Taco Bell’s success has a lot of elitists scratching their heads, but sales for the Mexican-style, fast-service restaurant chain keep right on growing.
Greg Creed is well aware of the put downs, but the president and chief concept officer for Taco Bell Corp. knows that in business, selling well is the best retort.
Creed, who visited Madison last week, didn’t know what Taco Bell’s 2009 numbers looked like at that time. The fast-food chain grew by an average of 4% between 2004 and 2008 in terms of average U.S. sales per system unit, reaching the $6.5 billion mark in annual system wide sales, but is still awaiting final 2009 figures from Yum! Brands, the parent of Taco Bell, Pizza Hut, and Kentucky Fried Chicken. (While Yum! Brands U.S. sales fell in the fourth quarter, overseas sales helped Yum! post a 6% quarterly gain.)
The recent passing of company founder Glen W. Bell, Jr. gave some critics another opportunity to trash Taco Bell’s expanding fare, but Creed believes they are missing the point. The restaurant exists not to replicate authentic Mexican chains like Chipotle or BajaFresh, but to offer Mexican inspired offerings that compete on price value, abundant value, and, yes, quality-value.
“As the value brand, that’s the position we occupy in people’s minds,” acknowledged Creed, who spearheaded the chain’s Think Outside the Bun campaign. “People go, ‘Well, you’re the cheap brand,” as if that’s a bad thing, or they look their nose down at us, right?”
Well, right, but any restaurant chain becomes a target when it has a dominant share of the $11 billion QSR (Quick Service Restaurant) Mexican food business, more than 5,700 locations in the U.S. and abroad, and serves 35 million people on a weekly basis.
To the Mexican food purists, Creed cites a delicious — at least from Taco Bell’s perspective — factoid. “I think what’s interesting is that we actually do better among Hispanics than non-Hispanics,” Creed noted. “Our market share amongst Hispanics in this country is higher, and they know it’s not authentic Mexican food. We call it Mexican-inspired, which is about how do we take the flavors and the tastes and the experiences of Mexico, or even a Latin experience, and bring it to Taco Bell?”
Not that Taco Bell hasn’t cracked back against its detractors. The blackjack taco, featuring a black taco shell, was offered in various markets as a shot at the self-absorbed nature of the fashion industry. During his trip to Madison, where he met Madison-area franchisee Rich Lepping, Creed gave “the burger boys” credit for their marketing triumph centered on the supposed superiority of Black Angus beef.
“They’ve gotten America to believe that they should pay more for beef from a black cow than a black-and-white cow,” he marveled. “Well, I don’t think that’s a sustainably big idea.”
Discounting Discounts
In May of 2008, when hints of a recession were beginning to influence business decisions, Taco Bell introduced its Why Pay More? campaign, featuring price points of 79, 89, and 99 cents. According to Creed, you could argue that it was “rather fortuitous,” especially given what was about to happen to the economy, but it was not done with premeditated discounting in mind. It had more to do with reframing the definition of value, a process that largely has been driven by David Ovens, chief marketing officer for Taco Bell.
“A lot of our competitors have implied that we discount, but we don’t actually discount at all,” Creed explained. “We have an every-day, low-price strategy.”
Creed, who compared Taco Bell to Wal-Mart (in that regard, said the same approach would apply to the introduction of shrimp tacos to its menu, just in time for Lent. The shrimp entree will retail for about $2.79 per taco, high compared to most items on the menu but low compared to what they would pay elsewhere. “Obviously, $2.79 is more expensive than 89 cents, but as they say, ‘I can’t get shrimp anywhere for $2.79. I’m usually paying $5, $6, $7, or $8,'” he said. “Whenever we can achieve that, we’re usually very successful.”
While Taco Bell’s protein-based offerings — ground beef, beans, pork, chicken, and steak — are the core of its menu, Creed says the restaurant isn’t defined by its protein, but rather by the form of its entrees. Whether the form is a taco, burrito, or quesadilla, he said the advantage of being defined by product form is that Taco Bell can put any protein in any product form, as long as it has a Mexican-inspired taste.
So while the critics sneer away, consumers continue to flock to Taco Bell’s drive-through, including vegetarians who favor the bean entrees, which aren’t comprised of meat but have plenty of protein. Some entrees are by nature low-fat, including salsa and pico de gallo, and some are made that way. Taco Bell’s drive-through Fresco diet offers lower-fat and lower-caloric food; they may include proteins, lettuce and vegetables, but they exclude cheese and other fatty ingredients. The company also has quietly reduced sodium by 11% across its entire menu, but due to the impact on flavor, sodium reduction has to be accomplished gradually.
To make Taco Bell’s claims, in Creed’s words, “weasel poof,” it has introduced a nutrition calculator to demonstrate that it does, indeed, offer foods with significant caloric and fat reduction. Yet the dieter’s offerings were greeted with a mixture of praise and skepticism. “We’ve gotten more support from dietitians,” Creed noted. “The so-called industry experts slammed us.”
Creed, who claims to have lost weight by exercising and factoring Fresco entrees into his diet, has crunched the numbers. “If you have two of those for lunch with a large diet Pepsi, you’ve only consumed eight or 8-1/2 grams of fat in about 320 to 340 calories. If you consider the average person probably has like 2,000 or 2,100 [calories per day], you’re actually way under for lunch.
