Taco Bell Beefs Up Menu, Enjoys Sales Comeback

With the fast-food industry struggling with flat sales, some chains took the classic textbook approach of cutting prices to lure more traffic.

Irvine-based Taco Bell did the opposite, adding more expensive items to its menu while also enjoying a steady run-up in same-store sales.

Taco Bell, the nation’s largest Mexican fast-food chain, started its sales comeback in the fourth quarter of 2001. Last year, sales at Taco Bell restaurants opened for at least 12 months jumped 7%, and so far this year same-store sales are up 1.5%.

Along the way Taco Bell, best known for selling tacos and burritos for under $1, went upscale by introducing a $2.99 Chicken Caesar Grilled Stuft Burrito, and the Southwest Steak Border Bowl for $3.49.

“We’re repositioning the brand,” said Greg Creed, Taco Bell’s chief marketing officer.

Taco Bell has quickly gone from the weakest to the strongest of the fast-food chains owned by Louisville, Ky.-based Yum Brands Inc. Yum Brands, formerly known as Tricon Global Restaurants, was spun off in 1997 by PepsiCo Inc. Yum also owns KFC and Pizza Hut and last year it added seafood chain Long John Silver’s and A&W; All-American Restaurants.

In the second quarter, Yum Brands reported that its earnings fell 13% to $122 million, but that sales rose 10% to $1.94 billion. The company does not break out profits for its restaurant chains, but Wall Street credits Taco Bell for much of the parent company’s rebound.

“It’s been a great couple of years for Taco Bell. It’s really the bright spot now in the portfolio,” said analyst Andrew M. Barish, who follows Yum Brands for Banc of America Securities. Yum Brands stock closed Friday at $29.25, up 33 cents, on the New York Stock Exchange. Yum’s shares have climbed 21% this year.

Taco Bell is the fifth-largest fast-food company in the U.S., with $5.2 billion in sales last year.

But within Mexican fast food, Taco Bell is pretty much the category with nearly a 70% market share, according to Technomic Information Services, a Chicago restaurant consulting firm. Privately held Del Taco Inc., based in Lake Forest, and Cheyenne, Wyo.-based Taco John’s International Inc. garner significantly less of the Mexican fast-food market.

Much of the growth in Mexican restaurants is seen at the higher-priced end. Last year, sales at the McDonald’s Corp.-owned Chipotle chain rose 55% to $225 million, while sales at Wendy’s International Inc.’s Baja Fresh chain jumped by 41%, to $249 million.

“But even with these chains coming into our market, we have continued to grow,” Creed said. “We’re getting more heavy users as well as light or lapsed users, customers who had rejected us before.”

Wall Street credits much of the chain’s turnaround to Taco Bell President Emil Brolick. He was hired in 2000 after spending 12 years at Wendy’s as senior vice president for new product marketing, research and strategic planning.

At Taco Bell, Brolick’s goals were to have cleaner, nicer-looking restaurants, and offer higher-priced items with better ingredients.

He also had to deal with many financially troubled Taco Bell franchises. In an 18-month span from 2000 till the fall of 2001, Taco Bell’s same-store sales kept falling and in one four-month period Taco Bell suffered double-digit drops in sales. Some franchisees fell into bankruptcy, and others, buried under debt from a recent expansion push, pleaded for help from the company.

Taco Bell ended up restructuring deals with nearly 1,800 of its restaurants, or almost 30% of the chain. The company bought 147 restaurants for $76 million, spent an additional $28 million to purchase land, buildings and equipment from 52 others, and committed $45 million for future franchise capital expenditures. The company also set up a $15-million loan program to help troubled franchisees.

Rolling out a higher-price menu helped boost Taco Bell’s average sales to $964,000 per restaurant last year -- nearly on par with rival Burger King -- and up 7.6% from $896,000 in 2000.

Besides changing the menu and grooming some of its disheveled outlets, Taco Bell also cut 25 seconds from its delivery time at the drive-through windows, which accounts for 66% of Taco Bell sales.

In the fast-food trade, delivery time is measured as precisely as an Olympic sprint. In last year’s drive-through survey done by QSR magazine, a trade publication, Taco Bell had the fourth-speediest food delivery time at 167.15 seconds, ranking behind only Wendy’s, Atlanta-based Chick-fil-A and McDonald’s.