One of Diversified Restaurant Group’s core values is to serve as innovators who embrace change and challenge the status quo—the exact type of mindset you would expect from a franchisee of more than 300 Taco Bell restaurants.
The motivation comes from consumer demand, which COO Todd Kelly says is evolving every day, whether it’s delivery, mobile, or any type of e-commerce. Five years ago, the focus on these areas was minimal, accounting for only 3 to 4 percent of the operator’s business. It seemed unnecessary to invest energy into them. However, now digital represents 30 to 35 percent and continues to grow.
Pre-COVID, DRG did about 60 percent of its business through drive-thru and 40 percent in the dining room. Now, less than 10 percent of customers dine in. The company not only uses digital menuboards at the drive-thru, but it’s also testing automated voice ordering at a handful of restaurants in California.
Taco Bell has seen the same movement systemwide. In Q4, the Mexican concept saw a record 31 percent digital mix, up 7 percentage points year-over-year. A major driver of that was kiosks, which saw its sales mix rise 15 points compared to Q4 2023. Active loyalty users increased 17 percent in 2023.
Consumers in different trade areas have varying needs. In the California market, where labor costs are now $20 an hour thanks to the recent fast-food wage law, DRG is considering automation to maintain the guest experience without excessively increasing prices. This necessitates finding efficiencies, such as implementing convenient grab-and-go stations. In some locations, these stations are placed on the front counter near the door for customer convenience, complete with stickers and verification via phone. In others, the pickup stations are behind the counter to prevent theft, ensuring only the paying customer collects their order. Late at night, some restaurants use lockers, where customers receive a QR code on their phone, scan it, and retrieve their food. This system also enhances safety and security for employees.
The same strategies are applied to DRG’s ghost kitchens. The food is prepared, placed on a robot, transported to a locker, and picked up by the driver through a QR code scan.
“We’re trying to do a lot of different things that are just cutting-edge testing because our segment is evolving more,” Kelly says. “What’s new today won’t be new in six months. So it’s always, what’s that next thing that’s going to catch up and what’s going to get there? And we’ve done that and everything from our Cantina business to using voice AI on our drive-thru to having a consumer scan their phone when they pull up and order. They don’t even have to interact with something. They pull up to the window and get their food and they pay for it through their app. So there’s all different kinds of things that Taco Bell has always been very innovative with and Diversified Restaurant Group is really living that up.”
Some of the innovation dates back years. Kelly recalls testing kiosks as far back as 1998 at a restaurant in Pittsburgh. Now, DRG has implemented the front-of-house technology in all of its restaurants, with at least two machines in each location. Some stores even operate with kiosk-only setups and no traditional registers. The number of kiosks depends on the specific location and consumer demand. Some locations feature up to six to seven kiosks; its Taco Bell Cantina in Las Vegas has 10. Kelly says customers enjoy using kiosks and find it fun to place orders and make modifications. The system aids in suggestive selling and special offers, which often lead to customers changing or adding items and an increase in average check.
The process in the back of house has evolved, too. Traditionally, the franchisee’s restaurants had two server lines—one for the drive-thru and one for inside orders. In today’s time, many of the busier restaurants have three production lines, with one line dedicated solely to delivery orders and digital consumers. These digital orders tend to be 20 percent larger than traditional orders, more customized, and predominantly food without drinks. Recognizing this shift, DRG adapted by installing pickup windows in many restaurants. These windows allow delivery drivers to park right next to the restaurant and collect orders, which is especially useful late at night. Some locations experience higher volume between midnight and 2 a.m. than between noon and 2 p.m.
“When a consumer pulls into the drive-thru, they see 10 or 11 cars, they’re not going to go in and your drivers don’t want to wait in that line as well too because no matter how fast you are, even if you’re at 40 seconds at the window, if there’s 10 cars in front of you, that’s a long time,” Kelly says. “That’s 400 seconds just if everybody gets through there that quickly. So we put in the pickup windows in our restaurants where the driver just pulls into the parking lot, they hit the buzzer, tells us their name, and we bring the food right to that window and they leave.
“It’s helped not only our delivery drivers, it’s helped our traditional customer because they’re not waiting in the same line, that same funnel, to pick up all these orders where we have everybody trying to get them,” he adds.
Similar to most quick-service companies, the pandemic significantly altered how DRG approaches building restaurants. Value engineering has become critical to operations and consumer demand has prompted changes in restaurant designs. The group is moving toward smaller buildings by cutting down the size of dining rooms. For example, the franchisee recently opened an endcap drive-thru location in Las Vegas, which is half the size of a traditional unit and features a small dining room. With 90 percent of customers using drive-thru at that location, the smaller size has significantly reduced costs and helped it to build a store that might have been unaffordable otherwise.
Additionally, DRG has opened a Go Mobile store that has no dining room and features two drive-thru lanes—one for traditional drive-thru customers and one for mobile pickups and delivery drivers. This store also has a lobby where customers can order and pick up food to go.
“We want to invest in the long-term future of our brand with different ideas, with different things,” Kelly says. “And of every one thing we test, we probably talk about 10 things that we test and we narrow it down and we look at reasons why we can do things instead of reasons why we shouldn’t do things.”