“We’re not saying to everybody, ‘You have to do it,’ we’re just going to give you a choice.”
Asked how an authentic Mexican restaurant would stack up against Taco Bell on the nutrition calculator, Creed mentioned nutrition legislation pending across nation in both the state and national governments. He said such laws, which typically cover menu labeling standards, fat content, and caloric counts, always are aimed at the big chains, not the “onesey-twoseys or the five-and-tens.”
“If you think about chefs, how much butter and fat and salt do they add? The answer is I don’t know?” admitted Creed, who would prefer national standards to a patchwork of state or, worse, municipal nutritional standards.
His guess, and the guess of David Ovens, is the nutrition of Taco Bell is better than that offered at fine-dining restaurants because Taco Bell is more scrutinized, so it takes action to make the necessary changes.
Creative Food Process
The food is not simply added to the menu on a whim, but as part of a constant churn. New concepts are investigated with the help of franchisees like Madison’s Rich Lepping, and scored on their uniqueness and value. The better ones become product options and take on their own shape and form, sometimes after the franchise community is vocal in pushing a new protein or product.
It’s a process of screening all the varieties so that two or three “final builds” of each potential product become part of a quantitative test with customers in the field. Test stores are situated all over the country, and decades of accumulated knowledge guides Taco Bell, now headquartered in Irvine, Calif., on which markets could skew toward particular products. When introducing corn tortillas, for example, Taco Bell looked to the west coast, where they are more familiar.
While international expansion is in the works, perhaps the most telling growth area is still the menu. The menu areas that offer the most growth potential are breakfast, which Taco Bell has not offered in the past, and morning and afternoon snacks. Thanks to brand partners like Seattle’s Best coffee, which was acquired by Starbucks in 2003, Tropicana orange juice, and Jimmy Dean sausages, a Taco Bell-style breakfast has been served in Tucson, Ariz. since September of last year, with Bakersfield, Calif., Dayton, Ohio, and Baton Rouge, La. serving as the 2010 test markets. Breakfast would be anchored by 89-cent ham, bacon, or sausage soft tacos and burritos, scrambled eggs, coffee, and orange juice.
It may be 15 months or so before breakfast comes to Madison-area Taco Bells, but the restaurant chain is clearly driven by the tagline, Wake Up! Why Pay More?
“I’ve had people say, ‘Why do I pay $2.89 for an Egg McMuffin and $1 for a cheeseburger?'” Creed said. “The answer is because there’s no competition [at breakfast].”
(Creed believes the brand partners bring credibility, but Taco Bell customers won’t be paying $4 for a cup of coffee, Starbucks connection or no Starbucks connection.)
Taco Bell also has been batting around ways to offer food and beverage snacking, as well as a different experience. “One of things kids tell us is that with most fast-food restaurants, you’re not invited to stay. It’s like get your food and go,” Creed said. “We’ve been working with our Pepsi partners on a new range of smoothies, lemonades, and other next-generation beverages.”
The chain also is looking to partner with the makers of snacks and deserts for those offerings between breakfast and lunch and between lunch and the dinner hour. “I think there is a lot of growth still ahead for us,” Creed stated. “We’re excited by those partners we’re working with.”
Thanks in part to this product-testing process, Creed is confident that company founder Glen Bell, a former taco stand operator who started Taco Bell in 1962 in Downey, Calif., was happy with the way the company is being run. Bell, who was living in the San Diego area and in failing health, gave Taco Bell management a ringing endorsement before his passing.
“We had him up in third quarter of last year, and we showed him all these products,” Creed recalled. “We weren’t sure he’d want to eat them all, and he just gobbled them down. While he couldn’t necessarily communicate with us, he had big smiles.”
Jobs = Growth
As they awaited the fourth quarter 2009 earnings report, Creed says the economy’s improving gross domestic product would not influence Taco Bells’ financial performance as much as growing unemployment. In the fist half of 2009, Taco Bell grew over a strong 2008, but the last six months are likely to be quite different. Despite the encouraging GDP metrics in quarters three and four, Creed said the economy “really tanked” because unemployment continued to rise.
For Taco Bell, unemployment is a critical issue, especially the 24% unemployed and under-employed rate among the all-important 18- to 24-year-old demographic. “What happened is that [young] people, particularly over the summer, couldn’t get their summer jobs, which is where they got their money from,” Creed said, “and then their parents didn’t have enough money to give them.”
The other metric Taco Bell pays close attention to is something the company can affect, and that’s how its stores are run, whether they are company-owned, franchised, or licensed. The company, which built 100 new stores across its system and upgraded roughly 400 existing facilities, fared better in the University of Michigan’s study on drive-through service. In the study, which examines 25 brands, Taco Bell rose from fifth to second, further validating internal measures.
“For us, it’s about understanding why we exist, and why we exist is to offer really three things: first of all, great Mexican-inspired taste; the second thing is an unbelievable value; and the third thing is a really good experience,” Creed stated. “The experience is driven around orders that are accurate and fast, and people are not sitting around for 20 minutes waiting to get their food.
“I think as long as we consistently do that, we can be very successful.”
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