Why Americans Love Taco Bell

Why Americans Love Taco Bell

September 18, 2019 100 By Stanley Isaacs


Taco Bell is huge in the U.S. with over 7000 restaurants
across the country. It’s one of the top five
restaurant chains in the U.S. based on sales. It’s not necessarily known for its quality
but believe it or not Taco Bell has been called one
the healthiest fast-food chains. In a recent Harris Poll also
pointed out America’s favorite Mexican restaurant. I mean I love Taco Bell. It’s one of those type
of restaurants that like, tacos. I really love Taco Bell, I
love the variety they have. I would say that my girlfriend ordered about once a week because we just can’t get enough of it. Taco Bell has been known for
its innovative menu items like Doritos Locos Tacos, Nacho fries and Naked Chicken Chalupas. The company says its commitment of
value and innovation is what’s driving its continued sales growth. But how many variations of cheap
Mexican food can talk about concoct before they run out of ideas? Taco Bell now only competes for
fast-food dollars with the likes of McDonald’s and Burger King. They’re also being challenged by many
new fresh Mexican chains like Chipotle, Rubio’s, Qdoba and Baha fresh. Taco Bell’s rolling out new strategies
to stay ahead of the competition. It launched mobile food ordering, added
a nationwide delivery and now sells alcohol as some of its restaurants. You can even get hitched at a Las Vegas flagship restaurant which has a chapel and a reception area. Taco Bell has become a player
in the breakfast business as well stealing some market share from McDonald’s. But the company is also
reeling from management shakeups. Much of Taco Bell’s recent innovations
was initiated under the watch of CEO Brian Niccol. But in 2018, Niccol left the chain to helm one of Taco Bell’s biggest competitors: Chipotle. At Taco Bell, he was really kind
of the rock star and Chipotle. They got a really great CEO in poaching him from Taco Bell. And now Taco Bell must continue
to innovate without Niccol to make sure they don’t fall behind the competition. To understand how Taco Bell became
one of America’s top fast-food chains let’s go back to how the brand got its start. Taco Bell has been a pioneer in fast-food since the 1960s. The chain is credited with introducing an Americanized version of Mexican food to the U.S. The “Bell” in Taco Bell is named
after this man, Glen William Bell Jr. Glenn Bell was already a fast-food veteran
by the time he opened the first Taco Bell. Glenn started with a self-service hamburger stand in 1948 in San Bernardino, California. It was just a few miles away from
the spot where Dick and Mac McDonald were making fast-food history with their burger joint. Glenn introduced tacos at his stand
in 1951 and claims to have invented ready-made crunchy taco shells
which made it possible to prepare tacos as fast as
McDonald’s was making burgers. For the fast-food industry at that
time, speed was of essence. So for Glen Bell to really develop a
way to serve the food at a faster rate was really big for his business
and was a big piece of his success. Then in March of 1962, Glenn Bell opened the first Taco Bell in Downey, California, just outside Downtown Los Angeles. Early menu boards explained to curious
Americans the proper way to pronounce such exotic offerings
like tacos and burritos. By 1967, there were a total of 100
Taco Bell’s. In 1970, with more than 300 locations, Taco Bell became a publicly traded company. Glen Bell sold 868 Taco Bell restaurants to PepsiCo for 148 million dollars and Pepsi stock. Ultimately, Taco Bell and two other
PepsiCo fast-food chains KFC and Pizza Hut spun off and became
what is known today as Yum! Brands. That’s why you’ll see these
restaurants partner up in a single location. Since its IPO in 1997, Yum! Brands stock has seen steady growth Yum
stock prices climbed by more than 1,700 percent to hover around
99 dollars per share. In that same amount of tim, the
S&P 500 has only risen 207 percent. Those stock gains mean that Yum! Brands market value has jumped from roughly
4 billion dollars around the time of its IPO to 30 billion dollars in 2019. As of 2019, there are over
7000 Taco Bell’s in the U.S. making it the largest limited service
restaurant in the Mexican food category. By comparison Chipotle
is the second largest. It has less than half as many restaurants. Right now, Taco Bell has about 93
percent of their stores in the United States with about
7 percent international. So there’s still a lot of
room for growth for them internationally. And one thing that they’ve been
undertaking in the United States is selling off company owned
stores to franchisees. And what this does is it gives
them some immediate cash but it also passes off some of the risks and
some of the costs on the franchisees rather than the company itself. And that could be good for
expansion in the future especially because there’s so much open space
