The hospitality landscape is unforgiving, with a large proportion of start-up restaurants closing in the first year. Hospitality brand Fonda, however, is a case study in how to grow a new business from a humble but great idea.

Starting a business that's on trend

How do a lawyer and a fireman go from opening a Mexican restaurant to ending up with a mini hospitality empire? For Tim McDonald and David Youl, owners of the restaurant brand Fonda, it was about good food and a great customer experience. It meant leaving behind their previous careers to work in an area they were passionate about.

Taking the leap

The first Fonda restaurant launched in Melbourne in 2011: a casual home-style Mexican eatery in Swan Street, Richmond. Today, Fonda has eight restaurants, with more than 160 staff.

The pair first met through mutual friends while studying: McDonald at Monash University and Youl at the University of Melbourne. On graduation, McDonald spent a year working as a lawyer at Minter Ellison while Youl continued to work as a fireman. Youl was tiring of the shift work at the fire brigade while McDonald yearned to do something entrepreneurial. “The whole concept of creating something and being in control of your working life, and therefore your life, was something that had always appealed to us,” McDonald says. “We weren’t scared by the risk you're taking in starting something nor were we swayed by the prestige and safety net of the corporate life.”

McDonald had been mulling over the idea of starting a Mexican restaurant since 2007. He'd spent a semester studying in California and noticed a new style of Tex-Mex restaurant becoming popular. “The vision I had initially is very close to what Fonda is now – it’s quick, fresh, healthy and high-quality Mexican food,” he says.

What's in a name?

For McDonald and Youl, the moniker ‘Fonda’ embodied the style of restaurant they dreamed of opening. Mexicans use the word fonda to describe a place where people enjoy cooking that comes direct from a family’s living room or kitchen. Food served in a fonda is fresh, cheap, locally sourced and embodies the widespread greeting "mi casa es su casa" (my house is your house).

In fact, the two stumbled across the name ‘Fonda’ on the cover of a cookbook – Jim Peyton’s The Very Best of Tex-Mex Cooking, which they’d bought online while testing recipes. On the front page of the book is a black-and-white photo of an old house with a ‘FONDA’ sign. The former chef lives near San Antonio, Texas, so McDonald and Youl emailed him to ask if they could swing by while they were in the US and Mexico on a research trip.

The word struck a chord. “The whole essence of being a home and offering a homely experience resonated with what we were trying to create,” McDonald says. “It’s that warmth, casualness, unpretentiousness and really good quality home-cooked Mexican food made fresh to order. And not just the name but everything that came from that as a brand story. Our customer service, design, location, pricing and the way we produce our product is very much linked to the essence of what a ‘fonda’ is.”

Getting to know your customer

Starting a business can be fraught with problems, but McDonald and Youl had few responsibilities and felt comfortable about venturing out on their own. While the pair could have relied on business loans, they took another route. Their start-up capital came from a combination of personal savings, family loans, credit cards and some equipment financing.

Long before the first taco was served, they spent a lot of time testing recipes and working on a business plan. This included going to existing Mexican restaurants and asking customers to fill out surveys detailing their experience, collating feedback that helped hone their business model.

Finding the right location for your business

It's every restaurant owner's nightmare: trying to find that first, all-important location. The pair admit getting that first lease proved tricky. “We were two 27-year-old guys with no Mexican [cuisine] experience, no hospitality experience, just an idea on a piece of paper and most landlords aren’t really keen to offer up their site to you, so we faced a lot of rejection and were very restricted with the sites we were offered,” McDonald recalls.

They ended up taking a lease at 248 Swan Street, Richmond, becoming part of the new wave of fashionable operators opening up in the street. Was it the best place to open a restaurant? At the time, they weren’t sure. “We thought it was a C-grade location but it ended up being an A-grade location,” McDonald says.

Grow a new business organically

Fonda’s marketing strategy centres on the belief that a great customer experience will result in positive word-of-mouth and the rest will take care of itself. “We have a very small social media budget, we don’t advertise, we put all of our money into finding, attracting, engaging and retaining really great staff that interact with our customers really well, putting money into our fit-outs and really good quality ingredients,” McDonald says. “And if you do that, people come back and they tell their friends, which is the most effective marketing we can ask for.”

