Do you like your chicken fajitas made with dark meat or light meat?
And what’s the best way to whip up a batch of guacamole or salsa?
If you’ve ever had an argument in the kitchen over a recipe, you’d probably appreciate the battle brewing in the corporate offices--and over the stoves--at the giants of California’s Mexican fast-food market: Del Taco and Taco Bell.
Things have been heating up since restaurant magnate Anwar Soliman bought both Del Taco and Naugles last March. The two chains’ 366 restaurants will soon be combined under the Del Taco banner as they try to unseat industry giant Taco Bell, a subsidiary of Pepsico.
The fight is for the bulk of the lucrative California market. It is by far the most valuable market for the $2.5-billion-a- year Mexican fast-food industry. And it seems to pit the corporate size and savvy of Pepsico and Taco Bell against the roll-up-your sleeves know-how of Soliman.
The two companies, both headquartered in Orange County, are making changes in their menus, advertising heavily, spiffying up restaurants and taking shots at each other’s operations and even their food.
“Our biggest issue with some of our competitors, candidly, is that their mom-and-pop approach to business is giving Mexican food a bad name,” sniffs Taco Bell President John Martin. He tells how his chain distributes partly premixed, quality-controlled guacamole and salsa that assure consistent flavor and avoids possible food poisoning.
But Del Taco’s Soliman brags that each outlet of his Costa Mesa-based chain makes its own fresh guacamole and salsa on the premises.
“Pepsico is a huge corporate environment,” Soliman said. “Their approach is: what’s best for the corporation.”
Once the Del Taco and Naugles merger is completed--probably by early next year, California’s fast-food connoisseurs will see a greatly expanded menu and a stepped-up promotional push.
Even so, Irvine-based Taco Bell executives claim that they don’t take competition from Del Taco all that seriously. With 2,712 restaurants and 60% of the Mexican fast-food market nationally, Taco Bell says its targets are the leaders of the entire fast-food--not just Mexican--industry.
“I don’t waste a minute wondering what Soliman’s doing,” Martin said. “My competition really is McDonald’s. People are still going to go there or to Wendy’s and Pizza Hut, but we’d just like them to go to Taco Bell more often.”
Whether Taco Bell can indeed challenge McDonald’s and the other fast-food heavyweights--or whether it needs to worry about Del Taco--is up for debate among industry observers, too.
“It depends on how well (Del Taco executives) have done their research,” said George Rice, president of GRD Enterprises, which publishes the Crest consumer report on eating trends. “But nationally, the Taco Bell folks are big and they’ve got momentum. . . . Del Taco could make a run at them on a store-by-store basis. But on a corporate level, it’s almost mathematically impossible.”
“Soliman has the locations, he’s got the convenience. And he’s got a sophisticated audience that’s hep to Mexican food,” said Brian Foulke III, chairman of Taco Villa, a Ft. Lauderdale, Fla., chain with 60 fast-food restaurants. “If he comes up with something bigger or better or both . . . his menu could really give Taco Bell fits.”
Indeed, both of these chains have plenty to say about the menu--what to serve, how to cook it, how big the portions and how much to charge. And they don’t always agree. Consider the flap over chicken fajitas, those grilled strips of chicken mixed with salsa, onion and cheese.
Del Taco executives make a point of complaining that Taco Bell has been turning the dark meat in its fajitas white by marinating them in a citric acid. According to Del Taco, the lemon marinade does help keep Taco Bell’s meat juicy, but it also “bleaches” the dark meat.
And Del Taco, of course, boasts that it serves only white breast meat in its chicken fajitas.
Taco Bell admits it uses dark meat in its fajitas, but says that’s because customers prefer dark meat. The company says it knows about the preference for dark meat because it spent part of its annual $2-million marketing research budget asking about chicken in California, Kentucky and Florida.
The debate about consumer preferences, though, doesn’t end with chicken.
Separate interviews with Del Taco’s Soliman and President Wayne Armstrong, as well as Taco Bell President John Martin and marketing Vice President George Reynolds, yield a sort of disdain-contempt, point-counterpoint perspective to the world of tacos and burritos.
While Del Taco has its corporate officers testing food, Taco Bell has four on-site laboratories in constant operation. While Del Taco talks of expanding menus and larger portions, Taco Bell talks of limiting choices and carefully controlling price and quality.
“They have a limited menu, low-cost ingredients, speed of service,” sniffed Soliman, who says Del Taco offers a more extensive menu including, for instance, 20 kinds of burritos. “We’re sensitive to what the customer wants, and we’re trying to produce a quality product that the customer wants and will buy.”
But Taco Bell’s Reynolds says customers want fewer choices. “The heavy fast-food user trusts us to do it the right way,” he said. “We’ve got an obligation not to let the consumer make a mistake, and we give them what we think is the best product.”
Like the Omnitron.
That’s the gadget being tested in the Midwest and at the Taco Bell labs to fill drink glasses more quickly and save 15 seconds per 32-ounce glass without spilling a drop.
