdoddy we were able to add about 700 basis points to the bottom line while making the food better,” he noted. “I think we can do the same at Rusty.”
Dunn Brothers in June introduced Dunn Dirty’s, a line of drinks launched with a strategic focus to take advantage of the popular dirty soda trend and attract younger consumers.
Dunn Brothers Coffee gains steam under Gala
Before it snapped up Rusty Taco at the end of 2022, Gala Capital was already digesting its acquisition of Dunn Brothers Coffee, the Minneapolis-based concept with about half its stores in Minnesota and the rest sprinkled throughout other Midwestern states. Purchased in June 2022, the move gave Gala a foothold in the popular coffee segment and an opportunity to “improve the brand experience, the customer experience and the P&L.”
“One of the most important things you can do is listen to the people closest to the business and the operators,” continued Gala of his post-close approach that informs the priorities and direction to take a company. “We learned the brand had not been invested in in quite some time. There was some product innovation, but not enough, in our opinion.”
Cue Scott Harvey, a focus on e-commerce and consumer packaged goods, and dirty drinks.
Dunn Brothers President Scott Harvey is working to boost awareness of the coffee brand as it pursues franchise growth.
“My noncompete ended one day and I started with Dunn Brothers the next day,” said Harvey, who joined the company as president in July 2023 from Golden Krust Caribbean Bakery, where he was president and CEO. “I saw it as an untapped brand in the Midwest that’s just ripe with opportunity for growth. It has legs.”
Harvey has deep experience in the coffee category from his two decades at Einstein Bros. Bagels and as chief operating officer at Black Rifle Coffee. He set about visiting stores—nearly all of its 47 units in 60 days—and came away looking to leverage the legacy status of a brand founded in 1987.
That status, he said, is “underappreciated and not exploited for what it is.” Working with new Vice President of Marketing Alexis Gillette, who came on in January, he wants to bolster awareness of Dunn Brothers’ history and focus on quality. Most locations roast coffee beans daily on site and food “isn’t coming out of a cellophane package—we’re cracking eggs back there.”
Following feedback from franchisees, who wanted new drink and food options, the brand in June introduced Dunn Dirty’s, a line of drinks launched with a strategic focus to take advantage of the popular dirty soda trend and attract younger consumers. Among the offerings is the Wild Dew’d, a Mountain Dew base with mango, strawberry and peach flavors, finished with creamy coconut milk. There’s also a Dunn Dirty, with Pepsi and nitro cold brew coffee.
The CPG push, meanwhile, is well underway. Dunn Brothers earlier this year announced deals with two Minneapolis-area grocers, Kowalski’s Markets and Lunds & Byerlys, to put its packaged coffee beans and single-cup products on the shelves. That move, and an emphasis on e-commerce, will help drive overall brand awareness.
“Coffee is not just omnichannel, it’s omnipresent,” noted Gala. “It’s at home, it’s on the way to work, it’s at work. So we want to make sure we’re omnipresent, too, not just omnichannel.”
A 59-unit concept when Gala Capital purchased it, strategic closures trimmed the count by 12 and the remaining stores represent a strong launchpad for development, Gala said. Dunn Brothers is targeting the Interstate 35 corridor from Minnesota down to Texas for new franchise and corporate shops. Most existing locations have drive-thrus, and a kiosk prototype is in the works to open up non-traditional development opportunities.
Gala, who was a longtime franchisee of Jack in the Box, Del Taco, Famous Dave’s and others before forming Gala Capital, said he keeps learning with each acquisition—particularly when it comes to people. With his first deal, the purchase of Mooyah in 2017, “we thought we knew everyone and that they’d be a good fit.
“Thinking back, we should have done a better job of getting to know the people in the business,” he said. Now, “we spend a lot more time post-close on the ground, face to face, spending a lot of time together. Over the last five, six years, we’ve done a better job of bringing people along.”