in the international market. Same store sales growth has largely been positive over the years with a few notable hiccups. But even the 2008 financial crisis,
didn’t keep it down for long. Sales at locations have been open for at least a year sank 5 percent in 2009 but by 2010 they posted positive same store sales growth. But new Mexican chains are popping
up across the country like Wahoo’s, which has around 50 locations,
Baja Fresh with approximately 150, Trejo’s Tacos with just under 10
and Chronic Tacos which has just over 50 in the U.S. But in the fourth quarter of 2018
alone Taco Bell opened up nearly as many restaurants as the entire Baja Fresh chain. Internationally, Taco Bell has nearly 500 stores across almost 30 countries. That pales by comparison to
some of its biggest competitors. But parent company Yum! Brands is looking to double that number by 2022. But Taco Bell has struggled with
international expansion in the past. They’ve tried and failed in Mexico because well Mexico already has its own good cheap Mexican food. They’ve also entered and pulled
out of Dubai and China. As of 2017, the company is moving back into China with a new menu geared toward local tastes. But here in the U.S., Taco Bell’s version of Mexican has
become a cornerstone of American fast-food. It’s the best performer
in Yum! Brands portfolio. Pizza Hut has struggled domestically as more customers choose delivery from Domino’s instead of sitting down at a Pizza Hut. KFC a favorite, China has seen
American consumers grow tired of its menu and instead either chicken
from rivals like Popeyes or Chic-Fil-A. Yum CEO Greg Creed recently bragged about Taco Bell’s sales figures on the company’s earnings call. Now I want to talk about where 2018 marked our seventh consecutive year of positive same store sales growth. Once again outpacing the industry a remarkable feat. 93 percent Taco Bell’s in the U.S. are franchised, meaning they’re owned and operated by franchisees. Taco Bell Corporation helps these franchisees in many ways including marketing and product development. Chipotle, by comparison, does not franchise any of its 2,500 locations which gives management more control over how the restaurants are run. That control makes it easier for
Chipotle to experiment like what it’s doing with drive-through dining for the first time. Chipotle’s version called “Chipot-lanes” is
app-based as opposed as traditional drive-through experiences where you have to talk into a microphone on a menu board. This seems like a direct shot at Taco Bell’s very successful drive-thru business. Chipotle his new boss knows that
approximately 70 percent of Taco Bell’s sales happen at the drive-thru. And some Taco Bell’s may start looking like Chipotles. The company has opened a new style
Taco Bell in urban areas called “In-Line” which features open kitchens unique art on the walls and a hipper design. A similar version of the In-Line concept called Taco Bell Cantinas serves alcohol. They’ve been popping up in cities
like Chicago New York and Newport Beach, California. So we are inside right now the Taco Bell Cantina which is our latest model of our expansion and growth plan. And over the past two years we really developed close to about 50 of these restaurants that are Cantina urban In-Line. So typically when you think of Taco
Bell’s you think of suburban and rural areas with drive-thru. These are very different. These
are in downtown walkable space. No drive-thrus. We want to
make sure that they feel like they’re part of the community that they’re and so people can come in and feel like they have a unique experience. Most fast-food chains have an innovation
lab where they come up with new menu items. But Taco Bell has a very “Willy Wonka” like quality to it. The company’s creations include wild
mash-ups with Doritos Locos Tacos and they’ve created new Mexican foods
that were invented north of the border like Quesalupas. And certainly when they have you know
sort of outside the box menu items like say a Waffle Taco or
the Nacho Fries you know that’s an attempt at grabbing the attention of
customers who are like hey that’s that’s a different That’s interesting I’ve never had that before let’s go try that. Taco Bell likes to stress the value they offer to consumers. They battle with other fast-food giants
and what QSR Magazine calls the “Value Wars” and price is
one area where Chipotle can’t compete with Taco Bell. It’s dollar cravings menu offers everything from burritos to cinnamon twists. At Chipotle even a side order
of tortilla chips is more than a dollar. But with Taco Bell prices so low
it could be a concern going forward as many states are increasing
the minimum wage in 2019. Taco Bell may need to offset the
labor cost increase by pushing bigger ticket items like the five dollar meal
boxes and with low prices and value are your bread and butter, you
don’t want to push those costs onto consumers. That’s why companies like Taco Bell
