🌮 The Taco Bell Take Over

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Good morning! It's Thursday, April 18th. Today, we're taking a close look at Taco Bell and how it continues to grow despite a competitive fast food landscape.

THE FEATURE

🌮 The Taco Bell Take Over

While you may not know the name Yum! Brands, you certainly know the restaurants they own: KFC, Pizza Hut, and Taco Bell. 

Each of those three brands generates billions each year for Yum, but Taco Bell has seen a recent growth spurt. Yum's most recent quarterly report shows that Taco Bell opened 201 new restaurants in the quarter, bringing the total to 417 new restaurants for the year.

In 2023, Taco Bell generated $15.9B. More impressive is Taco Bell's 35.8% operating margin. To put that in context, the average fast-food restaurant has a 6% to 9% operating margin, while industry leaders like Wendy's enjoy 12%. 

Let's break down how Taco Bell, a 60-year-old brand, is finding new growth and new customers!

So, What's the Business?

Taco Bell currently operates ~8,500 restaurants, but its roots trace back to a single small taco stand in Downey, California, operated by Glen Bell in 1954. 

Bell had operated hot dog stands in San Bernadino but shifted his focus to Mexican food after seeing its rising popularity in the area. His first taco stand, "Bell's Drive-In," was a modest success, but Glen envisioned a new fast food concept: Mexican-inspired cuisine delivered to consumers at an affordable price. 

The first official Taco Bell restaurant opened in 1962, and within two years, Glen began expansion via franchising. 

Glen ensured high margins and affordable food by designing Taco Bell's menu for efficiency and speed. The majority of items have substantial ingredient cross-over, allowing for standardized recipes and consistency across locations. Plus, labor costs are low— assembling a taco isn't too time-intensive. 

When Taco Bell expanded internationally in 1973, they tweaked their menu items to fit the various local tastes. 

For instance, Taco Bell introduced more vegetarian options in India, like the Paneer Tikka Burrito, to cater to the nation's large vegetarian population. Similarly, Taco Bell sells a Shrimp and Avocado Burrito exclusively in Japan. Wherever Taco Bell sets food, they curate the most popular local ingredients and build a cost-effective menu around them. 

Taco Bell's ability to adapt to cultural preferences has ramped up in recent years and has led to impressive success in each of the 32 countries they are in. In its latest quarterly report, Taco Bell reported a 16% growth in international sales for 2023. 

How They Win: Masters of Marketing

Since the early 2000s, Taco Bell has found unique ways to attract consumers through aggressive promotional efforts and brand partnerships that have been surprisingly successful: 

• 2001: Promised a free taco to everyone in the US if Soviet space station Mir hit its target placed in the Pacific Ocean. 

• 2004: Taco Bell partnered with Mountain Dew to release the exclusive Mountain Dew Baja Blast

• 2007: Through a partnership with the MLB, Taco Bell promised a free taco to everyone in the US for every stolen base in the World Series

• 2012: Taco Bell created a similar partnership with Frito Lay to create the Doritos Locos tacos

One of the company's more advanced marketing ploys came in May of last year. Taco Bell filed a petition with the US Patent and Trademark Office to cancel the Taco Tuesday trademark across the country, which was held by smaller restaurants like Gregory's and Taco John's. 

The move had the potential to cast a negative light on Taco Bell as a bully for taking legal action against microscopic competitors. However, it had the opposite effect. 

Taco Bell launched a global multimedia ad campaign alongside Lebron James and created a petition to end all trademarks of the phrase "Taco Tuesday." That ad campaign drove over 21 billion media impressions. 

After Gregory's and Taco John's relinquished their trademarks, Taco Bell put a $5M credit on DoorDash for anyone who wanted to get a free taco from any Mexican restaurant in America, further positioning the company as an altruistic actor. 

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