Del Taco Sees Beyond Meat as 'Competitive Differentiation'

    The taco chain's 21-quarter streak ended during the first quarter.
    Two Beyond Meat tacos at Del Taco.

    Del Taco

    The launch of Beyond Tacos is attracting new customers, Del Taco said.

    Del Taco’s positive streak came to end during the first quarter of 2019. After 21 consecutive periods of same-store sales growth, the California-based chain took a slight dip to start the year.

    Across the system, same-store sales decreased 0.1 percent. Franchise locations (312 of Del Taco’s 583 units are corporate) fared slightly better than company-run stores, growing 0.4 percent versus a 0.6 percent decline at company-owned stores. CEO and president John D. Cappasola said during a May 6 conference call that bad weather on the West Coast and Lenten season falling later than last year sagged the results.

    Total revenue during Q1 rose 1.5 percent to $114.2 million from $112.6 million compared to the year-ago period. Even with the decrease in same-store sales, the company lapped systemwide comparable gains of 3.7, resulting in a two-year stack of 3.6 percent.

    Transactions continued to decline, however, with a 5.5 percent drop in Q1 compared to a 3.9 percent decrease in the previous quarter.

    While the results are not what the company hoped for, it is already tracking forward, executives said. Del Taco rolled out transaction-driving initiatives toward the end of Q1 and believes it will return to positive territory this quarter.

    Del Taco’s app, which launched last November, now has more than 500,000 active users and continues to grow. Digital innovation and further updates are expected to roll out later this year. Cappasola said customers would be able to order through the app for both pickup and delivery by summer.

    A new mix of value menu items is also improving Del Taco’s performance. The chain’s Fresh Fave Boxes, which include two to three entrees, French fries, and a drink, come in at $4, $5, and $6 price points, and launched late Q1. Cappasola believes as consumers have more value options transactions will grow.

    “We saw some momentum coming out of that program and then we've seen further acceleration recently with the launch of Beyond Tacos,” Cappasola said. “We think, overall, these two initiatives puts us in a great position to compete more effectively for transactions immediately.”

    While the new product is still in its infancy—they’ve only been on the menu for 12 days—results are promising. Beyond Tacos and Beyond Avocado Tacos are available at all restaurants.

    The launch of Beyond Tacos is attracting new customers, Del Taco said. The new items give vegetarian and vegan customers a chance to interact with a brand they might have avoided previously.

    Cappasola added that the Beyond Tacos aren’t just an option for vegan and vegetarian customers. It opens up the possibility for existing guests to try a healthier option and cut down on red meat consumption. So far, consumers are mixing in Beyond tacos with other menu items.

    “A key objective as we developed our Beyond Taco strategy was competitive differentiation, which we attacked on three fronts: flavor, variety, and convenient value,” Cappasola said. “The team did a great job developing a proprietary and unique flavor profile that tastes incredibly similar to our current ground beef, allowing us to broaden its appeal to not only attract vegans and vegetarians, but also those looking for better-for-you options or to reduce red meat without sacrificing flavor.”

    Del Taco’s vegetarian option is priced at $2.49, which is a $1 premium compared to the original taco. Cappasola said the pricing allows the healthier option to be accessible.

    Less than two weeks after the Beyond Tacos launch, check and transactions rose significantly, Cappasola said.

    Refranchising ramps up

    The first quarter kicked off Del Taco’s plan to become 55 percent franchised by summer 2020. Del Taco refranchised 13 lower-volume company-owned stores in the Los Angeles market. These locations had AUVs of $1.1 million or below. The net proceeds for the transaction came to $2.1 million.

    During Q1, franchise revenue increased 7.2 percent or $4.1 million from $3.8 million this time last year. To help AUV growth, Del Taco acquired three high-volume franchise restaurants for $3.1 million in Q1.

    Del Taco brought on restaurant and franchise investment banking firm, The Cypress Group, known for its work with TGI Fridays and Wendy’s, to help meet its refranchising goal as well. The firm will manage the sale of company-owned restaurants in four non-core Western markets.

    “The marketing process has commenced and is targeting new or existing franchise groups with proven restaurant operations capabilities and a strong, consistent track record of new unit development, who commit to continued brand growth in existing and/or other markets,” Cappasola said.  

    Regular brand development will continue along with refranchising. So far in 2019, four franchise locations and one company-owned restaurant opened. An additional nine restaurants are under construction and Del Taco plans to meet its goal of 25 new restaurants by the end of the year.

    Expanding delivery options

    During Q1, Del Taco launched delivery through Grubhub to all company stores. However, the company is not stopping there. Later this year, DoorDash and Postmates will be added to all restaurants, Cappasola said. About 50 percent of franchise restaurants are currently signed up with Grubhub, too.

    The addition of multiple delivery services will take time as the company updates technology and Cappasola said they don’t want to rush the rollout and get it wrong. He said he’s hopeful multiple services will be available by the fall of 2019.