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Hudson2017 - Buenas Diaz - Status Quo or Pivot
Hudson2017 - Buenas Diaz - Status Quo or Pivot
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PAGE 494 j THE CASE JOURNAL j VOL. 13 NO. 4 2017, pp. 494-512, © Emerald Publishing Limited, ISSN 1544-9106 DOI 10.1108/TCJ-01-2017-0006
Independently owned as opposed to franchised restaurants dominated the industry;
approximately 74 percent of the nation’s Mexican restaurants fell into the independently
owned category. More than 36 percent of US Mexican restaurants were located in the states
of California and Texas, followed by Florida, New York, and Illinois. Table I overviews
Mexican restaurants’ penetration rates as a percentage of the total restaurant market in
various states.
CHD FIND (2014) stated that 33 percent of the Mexican restaurants in its database had an
average check range of $10-$15, with another 24 percent with an average check range of
$5-$7. This would indicate that a majority of Mexican restaurants, even full-service ones,
offered a range of more affordable plate options compared to non-Mexican full-service
eating establishments.
Mexican food into a multi-billion-dollar revenue category was the fact that it had become
mainstream. For example, any number of US consumers did not even think about the fact that a
significant portion of their grocery purchases were actually classified as Mexican foods
(e.g. tortilla chips). Increasingly, as a means of growing sales, manufacturers had struck a
balance between offering products that were perceived as “authentic” by hardcore Mexican
food fans and concurrently offering sauces and baked goods that were appealing to the large
portion of the US population that was simply interested in “adding a little spice (but not too
much) to their plate” (Mintel, 2011).
2013 statistics related to supermarket sales of Mexican foods and sauces are summarized
in Table II.
Categories Dollar sales Dollars sales % Chg YAgo Unit sales Unit sales % Chg YAgo
building that housed his parents’ restaurant with his two younger sisters, Carlos had not been
involved in its day-to-day operations for at least ten years, preferring to concentrate on the
faster-growing food production side of the family business. After an argument about a year ago,
Carlos had also not had direct contact with his sister, Flora.
Maria, the middle of the Diaz siblings, worked closely with Carlos on product line development
and retail market placements. Within the family firm, the 45-year-old’s role was to develop and
expand the salsa, tortilla, taco, and tortilla chip lines into new markets as well as to oversee
national distribution of all Buenas Diaz food products outside of Texas. Maria provided Flora with
opportunities to work on expanding the company’s distribution into targeted markets, particularly
in the Pacific Northwest and New England areas.
A small, nervous woman, Maria got along with Flora as well as with Carlos. Although she tried to
remain neutral, Maria often sided with Carlos when it came to making collective decisions about
local and national production and distribution matters.
At 34, Flora was the youngest of the Diaz children. She ran the Buenas Diaz restaurant out of the
family-owned building and helped her older sister with targeted national distribution efforts. It had
been Flora’s idea to place “El Machino” in the restaurant, where it was so popular.
Family tensions
Marisol passed away in 2005 and her three children, Carlos, Maria, and Flora, assumed control of
the family empire. After her death, the two older siblings further expanded into the wholesale
Mexican food market, which had increased company revenues 12 percent annually over the last
ten years. However, the generational transition was anything but seamless as Marisol had left no
written succession plan.
When the Diaz siblings assumed control of Buenas Diaz, Carlos became the unofficial leader.
There had always been friction between Flora and Carlos with their differing ages and
personalities. Further, given that he was the eldest and only male child, Carlos had always
seemed to Flora to act as if he had been Marisol’s favorite.
As company CEO, Carlos believed he was the “face” of the firm and bore the greatest
responsibility for carrying on the family name and legacy. Therefore, he felt he should wield the
most decision-making power regarding directing family firm operations. In contrast, Flora
believed the responsibilities for maintaining and growing the business should be distributed and
that all three siblings should have an equal say in company decisions.
Flora was always looking for ways to prove her business acumen and value to the firm. Maria was
often in the middle of any sibling conflicts, acting as an intermediary and peacemaker between
her older brother and younger sister.
restaurant’s audience.
The crisis
A year ago, Flora and Carlos had a disagreement during an informal family gathering not meant to
be about the business regarding how the firm’s taco shells and tortilla chips should be
manufactured. Flora suggested that Carlos streamline manufacturing by purchasing machines
that would mechanically shape large numbers of their shells and chips, eliminating at least five
employee positions from the hand-manufacturing process and allowing for greater economies of
scale. Carlos was offended by Flora’s suggestion. Basically, he felt that since Flora had never
been involved in large-scale manufacturing, her knowledge about how to modify the company’s
current systems was very limited compared to his. He stated that he felt Flora was disrespectfully
trying to impose her opinions on him. To date, he had not told Flora what to do with the
restaurant, so she certainly was not in a position to instruct him on manufacturing matters.
Boundaries mattered to Carlos.
Despite Maria’s attempts to intervene, both Flora and Carlos left the family dinner furious.
Over the next months, Maria asked Flora to leave Carlos alone, stating that was Carlos’s request.
While Carlos and Flora had not spoken directly since the incident, both used Maria as the
go-between for some limited intra-family communications.
Renovation estimates
The very next day, Flora began to identify contractors who might be able to handle the health and
safety upgrades. She found several who specialized in updating older buildings to meet current
fire and ADA codes. She settled on Willock Construction, owned by one of her high school
classmates, Bruce Willock. After calling him to set up an appointment for a site visit, Flora felt
excited to have gotten things started.
Given their connection, Bruce Willock decided to handle the initial inspection personally. When he
arrived on site, Bruce immediately saw that the restaurant was in desperate need of repairs. As
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Flora showed off the beautiful murals on the walls of the patio where the dances were held, Bruce
noticed old knob and tube wiring and evidence of mold on the underside of the gutters. After
doing some rough mental calculations, Bruce let Flora know that, in addition to the fire sprinklers
and ADA ramps, she would probably need to have some electrical work and hazardous material
cleanup completed, all of which would probably increase the costs of the project. He told Flora
that he could have her estimate within the next three to five days.
Bruce called Flora back three days later with a preliminary estimate. He indicated that Flora would
need to spend about $450,000, including the required building permits, to deal with the electrical,
fire sprinkler, and physical modifications. While the company’s standard policy was to get half of
the estimated payment as a deposit at the time that the contract was signed, given their long-time
relationship, he was willing to work with Flora and would require only a $100,000 deposit prior to
having his construction firm begin work. Bruce asked Flora to give him two weeks’ notice so that
he could properly stage his team for this job.
The decision
Although it was a registered Texas C-corporation, Buenas Diaz had no official dividend
distribution policy. Like her siblings, Flora had been receiving $10,000 per month to cover her
personal expenses. Over the last six months, she had been using a portion of this amount to
cover the operating deficits associated with the restaurant. Neither the restaurant nor the
manufacturing operation had reserves set aside for building renovation expenses.
Given these facts, Flora realized she needed to be practical. She was going to have to call a family
meeting if she wanted her siblings to give her any part of the money she needed for the restaurant
repairs. But after reviewing the company’s financial data and comparing it to industry standards,
she wondered if it really made sense to take $450,000 from the company’s manufacturing
reserves to save the restaurant. Further, if she could prove continuing to operate the restaurant
was a good investment, what strategies should she use to persuade her angry older brother as
well as her sister to agree with her assessment? (Tables III-VII).
Corresponding author
Monika Hudson can be contacted at: mhudson@usfca.edu