Executive Insights | June 2011 | By Sam Oches

Bell on the Ball

Greg Creed, CEO of Taco Bell, talks about the company’s secret salt reductions, why he’s not afraid of Chipotle, and oh yeah, that pesky beef lawsuit.

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.

“That’s like saying Hyundai competes with BMW,” Creed says. “If you take the Hyundai analogy, they’ve got the Genesis, which I understand is a world-class car and every bit as good as a 5 Series. I think with our quality value and some of the work we’re doing on our menu, I do believe we can offer that sort of quality [as Chipotle].

“But I’m not going to pretend that we’re going to turn the brand into BMW—I don’t want to turn the brand into BMW. Hyundai sells a whole lot more cars than BMW does.”

Anyone surprised to discover that an Australian man is heading a California company that sells Mexican food would not be the first, but Creed’s pedigree suggests he’s certainly fit for the job. Previously the chief marketing officer of KFC Australia for seven years, Creed joined Taco Bell as chief marketing officer in 2001. He was promoted to COO in 2005 and in 2006 became president and chief concept officer of the brand.

Creed took the title of CEO of Taco Bell earlier this year, ready to grapple with whatever challenges came the brand’s way.

And a challenge he got—in fact, it was a CEO’s worst nightmare.

In January, Montgomery, Alabama–based law firm Beasley Allen Crow Methvin Portis & Miles PC filed a class-action lawsuit against Taco Bell, claiming the company was misleading customers by telling them its ground beef was, well, beef. The lawsuit said Taco Bell’s meat contained only 36 percent USDA-inspected beef, which was below the legal limits of what could be called beef.

After the lawsuit went public, gaining global media attention, Taco Bell did what any company facing a legal threat that could potentially derail its reputation would do—it took out ads in The New York Times, Wall Street Journal, and other newspapers across the country thanking Beasley Allen for the lawsuit.

Wait, what?

“I have total faith and confidence in the food that we sell, and I know what’s in our recipes, and I know we’re right, I know they’re wrong, and therefore I am going to defend the reputation of this brand,” Creed says. “It’s really that simple.”

Indeed, Taco Bell did not take the lawsuit sitting down; the company immediately went public with the fact that its ground beef is 88 percent USDA-certified beef and 12 percent seasonings, water, and other ingredients that Creed says are Taco Bell’s “secret,” but which he revealed in a YouTube video. The company also rolled out a multimillion-dollar TV campaign that featured real employees talking about Taco Bell’s beef.

To thank fans for their support through the ordeal, Taco Bell gave away free tacos to its Facebook fans, pledging up to 10 million free tacos.

The response to the lawsuit seemed to work, according to branding and loyalty firm YouGov. The firm’s BrandIndex tracks negative or positive things consumers hear about a company, on a scale of -100 to 100, with zero being neither positive nor negative. Taco Bell’s “buzz score” went from 19.1 on January 3 to -10.6 on February 7. However, by March 15, the company’s buzz score was up again to 9.8.

Creed, who notes the law firm only needed to call Taco Bell to find out the truth about its beef, says he never once considered sitting back and letting the issue blow over.

“There’s a lot of people’s lives that are on the line,” he says. “We have 130,000 people who work at Taco Bell, we’ve got a lot of franchisees, there’s a lot of people whose lives are caught up in this, and I think when people go about making these sort of allegations, it’s not just a plaintiff’s law firm suing a big company; there are people’s lives and there are jobs and there is income and all this stuff at stake.”

“You have to defend the brand as aggressively as you would defend your own personal reputation.”

The suit against Taco Bell was dropped in April.

As for the lessons Taco Bell will carry into the future after the beef debacle, Creed says the brand just needs to keep being the same Taco Bell customers have come to expect.

“The lesson is clearly you have to have your facts,” he says. “You have to know what the brand stands for. You have to respond in the brand voice. And you have to do it as aggressively as you would defend your own personal reputation. I would like to think that we check the box on all of those things.”

With the beef behind them, Creed says, Taco Bell is focusing on future growth, especially domestically. While its Yum counterparts Pizza Hut and KFC are going gangbusters overseas—especially in China, where KFC has 3,400 outlets—Taco Bell is focusing its efforts on the U.S. The brand has just more than 200 international stores, but nearly 6,000 domestic. Creed says the company will upgrade U.S. stores with new furniture packages, free WiFi access, and more power outlets to welcome customers to stick around.

Taco Bell is also riding the healthy-eating wave; after finding success with its Drive-Thru Diet and Fresco menus in 2010, the company has turned its attention to lowering sodium.

“By the end of 2011, we will have a 33 percent reduction in sodium content across our entire menu in less than three years, which means we will be selling 1.5 million pounds less sodium per year,” Creed says.

“We’re evolving—it is a process. Sodium is not like trans fat—you can’t rip all the sodium out like you could change from one oil to another. You’ve really got to wean the customers off some of these tastes and flavors, and our team has done a really fantastic job,” he says. “I’m not hearing about anyone else that’s at the level of sodium reduction that we are.”

But don’t tell anyone we told you—Creed says the company isn’t “tooting its own horn” about the sodium focus.

“Does that make us perfect? No, it doesn’t make us perfect,” he says. “But have we been able to do this without changing the taste? Absolutely. In my mind, we can deliver great, distinctive taste, it’s not costing us or our customers any more, and yet there is a million and a half pounds less sodium, I think that’s a big win.”

And for a company that just six months ago was facing potentially catastrophic damage to its reputation, a big win is a big sigh of relief.