Taco Bell is huge in the U.S.
with over 7000 restaurants across the country.
It's one of the top five restaurant chains in the U.S.
based on sales.
It's not necessarily known for its quality but believe it or not Taco
Bell has been called one the healthiest fast-food chains.
In a recent Harris Poll also pointed out America's favorite Mexican restaurant.
I mean I love Taco Bell.
It's one of those type of restaurants that like, tacos.
I really love Taco Bell, I love the variety they have.
I would say that my girlfriend ordered about once a week because we just can't get enough of it.
Taco Bell has been known for its innovative menu items like
Doritos Locos Tacos, Nacho fries and Naked Chicken Chalupas.
The company says its commitment of value and innovation is what's
driving its continued sales growth.
But how many variations of cheap Mexican food can talk about concoct
before they run out of ideas?
Taco Bell now only competes for fast-food dollars with the likes of
McDonald's and Burger King.
They're also being challenged by many new fresh Mexican chains like
Chipotle, Rubio's, Qdoba and Baha fresh.
Taco Bell's rolling out new strategies to stay ahead of the competition.
It launched mobile food ordering, added a nationwide delivery and now
sells alcohol as some of its restaurants.
You can even get hitched at a Las Vegas flagship restaurant which has a chapel and a reception area.
Taco Bell has become a player in the breakfast business as well
stealing some market share from McDonald's.
But the company is also reeling from management shakeups.
Much of Taco Bell's recent innovations was initiated under the watch of CEO Brian Niccol.
But in 2018, Niccol left the chain to helm one of Taco Bell's biggest competitors:
Chipotle.
At Taco Bell, he was really kind of the rock star and Chipotle.
They got a really great CEO in poaching him from Taco Bell.
And now Taco Bell must continue to innovate without Niccol to make
sure they don't fall behind the competition.
To understand how Taco Bell became one of America's top fast-food
chains let's go back to how the brand got its start.
Taco Bell has been a pioneer in fast-food since the 1960s.
The chain is credited with introducing an Americanized version of Mexican food to the U.S.
The "Bell" in Taco Bell is named after this man, Glen William Bell Jr.
Glenn Bell was already a fast-food veteran by the time he opened the first Taco Bell.
Glenn started with a self-service hamburger stand in 1948 in San Bernardino, California.
It was just a few miles away from the spot where Dick and Mac McDonald
were making fast-food history with their burger joint.
Glenn introduced tacos at his stand in 1951 and claims to have
invented ready-made crunchy taco shells which made it possible to
prepare tacos as fast as McDonald's was making burgers.
For the fast-food industry at that time, speed was of essence.
So for Glen Bell to really develop a way to serve the food at a faster
rate was really big for his business and was a big piece of his success.
Then in March of 1962, Glenn Bell opened the first Taco Bell in Downey, California, just outside Downtown Los Angeles.
Early menu boards explained to curious Americans the proper way to
pronounce such exotic offerings like tacos and burritos.
By 1967, there were a total of 100 Taco Bell's. In 1970, with more
than 300 locations, Taco Bell became a publicly traded company.
Glen Bell sold 868 Taco Bell restaurants to PepsiCo for 148 million dollars and Pepsi stock.
Ultimately, Taco Bell and two other PepsiCo fast-food chains KFC and
Pizza Hut spun off and became what is known today as Yum! Brands.
That's why you'll see these restaurants partner up in a single location.
Since its IPO in 1997, Yum! Brands
stock has seen steady growth Yum stock prices climbed by more than
1,700 percent to hover around 99 dollars per share.
In that same amount of tim, the S&P 500 has only risen 207 percent.
Those stock gains mean that Yum! Brands
market value has jumped from roughly 4 billion dollars around the
time of its IPO to 30 billion dollars in 2019.
As of 2019, there are over 7000 Taco Bell's in the U.S.
making it the largest limited service restaurant in the Mexican food category.
By comparison Chipotle is the second largest.
It has less than half as many restaurants.
Right now, Taco Bell has about 93 percent of their stores in the
United States with about 7 percent international.
So there's still a lot of room for growth for them internationally.
And one thing that they've been undertaking in the United States is
selling off company owned stores to franchisees.
And what this does is it gives them some immediate cash but it also
passes off some of the risks and some of the costs on the franchisees
rather than the company itself.
And that could be good for expansion in the future especially because
there's so much open space in the international market.
Same store sales growth has largely been positive over the years with a few notable hiccups.
But even the 2008 financial crisis, didn't keep it down for long.
Sales at locations have been open for at least a year sank 5 percent in 2009 but by 2010 they posted positive same store sales growth.
But new Mexican chains are popping up across the country like Wahoo's,
which has around 50 locations, Baja Fresh with approximately 150,
Trejo's Tacos with just under 10 and Chronic Tacos which has just over 50 in the U.S.
But in the fourth quarter of 2018 alone Taco Bell opened up nearly as
many restaurants as the entire Baja Fresh chain.
Internationally, Taco Bell has nearly 500 stores across almost 30 countries.
That pales by comparison to some of its biggest competitors.
But parent company Yum! Brands is looking to double that number by 2022.
But Taco Bell has struggled with international expansion in the past.
They've tried and failed in Mexico because well Mexico already has its own good cheap Mexican food.
They've also entered and pulled out of Dubai and China.
As of 2017, the company is moving back into China with a new menu geared toward local tastes.
