Taco Bell believes it has an opportunity to get more customers to order its food more often. / Photograph: Shutterstock.
Taco Bell is the fourth largest chain in the U.S. and is a concept without any real direct competitor, at least on a national scale. “We don’t wake up worrying whether someone is having a sale on Chalupas,” David Gibbs, CEO of parent company Yum Brands, told investors on Tuesday.
That doesn’t mean the Mexican fast-food chain is satisfied. The company believes it has an opportunity to convince more Americans to get food from its restaurants on a more frequent basis, and it has plans to accomplish that.
“Our opportunity for growth is right in front of us,” Taco Bell CEO Mark King said Tuesday. “We have 100 million customers that come to us once a year. If we can get those to come twice and three times and four times, you do the math.”
The idea, King said, is to increase “this cult from cult to culture” and “get our light users to buy more products.”
Without a true direct competitor, Taco Bell eyes the top, McDonald’s. The Chicago-based burger giant has more restaurants, which generate more average unit volumes, giving it more than three times the total system sales. Taco Bell executives use McDonald’s data to guide its goals for generating sales and building new restaurants.
Customers “have way more reasons … to go to McDonald’s—dayparts, coffee, treats—all these different reasons to go to McDonald’s,” King said.
The company is starting with breakfast. Taco Bell has had breakfast for years but pulled back on it during the pandemic—a decision that helped ease Wendy’s move into the daypart. Taco Bell recently started to market breakfast again, using the comedian Pete Davidson in ads apologizing for its efforts to date.
“We’ve been in and out of breakfast for seven years,” King said. “We have to commit to breakfast. Not only commit to it in product, marketing communications and understanding what consumers want from Taco Bell for breakfast.”
Another opportunity, King said, is lunch. “We actually have a bigger opportunity at lunch than breakfast,” he said.
Taco Bell is testing fries as a permanent part of the menu. King believes fries are an important element for the midday meal consumer. Yet Taco Bell has been taking its Nacho Fries on and off the menu in the years it’s offered them.
“We offer fries half the time,” he said. “People that go to lunch want to have French fries.”
That’s not the only thing Taco Bell is considering. “We think there’s a big opportunity in drinks,” King said. He noted that the company could expand its beverage offerings and specifically mentioned energy drinks as an option.
The popularity of energy drinks has surged in recent years and is expected to grow at an annualized rate of more than 8% through the end of the decade, according to Acumen Research and the Food Institute. But outside of a few growth concepts like Dutch Bros, they remain relatively spare on restaurant menus. Taco Bell would seem to make as much sense as anyone, given the youth of its customer base.
A stronger beverage business could give the company more business throughout the day, given that many energy drinks are consumed in the afternoon. But so can another item: treats.
“We need ice cream and desserts and things like that all day long,” King said.
There’s another item Taco Bell wants to serve more of. “A large percentage of our business is in beef,” King said. “And right now, the Gen Z consumer wants chicken.”
Digital sales, particularly those through Taco Bell’s loyalty program, are also an opportunity. The company is on pace to generate more than $3 billion in digital sales. That’s up from “virtually zero” in 2018. The company did this with the addition of kiosks to its restaurants, third-party delivery and its mobile app and loyalty customers.
More to the point, much of the business Taco Bell is getting through digital channels would not come to its restaurants otherwise.
“Full 35% to 40% of Taco Bell’s digital growth through 2022 has been incremental,” Yum CFO Chris Turner told investors.
But there is also new unit growth. Taco Bell also believes it has the capability to add at least another 5,000 units in the U.S., and once again it looks to McDonald’s for inspiration. McDonald’s operates more than 13,000 compared with 7,000 Taco Bell locations. There’s no reason, King said, that Taco Bell couldn’t have just as many.
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