The restaurant industry has experienced a tumultuous time in the last few years. Taking a toll on this industry are a struggling economy, increased commodity prices, and a consumer who often chooses to eat at home rather than at a restaurant. For the company known as Real Mex Restaurants it’s been especially tough.

Operating across 17 states, in several foreign countries, and with over 180 localizations total, Real Mex spread thin- and not just geographically, as the company attempted to manage all its restaurants from the corporate office in Cypress, California. Real MEx owns nine different restaurant chains such as El Torito. Chevys Fresh Mex, Acapulco Mexican Restaurant & Cantinita, and six others. Some restaurants are international. El Torito for example, has locations in Japan, Turkey, and the Middle East. Even though all the restaurants feature Mexican – style food, each chain is unique in its décor, offering, and even type of customers.

In 2005, Real Mex reached a half billion dollars in sales, but after that, the restaurant faltered (www.realmexrestaurants.com). As an example, in 2008, the company reported a $32 million loss in a single quarter (“Real Mex Narrows Loss”). As the company’s debt increased and as American consumers curbed their expenditures on meals away from home, Real Mex found itself in Chapter 11 bankruptcy in October 2011. David Goronkin, the new CEO of Real Mex, had a difficult road ahead of him. His 25 years of experience at places like Bennigan’s, Redstone American Grill, and Famous Dave’s of American were necessary to turn the company around (“Real Mex Names Goronkin CEO”).

One tactic he used was obtaining an infusion of cash. A company made up of several investors brought in $129 million while also assuming some of the debt the company had amassed (“Noteholders Buy Real Mex for $129 million”).But probably the most important step the company took was to restructure how it operates.

Most critical was decentralizing operations. Each of the company’s restaurants chains now conduct business as an autonomous entity. A leadership team at each chain develops that particular brand. Thus, Acapulco can focus on its own operations, offering, and customer as can Chevys ad the others seven chains. Each restaurant chain even has its own website, so no customers can find out about specials and see the menu offering without having to go to Real Mex’s website, find the restaurant chain they’re interested in, and cick through the pages to find the menu. Again, this is a form of decentralization because it removes the necessity of a centralized website.

To illustrate how decentralization has changes the operations of Real MEx’s chains, Chevys Fresh Mex has made some substantial alterations. In 2012, this particular chain redeveloped for of its restaurants in the Sacramento, California, area, and now those restaurants have remodeled interiors and an exhibition prep kitchen located in the dinning area. Addditionally, employees received new uniforms, and the Chevys brand has been update as well. The chain has even revamped its lunch and dinner menus (Andersons, 2012).

“We have all been working very hard to enhance every aspect of our brands,” said Gronkin. “We’re turning the page and moving full speed ahead” (“Real Mex Restaurants Exist Chapter 11”). Treating each chain as an autonomous business unit streamlines operations significantly. Indeed, when companies decentralize, it often speeds up decision making because the business units do not have to wait for the corporate office to make key decision. Also, the expectation is that each business unit understands its own operations better because of managers of each unit work at that unit exclusively, rather than being spread out over several different restaurants chain.

Within just a few months after filing Chapter 11 bankruptcy protection, a bankruptcy court approved the sale of Real Mex to the investors, and the firm is on its way to profitability once again. “Today marks a new beginning for Real Mex Restaurants,” Goronkin said, “and we’re very excited to move forward with a new own ship group committed to providing the appropriate resources to enhance our concepts, and strengthen Real Mex’s position as the industry leader in Mexican causal dining” (“Real Mex Restaurants Exists Cahpeter 11”).

1. What challenges do you see with Real Mex’s decentralization of operations? How can the company overcome these challenges?

2. In general, what are the pros and cons of decentralization?

3. If you were CEO of Real Mex Restaurants, how would you ensure quality of food and excellent customer service at each of the company’s chains, now that all of them are operating as autonomous business units?

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