Taco Cabana - History

History

Taco Cabana, which was founded by Mike and Felix Stehling in 1978, opened its first restaurant at the corner of San Pedro and Hildebrand Avenues in Midtown San Antonio. Originally the brothers purchased the vacant Dairy Queen because they needed parking space for their popular bar, the Chrystal Pistol, across the street. Recognizing the potential business opportunity, they decided to open a taco stand. The open air design of the existing structure led to the "patio cafe" concept that defined the chain's subsequent locations. Additionally, after all of the patio furniture was stolen after closing the first night, the around-the-clock service concept began.

The restaurant, which focuses on fresh foods rather than pre-packaged, pre-prepared foods and serves beer and margaritas, quickly became successful. By 1985 the Stehlings had a chain of six restaurants in the San Antonio area.

In 1984, Houston restaurant developer Marno McDermot approached the brothers about taking the Taco Cabana concept nationwide. They rejected McDermot's offer. By 1986, with Felix wanting to expand the chain and Mike wanting a smaller enterprise, the brothers split: Felix took five locations and the Taco Cabana name and Mike kept four locations renamed TaCasita.

Marno McDermot continued to develop the idea for a nationwide patio-dining concept and with an associate, Thom Dietrich, incorporated Two Pesos in 1985. Opening two restaurants in Houston later that year, the company hired a former Taco Cabana manager to run one of its stores and had 19 locations within eighteen months. By 1988 the company continued its rapid expansion and had opened locations throughout the southwest and in such far flung cities like Atlanta, Denver, Norfolk and Minneapolis.

In January 1987 Taco Cabana International filed suit against Two Pesos for allegedly duplicating Taco Cabana’s “Trade dress” and for theft of trade secrets (see Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992)' section below). Two Pesos lost the case and appealed the ruling all the way to the Supreme Court, who in June 1992 upheld the two lower court rulings in favor of Taco Cabana.

The company went public that same year and again filed suit against Two Pesos alleging that they had not significantly altered their restaurants as was mandated in the previous court ruling.

In January 1993 Taco Cabana announced that it was purchasing cash strapped Two Pesos' restaurant assets in exchange for 940,000 shares of Taco Cabana stock, approximately valued at $22 million. The sale included all 38 company-owned restaurants as well as all 51 franchised or licensed restaurants, operating under the Two Pesos and Shortstop Hamburgers names. Taco Cabana converted most Two Pesos locations into Taco Cabana restaurants, closed others and sold the Shortstop Hamburger chain.

In 2001 the company was delisted when it became a privately held, wholly owned subsidiary of Carrols Corporation.