Rising avocado costs might be squeezing Chipotle’s margins, but John Cappasola, the president and CEO of West Coast chain Del Taco, said his Mexican fast-food chain isn’t feeling the heat.

“This is actually a structural advantage for us, the fact that we do it fresh in our restaurants,” Cappasola told CNBC on Tuesday in an interview with “Mad Money” host Jim Cramer.

In response to Cramer’s question about handling the spike in avocado prices, Cappasola said that his business benefits from being more hands-on with food preparation than other chains.

“From a food cost standpoint, we are cutting out the middleman,” Cappasola said. “When you think about the value add you pay to have someone else chop it and slice it and put it in a bag and ship it in, we don’t do that. We take it inside and we do the chopping and the slicing and the grating and the grilling, and we feel really confident that that’s what delivers a great food experience for us.”

Since 70 percent of Del Taco’s locations are open 24 hours a day, Cappasola said employees use the “shoulder” hours to do most of the fresh preparation for the peak hours.

“We do it in our restaurants with the raw commodity each and every day, and we have been doing that for years,” the CEO said.

But upping Del Taco’s food quality did not come seamlessly for Del Taco, which went through brand re-positioning several years ago to “raise the bar” for its consumers, Cappasola said.

“The challenge there for us was being able to talk about quality under the same roof as value, and we’ve really been able to overcome that challenge,” the CEO told Cramer. “We have the value and the affordability and the speed and convenience of a traditional, fast-food, drive-thru restaurant, but we bring and pair that with quality and value that you would expect from a fast-casual restaurant under one roof.”

Now, Del Taco’s aim is to strategically position itself in order to take market share from more traditional fast-food chains like Taco Bell, Cappasola said.

Because Del Taco offers slightly better food than the typical limited-service restaurant, Cappasola argued that it could end up taking business from higher-end chains like Chipotle as well.

“In the United States … 75 percent of all restaurant transactions in limited-service come from traditional fast-food restaurants. And only about 10 percent come from fast-casual. So we want to be fishing in that large ocean and not just in that small pond,” he said.

That being said, the West Coast chain’s expansion efforts will continue to emphasize “quality over quantity,” Cappasola said.

The CEO said Del Taco will focus on scaling its infrastructure and brand awareness in the Western 30 states to avoid spreading itself too thin by jumping to the East Coast.

“We’ve got a hub in the Atlanta market, where we’re growing the brand with company capital as well as with franchise,” Cappasola said. “And so we’re really confident that, over time, that balance is the right thing to do for our business and it’ll eventually accelerate franchise growth over the long run.”

Source: Investment Cnbc
Del Taco CEO on staying fresh amid rising avocado costs