Hoping to catapult itself into the big leagues of fast food, Del Taco Inc. announced Monday that it has recaptured exclusive rights to its name and has embarked on a major franchising push.
In the process, it hopes to draw a bead on rival Taco Bell Inc. and become a nationwide chain, competing head to head with McDonald's and Burger King.
The regional 319-unit Del Taco chain has undertaken a $14-million renovation program to update the look of its restaurants and signs, install computers in the kitchens and add such amenities as neon decorations and jukeboxes. And energetic President Kevin K. Moriarty said that's only the start.
But first, Moriarty said, the chain needed to fix an identity problem: two Del Taco chains that had grown under separate ownership.
With its future believed to be firmly rooted in California, Costa Mesa-based Del Taco in 1978 sold the rights to its name and trademarks outside the state to W. R. Grace & Co. in Florida. Grace opened about 90 units, largely in the South, but most did not perform well.
By buying back its name and trademarks, Del Taco now can exploit the franchise potential of market areas that had belonged to Grace. In particular, Moriarty said, he hopes to expand into the Midwest and Pacific Northwest.
"We're now officially the only Del Taco worldwide," Moriarty said. "We've cleared the path for accelerated growth far beyond our Southern California roots."
Still, the company is dwarfed by Taco Bell. The Irvine-based Pepsico subsidiary has been a success story of the 1990s. It is credited with leading the fast-food trend toward lower pricing--originating the 59-cent taco--along with creative advertising and tasty food. With 3,600 units, Taco Bell is 10 times the size of Del Taco.
Moriarty, a 44-year-old former Burger King executive vice president, said that Taco Bell isn't necessarily the target. Taco Bell's heavy national advertising is creating a greater awareness of Mexican-style food, which is the fastest-growing segment in fast food. And Del Taco, as the second-largest contender, benefits.
Unlike Taco Bell, Del Taco offers food freshly prepared in the restaurant kitchens and a menu that includes hamburgers as well as Mexican-style food. And the tacos sell for a dime less.
Taco Bell counters that its quality is as strong as ever. Central preparation of food, which is then quickly shipped to restaurants, "ensures the consistency of our quality," said Taco Bell spokesman Jeff Lightburn. He also noted that Taco Bell is expanding so fast that "by the turn of the century, we will have tens of thousands of units."
A private company, Del Taco is principally owned by Moriarty and other top executives. Its primary financing is from General Electric Capital Corp.
The franchises will be lucrative, Moriarty maintains, because the restaurants are being designed for low-cost operation. Also, the company said it will liberally grant exclusive development rights to franchisees.
Janet Lowder, a restaurant consultant based in Rancho Palos Verdes, said that capital could be a problem, since "it still takes money to grow a franchise program" even with payments by franchisees.
And, she added, it remains to be seen whether Del Taco's spicier brand of Mexican-style food will be popular outside California with Americans accustomed to Taco Bell.
Doug Christopher, a fast-food analyst for the stock brokerage of Crowell, Weedon & Co. in Los Angeles, said that Del Taco's low prices and its menu variety could position it well for growth.
By franchising, Christopher said, the company is likely to grow faster than if it were to open company-owned units.