Taco Bell Sells Its Grocery Line to Kraft Foods

Taco Bell Corp. said Thursday that it has agreed to sell its growing line of grocery products--including dinner entrees, sauces and dips--to Kraft Foods Inc., the nation’s largest packaged foods company.

Neither Taco Bell nor Kraft, based in Northfield, Ill., would release a sales price. The Irvine operator of Mexican-style fast-food restaurants said that the grocery line it started three years ago generates $50 million in annual sales.

The deal involving two widely known names in the food industry might at first seem confusing for consumers because Kraft will be distributing goods bearing Taco Bell’s name and logo.

But industry analysts expect the deal to speed the growth of Taco Bell’s relatively small product line because Kraft is an acknowledged powerhouse when it comes to elbowing its way onto crowded grocery store shelves.

The combination also illustrates how changing consumer preferences are blurring the line between the restaurant and grocery store businesses.

“Kraft and others in the packaged goods business are recognizing that consumers are increasingly driven by brand names like Taco Bell,” said Randall Hiatt, president of Fessel International, an Irvine consulting firm. “And this deal is a substantial recognition on the part of Kraft that consumers recognize restaurant names as grocery store brand names.”

An increasing number of restaurant companies--including Claim Jumper in Irvine, Cheesecake Factory Inc. in Calabasas and Wolfgang Puck Food Co. in Santa Monica--are now selling their menu items through grocery stores.

Consumers are more likely to equate a restaurant brand name with superior quality or value, industry consultants say. And established packaged-foods companies such as Kraft and ConAgra Inc. are scrambling to develop--or acquire--brand names such as Taco Bell that can augment their sales.

Companies such as ConAgra, which markets Marie Callender’s frozen pot pies, “don’t care if it’s their name on the box or a successful restaurant name like Marie Callender,” Hiatt said. “They care about selling product.”

The deal gives Kraft Foods “a major new product opportunity we can expand nationally in the large and growing ethnic foods market,” said M. Carl Johnson, its vice president. “It also gives us one of the great brand names in the food business, which we can leverage into other categories in the supermarket.”

Terms of the agreement call for Kraft to acquire Taco Bell’s existing line of grocery products and pay the restaurant operator a royalty for use of its name. Kraft also plans to use the Taco Bell name on newly developed refrigerated and frozen products that the two companies will develop.