Tex-Mex Turmoil Hits Cafe Santa Fe

It seems like somebody has put the hoodoo on Cafe Santa Fe. And the suspects include everyone from Osama bin Laden to God Himself.

Six Cafe Santa Fes have closed within the last year, leaving nine of the Tex-Mex restaurants operating. Company sales were about $6 million this year, down from about $9 million last year when the other half dozen restaurants were open.

Tom Flores, president of Fayetteville-based CSF Franchise Group, said he had to step in and clean up the mess left behind by some of his franchisees. One franchisee, on the other hand, said he was done wrong by Flores, but he wouldn’t elaborate and didn’t want to be identified in this report on the advice of his lawyer.

When things go well, the franchisees take credit for it, Flores said. When things go south, the franchisees blame the corporation.

“We’ve just been taken for granted and taken advantage of, and we’re not going to take it anymore,” Flores said. “We’re not going to award any more until we get these nine franchises running properly.

“You gotta point fingers,” he said, referring to the franchisee. “When you point one, you’ve got three pointing back at you … We did the best we could to help him out. He just didn’t help himself.”

Messages from God

Unpaid taxes, revoked liquor licenses, repossessed restaurants and an alleged message from God instructing a franchisee in Harrison to just lock the door and walk away have combined to make it a rough year for Flores.

On top of all that, the Sept. 11 attacks on New York and Washington have put a damper on the restaurant business nationwide.

“We don’t know where they are,” Flores said of his former franchisee in Harrison. “They just locked up the doors and walked away. There was nothing building up, no ultimatum or anything like that.”

Flores said he plans to reopen the Harrison restaurant early next year, hopefully with the old franchisee back in charge.

Other Cafe Santa Fes that have closed within the past year were in Fayetteville, Little Rock, Conway, Rogers and Russellville.

The Little Rock store was operated by Flores’ brother, Herb Flores, until it was sold last summer to a company that opened a Chinese restaurant in that building. Flores said his brother also operated the Benton restaurant, and Herb Flores decided two restaurants were too many.

CSF currently has seven Cafe Santa Fes in operation in Arkansas and one each in Oklahoma and Missouri. Initially, Flores wanted only one corporate store — the one in Springdale. But now, six of the restaurants are operated by the corporation. CSF opened another corporate store in Owassa, Okla., and has taken over the franchises in Hot Springs; Neosho, Mo.; east Fayetteville; and Bentonville, at least for the time being.

“Some people just decide they don’t want to be in the restaurant business,” Flores said.

The company’s slogan, “We like it hot!”, seems particularly appropriate for the restaurant business climate as 2001 draws to a close.

Flores is quick to note that some major chains also have been closing restaurants, particularly since Sept. 11.

Flores said he gets about three requests per day for franchise information, but no new franchises will be awarded (at $35,000 for the rights) until summer at the earliest. That will give Flores a chance to make sure the nine restaurants currently open are operating properly.

“We’re just going to have to reorganize and retool and go back to working the restaurants like we did in the old days,” Flores said. “We’re going to give customers what they want, which is quality food and service.”

The Hoodoo Guru

Two years ago, things were going well for CSF Franchise Group. The company was growing steadily and was named Business of the Year in its size category at the Northwest Arkansas Business Journal’s annual awards banquet.

At the time, Flores said he planned to have an initial public offering to bring in $3 million to $5 million in cash.

In February 1999, CSF did a reverse merger into a shell provided by Mountain Valley Vineyards of Denver, Colo., but CSF didn’t issue stock four months later as Flores had planned.

The plan also called for 40 Cafe Santa Fes to be open by the beginning of 2001. The company had as many as 16 open in 2000 before a “consultant” bailed out and Flores had to eat his words.

“We got directed in the wrong direction by this individual,” Flores said, adding that he wouldn’t name the consultant.

“We were going to go out and conquer the world … Basically, he didn’t know what he was doing.

“This individual told me, ‘If you don’t open so many a year, you don’t need me.’ He was the one who jumped ship. He left us.”

Flores said his involvement with the unnamed expert has cost him about $200,000.

“It’s been pretty tough to try to accept it,” he said. “He wouldn’t give investors the numbers we needed to [carry out the IPO and expansion plans].”

Franchising the operation cost a similar amount, with mixed blessings apparently.

“It’s a good concept, and it can do well,” Flores said of franchising. “You just have to have the right people to run it.”

