Dave’s Hot Chicken investors bet on birria with new deal

The restaurant investors behind the success of Dave’s Hot Chicken are making a new nationwide bet on the next-hottest restaurant trend: birria.

Mike’s Red Tacos, a San Diego-based birria chain with just two locations, plans to announce on Tuesday a new franchising initiative that will build hundreds of restaurants across the U.S., with support from early-stage backers Bill Phelps and Andrew Feghali, CNBC can report.

Financial terms of their investment, which took place in early 2025, were not disclosed.

“We just saw that this was a brand and a concept that really had legs to it,” Phelps told CNBC. “And then the critical thing is, we brought down prospective franchisees. … Everyone gave it the thumbs up.”

Phelps said he had never heard of birria before Feghali introduced him to Mike’s.

Traditional birria is a beef or goat stew, slow cooked with spices and chiles to give the meat lots of flavor. Birria tacos, like those sold at Mike’s, use the slow-cooked meat as a filling and usually include a consomme on the side as a dip for the taco.

Once known as a regional Mexican food, birria now appears on 3.7% of U.S. menus, according to Datassential. That’s more than quadruple its menu penetration four years ago, based on the firm’s data, but there’s still a long runway before it reaches ubiquity.

Mexican-inspired fast-food brands such as Qdoba, El Pollo Loco, Del Taco and even Taco Bell have released their own versions of birria. And there’s at least 478 restaurant operators running birria-focused restaurants, according to Datassential.

Mike’s menu also includes burritos, loaded nachos and fries, and birria ramen.

“It appeals to a very broad range of guests — it’s not just your millennials and Gen Zs,” Phelps said, speaking about the customers in Mike’s Red Tacos restaurants. “There’s older people in the restaurant, there’s little kids, so it’s got a very, very broad appeal.”

Phelps co-founded Wetzel’s Pretzels in 1994 and became a founding investor in Blaze Pizza, the fast-casual pizza chain founded by Elise and Rick Wetzel. In 2019, Phelps joined Dave’s Hot Chicken as an investor and CEO, using franchising to expand the chain quickly to hundreds of restaurants worldwide. Last year, private equity firm Roark Capital bought a majority stake in Dave’s Hot Chicken in deal worth roughly $1 billion.

Feghali was one of the first franchisees of Dave’s Hot Chicken. He is also one of the nation’s largest Little Caesars operators.

Together, Feghali and Phelps founded Four Wall Partners, a restaurant franchising investment firm. In addition to being early-stage investors in Mike’s, they will act as advisors and members of the chain’s board.

Vincent Montanelli, who most recently served as chief executive of Wetzel’s, has joined Mike’s to serve as president.

Founded originally as a food truck five years ago, Mike’s Red Tacos opened its first brick-and-mortar location in 2022. Founder Mike Touma plans to open his third location in March; he’ll stay on with the company as a board member and franchisee of the chain’s San Diego locations.

“We put together a deal where [Touma is] going to keep the rights to his stores and future stores in San Diego, and then we’re going to franchise it across the rest of the U.S. and internationally,” Phelps said.

The new team plans to follow the established playbook used by Wetzel’s and Dave’s to grow Mike’s Red Tacos quickly.

“We’re going to be very aggressive where we grow with this, because we’ve seen that we can do that,” Phelps said.

The taco chain has already secured franchising development deals with multi-unit operators for more than 200 locations nationwide, from California to Texas to New England. Some of those franchised restaurants could open as soon as the end of the year.

Phelps anticipates stiff competition from national chains and local taco restaurants alike. However, he said he thinks that the chain’s simple menu, delicious food and an aggressive marketing strategy can help Mike’s overtake rivals.

“We think this can be a winner,” Phelps said.