Working with Melbourne-based Techné Architecture + Interior Design, each of the fit-outs cost about $1 million. Branding is kept to a minimum to help create the feeling you’re in someone’s home rather than a restaurant. “Our food quality and interior design is more typically found in high-end restaurants,” McDonald says. “We’re still a pretty casual, quick-service and reasonably-priced concept, so although they are very trendy fit-outs and the food quality is there, the food comes out pretty quickly and it’s affordable.”

Australians get a taste for Mexican

So often in business, timing is everything. Youl and McDonald tapped into the zeitgeist, opening Fonda at the time gourmet Mexican was becoming the ‘cuisine of the moment’ in Australia.

While McDonald and Youl had their concept well before the interest in Mexican food became apparent, they waited for it to hit before acting. “Not that I was the only one, but I could see that the wave was about to happen,” says McDonald. “If you went to LA or Texas and saw how big Mexican was over there six to eight years ago, you could see it coming. Australians love Mexican, we always have, but there was very little around. When the wave hit we weren’t one of the first but we were very early. We didn’t execute on it until we knew the wave was breaking.”

McDonald attributes this interest in Mexican food to one simple fact: it’s fantastic. “It’s a healthy cuisine, it’s tasty and nutritious, so effectively, it’s just another option of eating meat and vegetables with minimal bread in an exciting, sexy cuisine,” he says. “There’s a lot of operators presenting into the market in a really creative way that’s healthy and accessible price-wise, so people are eating it quite frequently.”

How to expand your business

For McDonald, the biggest challenge in running Fonda is adapting to an evolving role as the business grows. His various roles have included market researcher, product developer, restaurant designer, waiter, property manager and now business manager. “You can see a drastic difference between working on a little start-up to a $15 million business that employs 160 people,” he says. “We’re kind of on our own and have to work it out for ourselves. Dave and I are ultimately accountable and that’s definitely challenging but also makes it exciting. It’s really up to us to be self-disciplined.”

Their business mentors are chocolatier Shane Hills, founder of the Koko Black chocolate stores, and Geoff Harris, co-founder of Flight Centre Travel Group. Harris bought 25 per cent of the business and has come on board as a director.

“At Flight Centre, Geoff’s effectively ridden the business lifecycle journey from being a founding director to being front-and-centre in a large, publicly listed global company, so he’s someone we can now go to for advice and mentorship on how we should be performing,” McDonald says. “And that mentorship is crucial. It’s great when you’re young, confident and going for it, but at the same time you have to remember that you’re young and you don’t have the benefit of hindsight or experience – you’ve got to seek advice.”

After reading Family Village Tribe, a book on the inner workings of Flight Centre, McDonald reached out to Chief Executive Officer Graham Turner. Turner sent the email to Harris and, shortly afterwards, Harris called and they organised to meet up for coffee the next day.

Harris, who gets several offers a week to invest in fledgling businesses, says he was immediately impressed with Fonda. “Tim and Dave are both young guns with a small start-up that had clearly worked, but needed capital and experience to take it to a medium to large multi-outlet business,” he explains. “This is a growth model with great potential. I also liked that the founders have great values and we all wanted a company only and not a franchise model, and I love the ‘fast casual’ concept.”

One way Fonda is following the Flight Centre model is by keeping all stores under company ownership and not franchising. Store leaders have a profit share so they are incentivised to care about the profitability of the business.

Where to from here?

Fonda restaurants enjoy a strong presence in Melbourne, now totalling seven. In late 2017 they opened their first Sydney Fonda – in a prime location in Bondi Beach.

At the same time, they appointed chef Mark Tagnipez (formerly of Los Angele's E.P. & L.P.) as Executive Chef, inspiring him to greater heights with a research trip to Mexico.

Important information

The information contained in this article is correct as of July 2018 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.

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