Getting Leaner : Fast food: Irvine-based Taco Bell, which trimmed 75 corporate jobs this week, weighs in with a new bid to boost sales by cutting calories.

By ROSS KERBER and GREG JOHNSON

Feb. 9, 1995 12 AM PT

TIMES STAFF WRITERS

IRVINE —

With its breakthrough “value pricing” strategy already pushed to its limits, Taco Bell Corp. on Wednesday bid to reverse a sales slowdown by unveiling a new menu of lower-fat, reduced-calorie fast food.

At a presentation in New York, Taco Bell executives introduced “Border Lights,” a line of products with about half the fat and one-fifth fewer calories than the restaurant chain’s standard fare. One of its best-selling burritos now has 19 grams of fat, the company said, but the light version will have only 8 grams.

But analysts said that Taco Bell, which cut 75 corporate jobs Tuesday, may need more than a new menu to regain its edge in a highly competitive industry that is growing rapidly, despite a national report last year citing the high fat content of sour cream, guacamole and other staples of Mexican-style restaurant dishes.

Nutrition is not a concern of the young consumers who are the main customers of the fast-food industry, said Terry Bivens, an analyst at Argus Research in New York: “I don’t think most 18-year-old kids care. To them it’s still about price and flavor.”

The lower-fat menu items will also be priced higher--about 10 cents on average, Taco Bell said--and that could put the company at a cost disadvantage.

The concept of value pricing, which Taco Bell pioneered in the 1980s, “has run out of gas,” Bivens said. Pepsico Inc., Taco Bell’s parent company, “likes to compete on price and volume across a wide range of products,” he said, “but they’ve gotten price down to the point where it’s difficult to do more.”

Pepsico reported Tuesday that Taco Bell’s sales at stores open more than a year were down 2% for the fourth quarter, though total operating profit and revenue were higher.

John Martin, Taco Bell’s chairman and chief executive officer, conceded that “value alone is no longer a competitive advantage.”

The appeal of the Border Lights menu will be its use of lean meat, low-fat cheese and no-fat sour cream, said Martin, adding that he has lost 50 pounds since Taco Bell began working on its low-fat menu two years ago.

A healthier menu might increase the frequency of some customers’ visits to fast-food restaurants, said Ron Paul, a restaurant industry consultant in Chicago. But convenience still ranks as the most important factor in a fast-food chain’s appeal, he said, followed closely by price.

“There are enough alternatives,” Paul said, “that a chain can’t forget its focus, what it’s competing on.”

Pressures on fast-food chains to provide lower-fat products increased last year when the Center for Science in the Public Interest in Washington criticized Mexican restaurants for serving cheese dishes and fried foods with fat content far beyond healthy levels.

Although the center examined mid-priced Mexican food chains such as Chi-Chi’s and El Torito, as well as independent restaurants, analysts said the report affected fast-food sales as well.

Paul Hitzelberger, executive vice president for marketing at Taco Bell rival Del Taco Inc. in Orange, said that Taco Bell’s new low-fat products may appeal to people who eat fast food only occasionally, but increases in those sales may not even cover the cost of the Border Lights ad campaign.

Del Taco offered a line of healthier items in 1990, Hitzelberger said, including whole-wheat tortillas and fish tacos, but had little success and subsequently dropped it.

At El Pollo Loco Inc., also a major player in the Mexican-style fast-food market, executives said it remains to be seen whether Taco Bell’s new menu will appeal to health-conscious diners.

“I think a lot of people might go out and try it, but it’s going to come down to taste, whether people can tell the difference,” said Ray Perry, president of the Irvine-based subsidiary of Flagstar Cos.

The Border Lights ad campaign itself is already under fire from Latino groups protesting that it brings to mind tensions at the U.S.-Mexico border, where federal agents have strung high-powered lights to help them spot people trying to enter the United States illegally. Taco Bell’s preview of the campaign began on Super Bowl Sunday with TV commercials showing people staring at bright lights in the night sky.

Taco Bell spokesman Jonathan Blum dismissed comparisons of the commercial to any actual situation, saying that “our ‘Cross the Border’ theme is a state of mind, not a geographical location.”

Tuesday’s layoffs, which cut about 10% of Taco Bell’s corporate staff, occurred at all levels, Martin said, including departments charged with developing future business opportunities.

“We decided to eliminate some of the projects we were working on that weren’t as high impact as others,” Martin said.

The cut came only months after state and local officials offered tax credits and other incentives to keep Taco Bell from moving its headquarters out of California. Another factor in the company’s decision to stay was that it negotiated more favorable terms on the Irvine office tower that it leases from Shuwa Investments Corp. in Los Angeles.

Martin said that layoffs were part of the company’s regular business review. “The last time we did the process, in the late 1980s, about 50 or 60 people were laid off,” Martin said.

Martin attributed the decline in same-store sales to 1994 being “a real tough year for us,” especially after release of the report from the Center for Science in the Public Interest. “In the summer, CSPI came out on Mexican foods, which really hurt us in the second half,” he said.

For 1994, Taco Bell reported operating profit of $270.3 million, up 7% from operating profit of $253.1 million for the previous year. Annual sales rose 17% to $3.4 billion from $2.9 billion.

Martin tied the slow income growth to the company’s decision to increase to 25,000 from 9,000 the number of restaurants, stores and kiosks that offer Taco Bell products.

While that expansion was expensive, Martin said, “in the long term, it’s positive for our business.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Taco Bell Rings Up Profits

The Mexican-style fast-food chain’s sales and operating profits rose for 1994. Sales at U.S. stores open more than a year, however, were lower. Figures in millions of dollars:

Net Sales:

4th quarter: +16%

1993: $975.9

1994: $1,130.8

Fiscal Year: +17%

1993: $2,901.3

1994: $3,401.4

Operating Profit:

4th quarter: +9%

1993: $87.5

1994: $95.2

Fiscal Year: +7%