Del Taco Unveils Next Chapter of its Digital Story

    Mobile app upgrades and a new loyalty program are expected in the fall.

    Fast Food | March 10, 2021 | Ben Coley
    Del Taco restaurant prototype.
    Del Taco
    Del Taco’s digital transformation is more than underway.

    Each of Del Taco’s moves is motivated by the push for “ultimate convenience.”

    CEO John Cappasola defined that as “maximizing all of our on and off-premises service modes and considering new ways guests want to access Del Taco.” It means the brand wants to meet guests wherever they are and give them a great experience.

    This thought process feeds into the chain’s new holistic CRM platform, which it plans to launch in fall 2021. Cappasola explained the platform will further digitize Del Taco and allow the brand to incentivize and reward fans for loyalty. That includes a number of features and improvements to the mobile app, rollout of a loyalty program, and data and attribution capabilities to drive personalized and valued experiences and grow sales and frequency.

    Del Taco is also leveraging its mobile app to test a curbside program called “Park and Get It,” which will add another limited-contact service mode while most dining rooms remain closed.

    “Even if dining rooms are reopening and the environment around us is shifting, we believe that it's unlikely that the consumer will step backwards in regards to their want and need for convenience,” Cappasola said Tuesday during the company’s Q4 earnings call. “We think that will continue to move forward. So we want to be positioned to be able to do that well as a brand.”

    READ MORE: Del Taco Drops 'Fresh Flex' Prototype Designed to Grow

    The moves signify Del Taco’s digital transformation is more than underway. The mobile app currently has 1.35 million registered users—up north of 50 percent compared to the end of 2019. Company delivery sales mixed 6.3 percent in Q4, compared to 2 percent in the year-ago period. That’s a welcomed increase for Del Taco, since delivery brings an average check that’s 1.85 times the amount of an in-restaurant check, primarily because of party size.

    Amid the rise in delivery mix, Del Taco instituted a 20 percent delivery price premium in Q3 to improve margins and flow through. The measure is intended to offset the high fees instituted by third-party delivery companies, which will continue to mount as delivery becomes what Cappasola called a “permanent and meaningful sales channel.”

    Del Taco’s prized channel remains the drive-thru, which reached mix in the 80 percent range at certain times during the pandemic. To satisfy rising volume, the brand extended queue lines and added wireless ordering devices to improve throughput. Because of the efficiencies, drive-thru is 6 percent faster during the lunch daypart versus pre-COVID.

    “The adoption of technology to be able to access restaurants, restaurant occasions both on and off-premise, has been quite impressive in 2020 as the consumer has really been forced to be able to adopt technology in order to access restaurants,” Cappasola said. “Clearly our ultimate convenience strategy was designed to be able to really play into that trend.”

    Systemwide, same-store sales rose 3.8 percent, including a 7.5 percent lift at franchises. For the year, franchise comps increased 1.4 percent, marking the eighth straight calendar of positive growth. Company-run stores saw a 0.6 percent uptick in Q4, but a decline of 2.9 percent in 2020.

    The significant difference between the company and franchise base is geography. The 301 franchises are spread across 15 states, mostly outside of California. Meanwhile, half of the 295 corporate stores are located in Los Angeles and Orange counties and Las Vegas, which saw negative comps. Outside of California, Del Taco experienced a same-store sales increase of 9 percent.

    Del Taco

    Del Taco's new prototype includes third-party delivery pickup stations, double drive-thru lanes, a dedicated lane for mobile orders or delivery driver pickups, and dedicated parking lot areas to park, eat, and go.

    Through the first several weeks of Q1, both franchises and company-run stores are seeing positive same-store sales and sequential improvement. For the remainder of the quarter, Del Taco expects accelerated performance as it laps the initial COVID impact. This should result in comps growth in the mid-single digits for corporate locations and low-double digits for franchises.

    Del Taco posted a restaurant contribution margin of 17 percent, down only 40 basis points from last year. This was achieved through a menu price increase of 4 percent, which favorably impacted food and labor costs. The chain earned total revenues of $491.9 million, representing a 4.1 percent decrease year-over-year.

    Breakfast and late-night dayparts remain challenged, but Cappasola said those should improve as COVID subsides.

    “Consumer demand related to changing behaviors because of the pandemic is one,” said Cappasola, describing how the dayparts are affected. “And then two, some of the curtailing of dollars that’s occurred at these dayparts just due to optimizing profitability. The demand is not there, so we've taken hours incrementally here and there, store to store, depending on the circumstances. So both of these factors start to take care of themselves as things open back up and consumers return to more normalized activities. We do believe that both dayparts are poised to have an acceleration in same-store sales.”

    The CEO noted Del Taco’s performance outside of California is a “testament to the relevance of this brand amid the pandemic.” The rising sales have energized discussions with both current and prospective franchisees, who are likely interested in the brand’s new Fresh Flex prototype.

    The prototype includes third-party delivery pickup stations, double drive-thru lanes, a dedicated lane for mobile orders or delivery driver pickups, and dedicated parking lot areas to park, eat, and go. Because of the building’s flexible nature, Del Taco is able to offer multiple build-out options to lower net investment and expand real estate access. This means the chain can grow through small footprint drive-thru only models, drive-thru endcaps, conversions, and freestanding sites. The first Fresh Flex store is scheduled to open in Orlando later this year.

    The new store design, including backlit towers and a “vibrant welcoming color palette,” will be provided to current stores through remodeling. Del Taco modernized five older restaurants prior to COVID, which drove a double-digit lift in sales. Another five were completed during the pandemic, but the results are harder to sort through because of COVID trends. Up to 20 more remodels will be completed in 2021.

    Del Taco is targeting design costs between $150,000 and $500,000 per restaurant, based on the age of the building and type of legacy prototype that’s being remodeled.

    “We expect the older restaurants will come in at the higher end of the range, while the restaurants built since the 1990s should come in closer to the lower end of the range with mostly cosmetic upgrades,” Cappasola said. “Ultimately, we believe we can generate AUV growth and an appealing ROI through this final phase of testing that will lead to a formal systemwide remodel program that is compelling to franchisees as we move into 2022.”

    In 2020, Del Taco opened a net of one company-run store and closed a net of one franchise store. This year, the chain expects to open 12 stores—four corporate and eight franchises.

    Capital expenditures are expected to be in the low $30 million range and cover the following: maintaining or enhancing existing restaurants, opening company-operated restaurants, implementing the test remodel program, and rolling out various technology and restaurant-level investments.