This is the story of...
Chi-Chi's...
The story of Chi-Chi's begins in 1975 in Richfield, Minnesota, and was founded by Mexican restaurant
magnate Marno McDermott and investor and former Green Bay Packers wide-receiver Max McGee.
McDermott, who was a graduate of the University of Minnesota and a long-time fan of Mexican
food, had previously in the 1960s created a Mexican fast food concept called "Zapata",
similar to the Taco Bell franchise, and which later came to be called "Zantigo."
Together, the pair opened Chi-Chi's Mexican Restaurant in a section of the downtown bar.
Chi-Chi's, which took its name from the nickname of McDermott's wife, was an immediate success,
and in 1976, despite sales expectations of $400,000, first year sales would skyrocket
to $2 million.
The rapid success caught the eye of John Stephens, a Minnesota-based stockbroker.
Stephens convinced McDermott to sell him the rights to operate and franchise Chi-Chi's
restaurants.
The founders seized the opportunity and sold the business to Stephens.
Shelly Frank, vice-president of concept development at the Kentucky Fried Chicken fast food chain,
was then called upon to run the new restaurant business.
In 1977, Mr. Frank was named president and CEO, and the company headquarters were moved
to his hometown of Louisville, Kentucky.
By the early 1980s, Shelly Frank drove rapid expansion of company-owned stores, and soon
Chi-Chi's began to spread throughout the Midwest, where they had virtually no competition (compared
to other regions where they competed with El Torito and Casa Gallardo).
From 1981 to 1983, company-owned restaurants soared from one to 46, and in 1985 alone,
over 40 new Chi-Chi's locations opened.
The success would stumble a bit though, beginning around 1986.
This coincided with an overall decline in the industry due to lowered alcohol consumption,
saturated restaurant markets, maturing baby boomers, and the growing popularity of at-home
food and entertainment options.
Shelly Frank would retire that same year, and Hal Smith came on board as Chi-Chi's new
leader.
Smith put a focus on changing the culture within the company, and by 1987 things began
to turn around.
This success would once again attract outside investors, and in an attempt to block a hostile
takeover, Chi-Chi's executive management looked to be acquired by someone on better terms.
The company was purchased by San Diego-based Foodmaker, Inc., the owner of Jack in the
Box restaurants, then the country's fifth largest fast food chain.
The 1990s continued to be a bit of a mixed-bag for Chi-Chi's.
While they started off the decade strong, pressure from Taco Bell threatened Chi-Chi's
with its cheap eats and 4,000 outlets racking up sales of $3.3 billion.
In response, Chi-Chi's began introducing value-priced entrees and freshly prepared ingredients.
Smith felt that customers were not aware of the amount of "scratch" cooking that went
on in Chi-Chi's kitchens, and the chain began emphasizing the fresh food in their advertising.
Additionally, a series of restaurant makeovers were rolled out, to continue promoting a more
upscale appearance.
In 1994, Chi-Chi's was acquired by Family Restaurants Inc., which already owned Chi-Chi's
top competitor El Torito.
The chains were brought together under one parent, newly named Family Restaurants.
Although each retained its individual name and style, the marriage created the first
coast-to-coast chain of full-service Mexican restaurants, comprising 315 units, including
some Casa Gallardo establishments as well as other divisions.
Despite the company's efforts and acquisition, both sales and store counts dropped through
the rest of the decade.
By the early-2000s, things were beginning to unravel for Chi-Chi's.
They were once again sold off, this time to Prandium, Inc., and began a restructuring
program at the corporate headquarters in Louisville in 2001.
Kevin S. Relyea took over as chairman, president, and CEO of Prandium and also remained at the
helm at Chi-Chi's.
Overburdened by debt, Prandium declared Chapter 11 bankruptcy in May 2002.
Its reorganization plan was approved by the U.S. Bankruptcy Court in July of that year.
At essentially the worst possible time, one of the worst hepatitis A outbreaks in American
restaurant history occurred in November 2003 at a Chi-Chi's in the Pittsburgh area.
Four people died and over 600 others fell ill.
The cause was eventually traced to a supplier of green onions at the Chi-Chi's at Beaver
Valley Mall in Monaca, Pa. but by then, the damage had been done.
In August 2004, a $42.5 million bid by Tampa Bay, Fla.-based Outback Steakhouse was accepted
in U.S. Bankruptcy Court., and Chi-Chi's Mexican Restaurant served its last meals in September,
2004.
Outback overhauled some Chi-Chi's locations and turned them into Outback restaurants,
and sold off most of the remaining former Chi-Chi's properties.
Which brings us to today.
Not much is left of Chi-Chi's at this point.
While there are still a few independent restaurants in Europe operating under the Chi-Chi's brand,
most people in the United States today probably recognize it from the grocery aisle.
At some point before bankruptcy, Chi-Chi's sold off the grocery sales right of its brand
to Hormel, who still, to this day, produces Chi-Chi's-branded salsa and chips.
And what happened to the men who started it all?
While Marno McDermott preferred to live a quiet life after Chi-Chi's, Max McGee continued
to have more public success.
After selling his share of Chi-Chi’s in the mid-1980s, Max McGee became an investor
in several Native American casinos in Wisconsin, where he found a great deal of success.
Additionally, from 1979 to 1998, McGee also worked as an analyst on the Green Bay Packers
radio broadcasts.
While working in the yard with his son one morning in October 2007, Max had an unfortunate
accident and passed away.
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