Mexican Fast-Food Chains Hail Coming Fight : Del Taco-Naugles Merger Seen as Prelude to Welcomed Hotter Competition
From Taco Bell to Taco Viva, the message Tuesday was that hotter competition in the Mexican-American fast-food business is fine if it helps sell more tacos, burritos and refried beans.
“I don’t care about the competition--just as long as they advertise,” said J. Brion Foulke III, chief executive of Fort Lauderdale, Fla.-based Taco Viva, which has 60 restaurants in Florida.
As word spread Tuesday that Del Taco and Naugles--No. 2 and No. 3 in the business--are being combined by Anwar Soliman, a Newport Beach restaurateur, into a national chain, reaction in the Mexican fast-food industry was that every little bit of promotion helps--even if it’s from a competitor.
‘Big Opportunity’
“We think there’s a big opportunity to make Mexican fast-food a more mainstream idea . . . by having someone help us expand the Mexican fast-food segment,” said John Martin, president and chief executive of Taco Bell, the Irvine-based unit of Pepsico that leads the industry with 2,710 restaurants nationwide.
At the same time, industry experts note that the Mexican fast-food market, estimated at about $2.3 billion a year, has been growing. But market saturation has caused that growth to slow to about 2% nationwide during the past two years. “There are a lot of chains that all offer basically the same thing. It’s just a question of regional favorites,” said Lisa Bertagnoli, associate editor with Restaurants & Institutions, a Chicago-based trade publication.
Which means, industry sources say, that to satisfy his big appetite for a national--and eventually international--fast-food chain, Soliman, who is buying Del Taco and Naugles, will have to dramatically increase advertising and promotional efforts.
Soliman is chairman and chief executive of American Restaurant Group, which operates or franchises 360 restaurants. On Monday, he rocked the fast-food industry by announcing that he is sole owner of an acquisition company that is paying between $100 million and $200 million for Del Taco and Naugles, two well-known Mexican fast-food companies in California.
The deal, which is set to close by late February, will bring Soliman a total of 373 restaurants, making his company, AWR II Acquisition Corp., the biggest Mexican fast-food chain in this state and the second-largest in volume in the United States.
The big advantage of the purchase is the sheer size of the combined operation, industry experts agreed Tuesday.
After all, one major factor in the success of Taco Bell has been its estimated $60-million advertising budget, sources said. By contrast, the combined promotional budgets for Naugles and Del Taco reportedly is less than 25% of Taco Bell’s, industry experts say.
“Fast food is a marketing-driven business. It’s also a business where you need a lot of places for people to shop your product,” explained Leonard Pearlstein, chief executive of keye/donna/pearlstein, Del Taco’s Los Angeles-based ad shop. “What counts is penetration, pervasiveness, omnipresence.”
Greater Awareness
With that clout, the combination of Naugles and Del Taco will give Taco Bell its first direct competition. “They’ll compete one-to-one on TV, media purchases and TV distribution,” said William Hyde, chief executive of Dallas-based Taco Villa, which operates 360 restaurants and owns the rights to the Del Taco name nationally. “But by operating under one name, (Soliman) will increase awareness. If you can do that and convert it to trial usage, it usually converts to increased sales and profitability.”
Soliman said Tuesday that he has an even bigger order--an eventual expansion of the fast-food chain internationally.
In the meantime, Soliman said, he plans to close no outlets of Naugles or Del Taco. “It’s a growing market,” he said, “and people understand it for what it is.”