Fixing Cafe Santa Fe

Flores is in the process of rectifying a few problems at his Bentonville and east Fayetteville restaurants. He took them over after franchisee Abu-Haleema Enterprises gave up on the company in September.

Abu-Haleema Enterprises, which consisted of Sad and Frances Abu-Haleema of West Fork, owned the two Cafe Santa Fes in Fayetteville and one each in Rogers and Bentonville. They owned one in Van Buren from November 1999 until it was closed this past April.

Sad Abu-Haleema closed the restaurants Sept. 20, one day before filing for Chapter 7 bankruptcy protection. He listed $1.65 million in total assets and $4.07 million in total liabilities, which included $330,000 in debt to CSF Franchise Group.

The original Cafe Santa Fe at 25 E. Center St. in Fayetteville was closed for the first time since it opened in 1982, and the building is for sale.

The restaurant had helped revitalize downtown Fayetteville by drawing diners to the area. Flores sold the store to Abu-Haleema in 1997.

Abu-Haleema’s franchise at 117 W. Walnut St. in Rogers also was closed and abandoned and has been repossessed by Arvest Bank of Rogers, according to bankruptcy records.

At the same time, the corporation took over the operation of Abu-Haleema’s restaurants at 1860 N. Crossover Road in east Fayetteville and 1402 S. Shane Lane in Bentonville.

“We revoked the franchise,” Flores said, adding that he may buy the closed restaurants back at some point.

In the meantime, Abu-Haleema had lost the liquor license for the Fayetteville and Bentonville restaurants. Clinton Jones, Fayetteville’s city prosecutor, said the city pulled Abu-Haleema’s liquor license because the franchisee hadn’t paid the city’s hotel-motel-restaurant tax for several months in 2001.

According to city tax records for January through October of this year, Abu-Haleema paid $680 in HMR taxes for the downtown Fayetteville restaurant and $1,957 for the east Fayetteville store. That amount is based on 1 percent of sales and is apparently far less than what should have been paid.

For 2000, when Abu-Haleema appeared to be up to date on his tax payments, he paid $5,452.44 in taxes on the downtown Fayetteville location and $6,591.30 for the east store.

That would indicate total sales of $545,244 and $659,130 respectively for the year 2000, which would be in line with sales projections from Flores.

Since October, the Arkansas Department of Finance and Administration has filed claims for about $20,000 in back taxes from Abu-Haleema’s Fayetteville restaurants, according to court records.

Phil Bronson, owner of Bronson Title & Abstract Co. in Rogers, telephoned the Business Journal to say that he was a silent partner in the Abu-Haleema franchise and that he planned to file a lawsuit against CSF Franchise Group.

He had not done so as of press time for this issue.

1981 — Tom Flores of Texarkana received a bachelor’s degree in business management from the University of Arkansas and took a job in Searcy working for the Great American Fundraising Co.

1982 — Dale Holland opened the first Cafe Santa Fe in downtown Fayetteville and soon sold it to Carlos and Millie Gracian.

1988 — The Gracians sold the restaurant to Flores. At the time, the restaurant is bringing in about $250,000 per year in sales.

1991 — Cafe Santa Fe hits $500,000 in sales under Flores’ leadership.

1992 — Flores opened a second Cafe Santa Fe in a downtown Rogers building that previously housed Tony C’s Italian Ristorante.

1994 — Flores opened Cafe Santa Fe restaurants in Fort Smith and Eureka Springs.

1995 — Flores opened a Cafe Santa Fe in Springdale. He also expanded the Fayetteville restaurant into a building that previously housed Morning Glorys, a bakery, next door. Sales reach $1,050,000 that year for the entire company.

1997 — Flores began selling franchises. Three of his four restaurants were sold to the managers that year.

1998 — Sales for the eight units open at that time brought in about $8 million.

1999 — Flores plans to take the company public and have 40 restaurants open by 2001 but changes those plans later in the year. CSF Franchise Group is named Business of the Year by the Northwest Arkansas Business Journal.

2000 — CSF buys back franchises in Hot Springs and Neosho, Mo., and continues to operate those restaurants.

2001 — Cafe Santa Fes close in Fayetteville, Rogers, Russellville, Harrison, Little Rock and Conway. CSF takes over operation of other franchises in Fayetteville and Bentonville.