Executive Insights | June 2011 | By Sam Oches
Bell on the Ball
A group of cartoon superheroes dubbed the Super Delicious Ingredient Force that lives in a “Fortress of Flavor” will never be the stars of a marketing campaign for Panera Bread. Chipotle CEO Steve Ells will never say that a $2.69 taco is expensive. And it’s highly unlikely that McDonald’s will issue a public statement thanking the Center for Science in the Public Interest for its legal action against Happy Meals.
But then again, none of those chains present quite the quick-serve offering that Taco Bell does—not in product, not in value, and not in branding. The 49-year-old Mexican category leader marches to the beat of its own drum, comfortable serving cheap food to a younger demographic that finds characters named Captain Enchilada Sauce and Steak Maximus funny.
Even company CEO Greg Creed is not your typical close-to-the-vest, stick-to-the-script kind of leader. The 53-year-old Aussie is chatty, honest, and intimately rooted in his company; he says he’s Facebook friends with half of his corporate staff, and his first reaction to the January class action lawsuit filed against the company over the contents of its beef was to be sad for the reputations of both Taco Bell and its 130,000-plus workforce.
If Creed has a secret to how Taco Bell is maintaining its success without succumbing to the china-dishing, latte-serving, organic-touting trends of the quick-serve industry, it’s this: “If you understand what you as a brand stand for, if you understand the role that your brand plays in people’s lives, and how you make their lives better, then I believe you can be successful in good times and bad,” he says.
Of course, the last few years have been what many in the quick-serve industry would call bad times. When the economy tanked in 2008, so did customers’ discretionary incomes and willingness to spend on food outside the home.
With already some of the lowest prices in the industry, though, Taco Bell was not forced to do what many in the restaurant industry rushed to at the height of the recession—deep discounting. The Yum! Brands concept was already offering about 10 items for $1 or less on its Why Pay More! menu, and the $2 Meal Deals unveiled in 2010 gave customers four options that paired a burrito or taco with a drink and chips—a move that marked the two-buck price point as a magic number across the industry.
Still, now that the economy is improving and many restaurant companies are laying off their price slashing, Creed says that cheap food will continue to be Taco Bell’s strategy.
“I think there’s a large part of society that is still struggling, and I think, from our perspective, that if you can give people really distinctive taste at unbeatable value, you can be very successful, both in the short term and the long term,” he says. “I think that’s what underpins our past success and what we believe will be our success going forward.”
Yes, value—one of those terms, like fresh, seemingly without a firm definition but which gets tossed around like dough in a pizzeria. But Creed does have a definition—or three—for fresh and he holds Taco Bell to its standards in every new menu item the chain rolls out.
“There’s what we call price value, and price value is where there’s a really low price—89-cent tacos, 99-cent burritos—where you’re not paying a lot of money,” he says. “Then there’s what we call abundant value, and abundant value is what I get divided by what I pay. … The third one is what I would call a quality value, and probably a good example of that right now is our shrimp taco and burrito that we’re promoting.”
The Pacific Shrimp Taco, along with the Pacific Shrimp Burrito, rolled out earlier this year. It contains six shrimp tossed in a chipotle marinade and served on shredded lettuce, salsa, and avocado ranch sauce atop a flour tortilla.
“The taco costs $2.69, which, considering we’re the home of the 89-, 99-cent tacos, is quite expensive,” Creed says. “But people are saying, ‘I can’t get six shrimp for $2.69 anywhere in the world.’ We call that quality value because the quality of the shrimp—the fact that we offer shrimp, the fact that you can get six of them, and the fact that it’s $2.69—is still amazing value.
“We say at Taco Bell, ‘We make value matter,’ whether you’re paying 99 cents, $2.69 for a shrimp taco, [$5 for] a $5 Box, or [$10 for] a $10 Party Pack with 12 tacos,” he says. “We’ve got to make sure value matters at whatever price point you want to participate at.”
Despite the low price points, Taco Bell continues to perform as the No. 1 Mexican quick serve—to an astounding degree. In 2010, the chain did $6.9 billion in U.S. sales across 5,634 stores, good for sixth place on this publication’s annual QSR 50 list. Its AUV of $1.3 million was nearly three times as much as Subway’s.
The No. 2 Mexican quick-serve player, Del Taco, sits at No. 36 on the QSR 50, doing $579 million in U.S. sales across 522 stores.
Companies like Del Taco, Taco John’s, and Taco Bueno, however, are not the fast feeders Creed considers competition; that would be companies like McDonald’s, Burger King, and Wendy’s, which Creed says Taco Bell competes with on the convenience front.
The Mexican category, though, is building steam quickly. Taco Bell no longer enjoys the total domination it once did in the field; brands like Chipotle, Qdoba, and Moe’s Southwest Grill are carrying the segment into the fast-casual realm to much success.
Yet Creed remains unwavering in his belief that Taco Bell fits a special niche in the marketplace, one that is not in danger of succumbing to the upgrades of the fast-casual industry. For starters, Creed says, some people just want to pay less for Mexican food—“When you go to a fast casual, you’re paying $8 or $8.50 for a burrito,” he says. “There are a lot of people who don’t have $8.50 to pay for a burrito”—not to mention Taco Bell serves a much different, lower-income demographic than Chipotle does.
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