have been looking for efficiencies in operations and using new
technology to address wage increases. Another major and ongoing concern for
Taco Bell and its competitors food safety and quality. Chipotle is still reeling from an E. coli outbreak in 2015 which sent the stock tumbling. They hadn’t recovered until the company poached Taco Bell CEO Brian Niccol in 2018; since then the stock prices nearly doubled. They tried to start some national
advertising campaigns to get their brand recognition back out there. They went through a lot of
product giveaways and promotions and spent millions of dollars trying to regain
the customer loyalty that they had lost. Taco Bell dealt with similar problems
in 2006 which affected sales for almost a year. Sales at Taco Bell locations that have
been open for at least a year declined by 5 percent in 2007, especially in the Northeast where these problems started. Taco Bell didn’t release the same source sales in 2006, but when they did in 2007 they were down 5 percent. Then in 2011, an Alabama law firm
filed a class action lawsuit against Taco Bell alleging the beef on
their menu wasn’t actually beef. Same store sales again declined by
dropping two percent that year just as the company was recovering
from the financial crisis. But talk about cheeky response helps
explain how they managed to navigate PR nightmares. They took out a full page ad in
the newspapers to say “thank you for suing us.” The ad also explain what’s actually in their beef. According to the ad the meat is
80 percent beef and twelve percent seek a recipe which Taco Bell
claims keeps it from being boring. It’s that voice that Taco Bell
engages with its customers in unique ways. Taco Bell’s TV commercial taglines
have become popular catchphrases like “Run for the border” yo
quiero Taco Bell” and “Drop the chalupa.” You’re looking at Taco Bell with
7000 restaurants almost 11 billion in sales generating about 460
million dollars of the advertising budget that they
say can spend annually. That is three times the
size of what Chipotle spends. So there’s a lot of marketing
and advertising muscle Taco Bell to continue to drive home their message and
Taco Bell and able to be in every medium from TV to radio. Chipotle has to do a little
bit more picking and choosing. Customer engagement cross digital is
an important growth driver for Taco Bell accordingly Yum! Brands CEO. The company added a senior leadership
role who will focus on digital and technology strategy. Taco Bell has even offered mobile
ordering and payment on its app since 2014. They added a customer loyalty program to
the app in 2015 but the competition is catching on. Several Mexican chains also started app
based rewards programs like a Qdoba and Moe’s. In 2018, Chipotle also started testing a loyalty program which they expanded nationwide in March of 2019. Its digital sales grew almost 66 percent in the fourth quarter of 2018. Those sales account for 12.9 percent of its sales. Another growth driver for
Taco Bell is delivery. In 2018, Taco Bell made a 200 million dollar investment in the digital food ordering and delivery platform, GrubHub. According to the company, Taco Bell spent nearly a year integrating its systems to create seamless ordering and delivery experience. In February of 2019, Taco Bell rolled out nationwide delivery through the GrubHub partnership. But despite its popularity Taco Bell
is facing struggles in its C-Suite. Some of that is due to the
departure of the former CEO Brian Niccol. Now that is gone some wonder
if the company’s momentum can continue. Once Niccol defected, he relocated Chipotle’s Denver Colorado headquarters to Newport Beach, California. Right in Taco Bell’s backyard. Some say it made it easier for
Niccol to poach Taco Bell’s top talent; a process that looks already to be underway. Taco Bell executives Chris Brandt and
Tressie Lieberman have both left Taco Bell and joined Chipotle way since Nicole’s departure. But when you talk about some a
company like Chipotle, I think Brian Niccol will have to play certainly growing in the years ahead. They’re going to open a lot more restaurants they’re going to their sales will continue to climb. But I just I don’t ever think that Chipotle they will surpass Taco Bell as being this Mexican experience that Americans love because they’re just both going to occupy their own different corner of the industry and that’s going to work out for both of them. CNBC reached out to Taco Bell about
Nichols departure and the 2006 E. coli outbreak. The company
declined to comment. Even with Niccol gone, sales still look
good but the pressure is on talk about to stay consistent as KFC
and Pizza Hut struggle find a solid footing in the restaurant industry remains worried about the rising labor and commodity costs. Taco Bell’s trajectory seems to be up
but only time will tell if the Mexican-American chain is ready to
tackle the challenges ahead.