But Taco Bell’s advances don’t end there. There are packaging tests to find ways to put tacos and salads in snazzier, more compact wrappings, and there’s Taco Bell’s recently patented machine that melts cheese on its Mexican pizzas.
Meanwhile, in another lab, white-coated technicians measure the thickness of tortillas and use microscopes to check for bacteria growth in a series of petri dishes filled with Pico de Gallo or salsa.
One result of the research is that Taco Bell has introduced at least two new products every year since 1983, including the successful Burrito Supreme and Nachos Bel Grande, as well as this year’s beef and chicken fajitas.
Del Taco’s Soliman thinks that he has had an impact on his rival’s strategy.
“When we came up with two tacos for 99 cents, it didn’t take more than a few days before every Taco Bell location we saw had . . . two tacos for 99 cents. Then we came up with the combination burrito and taco and immediately they come up with a taco and bean burrito,” said Soliman. “All of a sudden, No. 1 is following, rather than leading.”
“If (Del Taco) thinks we’re responding to them, they’re kidding themselves,” responded Martin. “I don’t waste a minute wondering what they’re doing. . . . We’re the elephant and we’re going to sit where we want to sit.”
And where Martin says he wants to sit is among the leaders of the entire fast-food industry. Taco Bell has about 60% of the Mexican fast-food market and was ninth in sales among all fast-food chains last year.
“If I can get more people to talk about Mexican food, it’s better than wondering about which (Mexican competitor) they’re eating at.”
When the new Del Taco menu is finally in place by year’s end, prices will average about 10% more than similar but slightly smaller items at Taco Bell. A Del Taco taco weighing about five ounces, for example, sells on the test menu for 99 cents, while Taco Bell’s taco, weighing about 4 3/4 ounces, usually sells for 79 cents.
What Del Taco hopes to attract is the customer who wants a good-quality product and is willing to pay for it, said Del Taco President Wayne Armstrong.
That product will be provided by an amalgam of two chains that had a history of lackluster performance when Soliman, who was an executive with W. R. Grace & Co., bought them early this year.
Naugles was in the process of closing unprofitable restaurants in its 171-unit chain in the wake of disappointing earnings. It had been acquired by Collins Foods International in 1986 after hasty expansion nearly bankrupted the company.
Del Taco, meanwhile, was privately held with 202 restaurants. Like Naugles, Del Taco served hamburgers--in addition to traditional Mexican fare like burritos, tostados and fajita platters--but with a narrower menu and smaller portions. It had just completed remodeling when Soliman bought the chain.
But now, with the combined chains, the talk is of expansion and new products. Soliman’s goal is characteristically ambitious: “We want to take No. 1 in the marketplace we’re operating in--in size, sales and profitability,” he says. That’s a big order considering that he predicts 1988 sales will total $250 million--or roughly one-seventh of Taco Bell’s.
Soliman hopes to do it by saying adios to Del Taco-Naugles’ slow sellers and adding bigger and more exotic products. Those that become part of the permanent menu will be the best sellers now being test-marketed at a group of 13 Del Taco and Naugles restaurants in Costa Mesa and Mission Viejo. The stores started the two-month test program last week, offering the same items first screened by Del Taco’s executives.
“It was a painful experience,” Armstrong said about the executive sampling. Every part of every item--from mayonnaise to mustard--was tested individually.
“We tasted 15 different kinds of ketchup,” Soliman recalled. “To sell the perfect kind of chip, we had a table full of 27, 30 chips. . . . At the end of the day, you feel like you work for a living.”
The end result of the testing could be a menu with a variety of items, including as many as 20 different combinations of burritos. There also are likely to be some tasty new choices including tostada salads in a bowl-shaped tortilla and fajita nachos that combine steak or chicken strips with refried beans, guacamole and sour cream on chips.
The new menu will also have richer milkshakes with more butterfat, unshredded lettuce on hamburgers, and, of course, white chicken breasts in the fajitas.
Not surprisingly, reviews are mixed on whether the emphasis on variety, larger portions and boasts of quality will work.
An unscientific survey yielded varied reactions.
“I see (Del Taco) as being better food for the money,” said Doug Thornburg, a 35-year-old systems analyst from Santa Ana who visits the chain at least twice a week. “I like the flavor and the consistency, and I don’t like Taco Bell.”
But then there are customers such as Adam Fox, an Anaheim Hills high school student, who stopped at a Taco Bell on his way home from surfing last weekend to buy two taco lights and a soft taco. “I like it (Taco Bell) because it’s good. Del Taco and Naugles are gross. They put onions in their meat. . . . And you fill up more here.”
Fox’s friend, Steve Thien, an 18-year-old student and surfer from Orange, said that Taco Bell’s cheaper prices are what brings him in. “After you go surfing you want to get some grinds and you don’t have much money. You want to get something good.”
But even the surfing crowd wasn’t unanimous: 17-year-old Jason Schoeman of Orange noted that Del Taco “has a rad steak fajita. It’s tasty. And the meat and onions taste pretty good.”
The youthful sampling is probably typical--the bulk of fast-food sales are to 18-to-35-year-old consumers who fill up on fast food an average of 17 times a month.
