Things are getting a lot more personal at Del Taco. In late June, the nation’s second largest Mexican chain unveiled a broad brand refresh. The key target was differentiation, and accentuating service features, menu innovations, and value offerings unique to the 566-unit chain. CEO John Cappasola lifted the lid off some of those changes during Del Taco’s second-quarter review.
“Elevated Combined Solutions,” Del Taco’s latest iteration of its brand strategy, launched in full at the start of Q3. It includes a fresh advertising campaign featuring real employees, newly designed menu boards, refreshed artwork, updated uniforms, and a new ingredient chalkboard that features one of its fresh items each day, showing where the ingredient was formed, when it was picked, and which employee prepared it.
This highlight on employees is the spotlight focus, something Del Taco calls “4G hospitality.”
When guests pull up to the drive thru now, Del Taco employees introduce themselves by name. Instead of calling out order numbers in the dining room, Del Taco is calling out to specific customers by name.
“Both moves create a more personal connection with guests. Our research shows this type of connection has a big influence on overall guest satisfaction and our goal is to make hospitality and service another point of differentiation for the brand,” Cappasola said in a conference call.
Other changes include:
The changes arrive as Del Taco’s strong run of sales continues. The brand reported systemwide same-store sales growth of 3.3 percent in Q2, year-over-year, marking the 19th consecutive quarter of gains and giving Del Taco a 10.4 percent increase on a two-year basis. Company-run units (315 of the 566 stores) saw comps lift 2.5 percent, the 24th straight quarter of growth, driven by average check increases of 3.7 percent and 1 percent of menu mix growth, offset by a transaction decrease of 1.2 percent. Franchised units saw comps grow 4.2 percent.
Total revenue upped 8.5 percent to $117.8 million and net income was $4.2 million, or 11 cents per diluted share. The chain opened one company and one franchised restaurant in the quarter. Del Taco has 22 restaurants either open or under construction and remains on track to open 25–28 new units systemwide in 2018.
Del Taco also hit a milestone the company has targeted since going public in 2015. Cappasola said the brand achieved its trailing 12-month company average-unit volume goal of $1.5 million. Since fiscal 2013, Del Taco’s company and franchise AUVs have each grown north of 25 percent.
Along with the brand refresh, Del Taco’s barbell menu strategy remains on course. Mainly, Del Taco has strategized to expand its mid-tier menu segment and did so this past quarter by promoting a 2 for $5 mix-and-match deal on classic burritos. Del Taco also launched a new late-night bites menu with mid-tier products positioned and branded to drive its late-night sub-brand. In May, Del Taco’s Carnitas limited-time offer returned with mid-tier and premium offerings.
At the same time, Del Taco brought a $1 Chicken Quesadilla Snacker to the Buck & Under menu that became a record-breaking new product in terms of units sold, Cappasola said.
In fact, it was so successful Cappasola said Del Taco has a “high-class problem” on its hands.
“… through the first five weeks of Q3, our system-wide same-store sales are trending slightly below our annual same-store sales guidance range with continued franchise outperformance,” he said. “This sequential slowing compared to the second quarter reflects a negative menu mix due to a very high mix on the new $1 Chicken Quesadilla Snacker, while negative transaction trends remain similar to Q2. Looking ahead, we recently shifted our primary promotion and external communications to a premium message and for the balance of the year we expect our focus to remain on mid-tier and premium products.”
Del Taco is planning news around Epic Burritos in the back end of the year and an “exciting new premium LTO protein” in late September with shredded beef to complement the $1 Chicken Quesadilla Snacker. Specifically, the 2 for $5 mix and match is returning in late August.
Cappasola believes this focus wills strengthen Del Taco’s check average and drive improved transaction trends as the year progresses. It’s taking menu pricing in the low to mid-3 percent area during Q3.
“We're going to continue to do everything we can to surround the snacker with nice mid-tier and premium news,” he said. “We think that's the answer right now and we'll continue to innovate against that.”
Del Taco said it’s expanding third-party delivery offerings and launching its mobile app later this year as well. The mobile app will feature enhanced marketing capabilities, including the use of targeted promotional offers to drive guest frequency and the capability to support a future loyalty program.
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