Taco Bell chief executive Greg Creed told investors and analysts Wednesday that 2011 had been a terrible year for the brand, thanks to a lawsuit attacking the chain’s seasoned beef and a shortage of new products to help drive traffic.
However, he said the quick-service chain is aiming to bounce back in 2012 with an aggressive roll out of new products, including a “reinvented” taco, a breakfast menu and upgraded food items.
Speaking at Yum! Brands Inc.’s investor conference in New York, Creed said Taco Bell’s sales suffered all year from the negative publicity generated by a consumer lawsuit that questioned the ingredients in the chain’s seasoned beef.
But he also maintained the year fell apart because Taco Bell did not have sufficient new-product news to win people back or entice more incremental visits from its customers.
“We didn’t change our beef recipe or pay the plaintiff one penny, but [the suit] had an impact,” Creed said. “It was very clear that we didn’t have enough innovation to overcome what we didn’t anticipate happening.”
Creed outlined an aggressive game plan for 2012 built around what he referred to as a breakthrough product designed to reinvent the taco. That product has been revealed as the Doritos Locos Taco, which through a partnership with Frito-Lay was developed as a taco in a shell made from Nacho Cheese Doritos.
Other menu upgrades for the future include a Chef’s Signature lineup of upgraded tacos and other menu items, as well as the reformulation of several key ingredients, from the beans and pico de gallo to marinades and seasonings for proteins.
Creed also confirmed that the brand’s breakfast platform, called First Meal, would roll out to 800 locations in the West in early 2012. Taco Bell also has plans to refranchise about 400 locations over the next two years, taking its percentage of company-owned units from 23 percent to about 16 percent by 2013.
But the breakout star from Taco Bell’s research and development pipeline would be the Doritos Locos Taco, Creed said.
“There are 34 different bun types in the quick-service category and only one kind of taco shell,” he said. “With the Doritos Locos Taco shell, the three test markets were driving incredible sales and a lot of incremental traffic. It also was a massive operations win, improving the speed of our transactions by 12 seconds.”
He added that Taco Bell recognized a shift with quick-service consumers in that they now see food not as fuel but as part of an experience.
“We had to be a better and more relevant Taco Bell,” he said.
The chain partnered with Miami-based chef Lorena Garcia as a consultant and developed the Chef’s Signature Line of products that will debut next year. Garcia also helped Taco Bell reformulate and improve many of its core ingredients. The grilled chicken, for example, will be cooked the same way, but with a different marinade with subtler flavors.
When asked if rebooting some of the core ingredients was a response to Chipotle Mexican Grill’s success as a fast-casual Mexican chain known for its “Food With Integrity,” Creed responded that Chipotle’s gains have not been at Taco Bell’s expense and that his quick-service brand actually benefited from having Chipotle as a competitor.
“At the macro level, our customer is more likely to visit a Del Taco than a Chipotle, and on a micro level, in markets where a Chipotle opens near us, it only takes out less than a point of same-store sales,” Creed said. “Chipotle is less a threat than an opportunity, because it creates a chance for us to come in with chef-inspired, world-class food for under $5.”
Creed said meetings last week with Taco Bell’s two major franchisee groups, the Franchise Management Advisory Council and the “Big 12” coalition, showed support for all the brand’s initiatives.
“Their point of view on breakfast was very positive, and there were rave reviews around the classic quality improvements and Chef’s Signature line,” he said.
About half the 800 locations getting the breakfast rollout are company-owned, and the other half are early-adopting franchisees, he said.
“It’s not that different from when we went into late night with Fourthmeal,” Creed said. “About half the franchisees came with us, the other half sat on the sidelines and watched.”
Sales generated by First Meal would be “100-percent incremental,” Creed added, saying, “I suppose you possibly could take an eating occasion away from lunch or dinner, but we didn’t see that at all in test.”
Creed answered a question about how easy same-store sales comparisons would be in 2012 rolling over the lawsuit-related decreases this year by noting that test marketing for the Doritos Locos Taco occurred within weeks of the lawsuit breaking. It produced strong sales and traffic increases even as questions about the chain’s beef filled the airwaves, he said.
“I think we’ll overcome the lap and enhance our same-store sales improvements through the Doritos Locos Taco and the Chef’s Signature line,” he said.
David Novak, president and chief executive of Yum! Brands Inc., expressed similar confidence in Taco Bell’s turnaround chances during a later portion of Yum’s investor conference.
“If Taco Bell doesn’t have a great year next year, I’ll be really upset,” Novak said. “You see the strength of a leader in how they handle tough times, and I admire what Greg and his team have done. Not many people are going to get on that plane and go to Frito-Lay and come up with a nacho cheese taco.
“Taco Bell should do very well, and not just because of the weak overlap, but because we have some great innovation in the pipeline,” he said.
Irvine, Calif.-based Taco Bell operates or franchises more than 5,600 quick-service restaurants. Yum, which is based in Louisville, Ky., also operates and franchises KFC and Pizza Hut. Yum has more than 38,000 restaurants in 117 countries.
Contact Mark Brandau at [email protected].
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