del-taco-Fresh-Flex-prototype-Q2.jpg Del Taco Restaurants Inc.
Del Taco continues its remodel program, incorporating aspects of the Fresh Flex prototype introduced in January.

Del Taco plans September launch of Del Yeah loyalty program

Platform’s tiered structure is designed to motivate and reward purchases, CEO John Capposola Jr. says

Del Taco Restaurants Inc. will be introducing its first loyalty program in September under the Del Yeah rewards banner, the brand’s CEO said Thursday.

As the Lake Forest, Calif.-based quick-service Mexican brand is also innovating in the breakfast daypart and keeping an eye on the supply chain as those costs inched upward, said executives on an analyst earnings call for the second quarter ended June 15.

Digital innovation has been among sale-driving initiatives for the brand, said John Cappasola, Jr., Del Taco’s CEO and president.

“Our Del App membership continues to grow and provide us with a solid foundation for our new holistic CRM [customer relationship management] platform launched this September that will further digitize Del Taco and incentivize and reward fans for their loyalty,” he said.

“The launch will include a host of features and improvements to the Del App, including the launch of our points-based loyalty program, which will feature attractive rewards and exciting elite tiers, as well as data and attribution capability to drive personalized and valued experiences for our guests to increase sales and frequency over time,” Cappasola said.

The points-based loyalty program’s tiered structure is designed to motivate and reward behavior, he said.

“So, essentially, the more you use, the higher your tier; and the higher your tier, the more benefits you unlock,” Cappasola said. “And we'll have the ability to do things like challenges to enhance frequency and guest engagement.”

The digital innovation comes as Del Taco has begun to see signs of inflation in the supply chain, a cost that was flat in the second quarter. The company has taken a 4% menu price increase.

Steven Brake, Del Taco’s chief financial officer, noted “that recent inflationary pressure has materialized beyond our original second-half food inflation expectations particularly in the areas of beef, soybean oil, freight and other input costs.”

Brake said the company now expects food inflation compared to last year of about 5% during third quarter and 4% during fourth quarter, resulting in a projected full-year inflation increase of about 2%.

“Overall, we've been very fortunate not to have experienced any material supply-chain issues impacting availability of any products,” Brake said. “That said, recently we have been managing various packaging shortages which the operation team working with supply chain was doing a great job, being a little bit nimble in solving for those packaging issue as they arise.”

Labor costs were down slightly in the quarter, he said, despite a $1-an-hour increase in California’s minimum wage — to $14 an hour — in January 2021. In the second quarter, Del Taco’s labor and related expenses as a percentage of company restaurant sales declined 30 basis points, to 32.9% from 33.2%.

Systemwide same-store sales were up 17.8% compared to the same pandemic quarter of 2020.

“Compared to 2019 all day parts were positive during the second quarter except for breakfast, which has since improved to flat in the third quarter,” Cappasola said in a statement, “while late snack and graveyard were our top performing dayparts compared to 2019, aided by a strong delivery mix that again reached approximately 7% of sales.”

Del Taco on Thursday introduced a new breakfast platform centered on new Double Cheese Breakfast Tacos. Price points start at $1.

“We believe this offering can jumpstart our breakfast sales as we approach to near-term breakfast catalysts, namely morning routines continuing to normalize as offices repopulate and the return of breakfast seasonality in the fall as kids return to in-person school,” Cappasola said.

Del Taco’s test remodel program was ongoing and the company expects to complete as many as 20 remodels this year, he said.

“This final phase of testing is largely during the second half of 2021 and includes integrating our Fresh Flex protype into our remodel design and is expected to lead to a formal system-wide remodel program beginning in 2022,” Cappasola said. The Fresh Flex platform was introduced in January.

“As you get into 2023, you'll really start to see those Fresh Flex prototypes popping up, which there will be a few probably in 2022, but I think the power of that ‘menu of venues’ in Fresh Flex piece will be really – starting really in 2023,” he said.

For the quarter ended June 15, Del Taco swung to a profit of $6 million, or 16 cents a share, from a loss of $576,000, or two cents a share, in the same period last year. Revenue in the quarter was up 195% to $125 million from $104.6 million in the prior-year period.

Del Taco, founded in 1964, has about 600 restaurants across 16 states.

Contact Ron Ruggless at Ronald.Ruggless@Informa.com

Follow him on Twitter: @RonRuggless

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