That data is reflected in the advertising for both chains. The current combined campaign of Del Taco and Naugles tells viewers to rebel against “corporate taco tyranny.” Taco Bell’s television commercials, directed by Henry Winkler, are mini-adventure movies with two guys galloping on horseback across the Arizona desert as they “run for the border.”
“It’s saying, ‘Hey, escape! Fantasize. Do what you really want to do in your heart of hearts,’ ” explained Reynolds.
The relative impact of the ad campaigns and menus may not mean much, though, if there aren’t enough Del Taco restaurants to make a difference to its competitor. Right now, there are 330 Del Tacos-Naugles in California while Taco Bell has 640 stores in the state.
That’s one reason why Soliman is not planning on closing any Naugles and Del Taco locations--even those within a block of each other. The theory is that customers who find long lines at one store can hop in the car and drive down the street to the next.
While Taco Bell has a staff of 42 searching for new locations on which to build some 300 new stores a year around the country, Del Taco has three people scouting (plus outside brokers). And while Taco Bell has an advertising budget of $70 million to $80 million, Del Taco spends only about $10 million.
Taco Bell also has the advantage of the enormous financial and marketing muscle of parent Pepsico.
Soliman, however, insists that his uphill battle can be won in California--which is where he will concentrate for the time being.
“There’s been more exposure of Mexican cuisine in California than anywhere else,” Soliman said. “It’s a great market and . . . so ripe for expansion.”
In fact, some 34.6% of all Mexican restaurant in the United States are in the Pacific region, said Tom Strenk, managing editor of Restaurant Business Magazine. California “is a prime market because Mexican food is semi-indigenous. It’s been around a long time. Consumers are hungry for it, and it’s easier to sell than in New England where you have to tell people what a burrito is.”
And, “if you’re living out of a car, you need fast-food restaurants,” added Jeff Prince, senior director with the National Restaurant Assn.
That factor--life on the run in the fast-food lane--is one thing that Taco Bell focuses on.
That’s why the scores of researchers at the Taco Bell labs are working on such things as the Omnitron and food that can be pre-made and held, waiting to be ordered.
Taco Bell’s Martin claims that his company’s real competition is the other non-Mexican fast-food giants such as McDonald’s and Burger King--restaurants that can beat Taco Bell’s average of 12 seconds per filled order because they don’t have to worry about heat lamps spoiling lettuce and tortilla shells.
Taco Bell also pours some $2 million annually into market surveys and food research. The result has been a growth in its share of the Mexican fast-food market from 40% to 60% in five years, Martin said.
There may be other byproducts of the research too. Martin, however, will not confirm industry rumors of a planned Taco Bell breakfast menu next year, but he talks of the eventual possibility of Taco Bell frozen foods or Taco Bell-label tortillas or salsa.
Just think of Taco Bell food for breakfast, lunch and dinner.
“It’s something we’re thinking about,” Martin said when asked about long-range possibilities.
Net Sales Down
In the short term, though, Martin projects a 13% increase in sales this year up to $1.7 billion from $1.5 billion last year. Taco Bell’s average annual sales per store of $570,000 are below Del Taco and Naugles’, which are estimated to average about $650,000 for stores that are open longer hours. But Martin believes that Taco Bell will outstrip its competitor within the next 24 months.
Optimism notwithstanding, Pepsico’s last three quarterly reports have noted that Taco Bell’s operating profits and net sales growth have dropped through June 11 because of lower average sales per unit.
Martin blames the decline on higher food costs, capital investments and a general softness in the industry. He said he expects the company to finish the year with better figures.
Analysts, though, aren’t so sure.
Emanuel Goldman, an analyst with Paine Webber, predicted Taco Bell earnings will be flat this year. He estimated that the chain’s operating income totaled $74.1 million last year and will increase to only about $75.6 million in 1987.
“They’ve had same store sales growth, in real terms, of 3% to 6% for a quite a few years,” Goldman said. “In the last 12 months, it seems to have slowed.”
One reason for that, said Lawrence Adelman of Dean Witter Reynolds, may be that “consumers perceive they’re not getting enough food value” for their money at Taco Bell. It’s not “the feeling of having had a full meal that they get through a Whopper and a malt.”
Whatever the reason for the decline, Taco Bell is clearly not standing put. Aside from the ongoing research on consumer preferences, speedy delivery and quality control, the chain has tried to open about 300 new stores a year for the last five years to meet its long-term goal of 4,000 restaurants and $4 billion in sales by the end of 1991.
And older stores that looked like plastic adobe mini-missions have been remodeled with lots of open patio space and blue-and-pink neon signs.
“I don’t see any reason why there can’t be a Taco Bell wherever there is a McDonald’s,” Martin said.
Even if there isn’t a Taco Bell, there just may be another Mexican fast-food restaurant. Two other national chains, Eugene, Ore.-based Taco Time and Cheyenne, Wyo.-based Taco Johns International, say they’re considering putting restaurants into smaller California towns where McDonald’s may be the only fast-food franchise in town.
And then you’ll be able to get a taco anywhere.