In acquiring Chuy’s Tex-Mex, Darden Restaurants saw an opportunity to not only get bigger, but also broaden its appeal, especially with younger consumers.
The Austin-based Tex-Mex specialist, which Darden has agreed to buy for about $605 million, is the largest full-service Mexican chain in the U.S. by sales. Known for its scratch-made food and retro-kitsch decor, it will bring enchiladas, tacos and burritos into the Darden fold for the first time, filling a major blind spot for the owner of Olive Garden and eight other full-service chains.
The 101-unt Chuy’s has the added benefit of introducing Darden to a younger generation of customers. Executives noted that Mexican food is rated the most craveable cuisine by young people, a coveted group that will soon make up the industry’s main audience.
“When you look to the future, this is an opportunity for us to be in that market that appeals really to the younger population,” CFO Raj Vennam said during a call with financial analysts Thursday.
Executives also hinted that Darden could learn a thing or two from the new addition. About 30% of Chuy’s sales now come from takeout, including third-party delivery apps, which Darden has been staunchly opposed to using.
CEO Rick Cardenas said Darden has no plans to take Chuy’s off those apps, and even added that the deal could give Darden an opportunity to learn more about them.
The challenge for Orlando-based Darden will be growing a full-serviceMexican chain beyond its core markets, a feat that has proven difficult over the years. Industry history is littered with brands like Chi-Chi’s and Don Pablo’s that tried and failed to go national and then disappeared.
Yet casual Mexican chains have generally done well recently. Total sales for the segment rose 7.6% last year, which was the second-best rate in all of casual dining behind Asian, according to data from Technomic’s Top 500 Chain Restaurant Report.
And Darden is confident Chuy’s can grow, if not nationally, then certainly within its existing territory. The chain has restaurants in 15 states in the southeastern portion of the U.S., with a large concentration in Texas.
“We’re not saying that any brand needs to be national,” said Cardenas, who noted that only three of Darden’s brands—Olive Garden, LongHorn Steakhouse and Ruth’s Chris—have a national footprint. “To make a meaningful impact for Darden, they just have to grow at the higher end of our framework.”
Darden believes Chuy’s can do that. The chain has 101 restaurants today and plans to open 10 to 12 next year. That is right around the 10% annual growth rate that Darden typically targets for its brands.
Chuy’s officials have said they believe the chain could eventually have as many as 350 restaurants. Cardenas declined to confirm that number Thursday but said that the brand has plenty of white space.
Indeed, Chuy’s growth potential was a major factor in Darden’s decision to pay a premium of 10.3 times the chain’s transaction-adjusted EBITDA for the 12 months ended in March, executives said.
They also noted that adding Chuy’s is expected to help Darden save on supply chain and G&A expenses, amounting to annual synergies of $15 million by the end of fiscal 2026. Factoring in those synergies lowers the multiple to 8.2, Venam said.
Executives also highlighted Chuy’s strong unit economics. Average unit volumes as of March were $4.5 million, while its restaurant-level EBITDA margins of 20% were among the highest in full service. Average check was $19.
Chuy’s systemwide sales, meanwhile, increased an impressive 9.3% last year, and it opened three restaurants. But it has struggled more recently amid a widespread pullback from casual dining: Same-store sales fell 5.2% year over year in the first quarter.
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