But here in the U.S.,
Taco Bell's version of Mexican has become a cornerstone of American fast-food.
It's the best performer in Yum! Brands portfolio.
Pizza Hut has struggled domestically as more customers choose delivery from Domino's instead of sitting down at a Pizza Hut.
KFC a favorite, China has seen American consumers grow tired of its
menu and instead either chicken from rivals like Popeyes or Chic-Fil-A.
Yum CEO Greg Creed recently bragged about Taco Bell's sales figures on the company's earnings call.
Now I want to talk about where 2018 marked our seventh consecutive
year of positive same store sales growth. Once again outpacing the industry a remarkable feat.
93 percent Taco Bell's in the U.S. are franchised, meaning they're owned and operated by franchisees.
Taco Bell Corporation helps these franchisees in many ways including marketing and product development.
Chipotle, by comparison, does not franchise any of its 2,500 locations
which gives management more control over how the restaurants are run.
That control makes it easier for Chipotle to experiment like what it's
doing with drive-through dining for the first time.
Chipotle's version called "Chipot-lanes" is app-based as opposed as
traditional drive-through experiences where you have to talk into a microphone on a menu board.
This seems like a direct shot at Taco Bell's very successful drive-thru business.
Chipotle his new boss knows that approximately 70 percent of Taco
Bell's sales happen at the drive-thru.
And some Taco Bell's may start looking like Chipotles.
The company has opened a new style Taco Bell in urban areas called
"In-Line" which features open kitchens unique art on the walls and a hipper design.
A similar version of the In-Line concept called Taco Bell Cantinas serves alcohol.
They've been popping up in cities like Chicago New York and Newport Beach, California.
So we are inside right now the Taco Bell Cantina which is our latest model of our expansion and growth plan.
And over the past two years we really developed close to about 50 of
these restaurants that are Cantina urban In-Line.
So typically when you think of Taco Bell's you think of suburban and rural areas with drive-thru.
These are very different. These are in downtown walkable space.
No drive-thrus. We want to make sure that they feel like they're
part of the community that they're and so people can come in and feel like they have a unique experience.
Most fast-food chains have an innovation lab where they come up with new menu items.
But Taco Bell has a very "Willy Wonka" like quality to it.
The company's creations include wild mash-ups with Doritos Locos Tacos
and they've created new Mexican foods that were invented north of the border like Quesalupas.
And certainly when they have you know sort of outside the box menu
items like say a Waffle Taco or the Nacho Fries you know that's an
attempt at grabbing the attention of customers who are like hey
that's that's a different That's interesting I've never had that before let's go try that.
Taco Bell likes to stress the value they offer to consumers.
They battle with other fast-food giants and what QSR Magazine calls
the "Value Wars" and price is one area where Chipotle can't compete with Taco Bell.
It's dollar cravings menu offers everything from burritos to cinnamon twists.
At Chipotle even a side order of tortilla chips is more than a dollar.
But with Taco Bell prices so low it could be a concern going forward
as many states are increasing the minimum wage in 2019.
Taco Bell may need to offset the labor cost increase by pushing bigger
ticket items like the five dollar meal boxes and with low prices and
value are your bread and butter, you don't want to push those costs onto consumers.
That's why companies like Taco Bell have been looking for efficiencies
in operations and using new technology to address wage increases.
Another major and ongoing concern for Taco Bell and its competitors food safety and quality.
Chipotle is still reeling from an E. coli outbreak in 2015 which sent the stock tumbling.
They hadn't recovered until the company poached Taco Bell CEO Brian Niccol in 2018; since then the stock prices nearly doubled.
They tried to start some national advertising campaigns to get their
brand recognition back out there.
They went through a lot of product giveaways and promotions and spent
millions of dollars trying to regain the customer loyalty that they had lost.
Taco Bell dealt with similar problems in 2006 which affected sales for almost a year.
Sales at Taco Bell locations that have been open for at least a year
declined by 5 percent in 2007, especially in the Northeast where these problems started.
Taco Bell didn't release the same source sales in 2006, but when they did in 2007 they were down 5 percent.
Then in 2011, an Alabama law firm filed a class action lawsuit against
Taco Bell alleging the beef on their menu wasn't actually beef.
Same store sales again declined by dropping two percent that year just
as the company was recovering from the financial crisis.
But talk about cheeky response helps explain how they managed to navigate PR nightmares.
They took out a full page ad in the newspapers to say "thank you for suing us."
The ad also explain what's actually in their beef.
According to the ad the meat is 80 percent beef and twelve percent
seek a recipe which Taco Bell claims keeps it from being boring.
It's that voice that Taco Bell engages with its customers in unique ways.
Taco Bell's TV commercial taglines have become popular catchphrases
like "Run for the border" yo quiero Taco Bell" and "Drop the chalupa."
You're looking at Taco Bell with 7000 restaurants almost 11 billion in
sales generating about 460 million dollars of
the advertising budget that they say can spend annually.
That is three times the size of what Chipotle spends.
So there's a lot of marketing and advertising muscle Taco Bell to
continue to drive home their message and Taco Bell and able to be in
every medium from TV to radio.
Chipotle has to do a little bit more picking and choosing.
Customer engagement cross digital is an important growth driver for
Taco Bell accordingly Yum! Brands CEO.
The company added a senior leadership role who will focus on digital and technology strategy.
Taco Bell has even offered mobile ordering and payment on its app since 2014.
They added a customer loyalty program to the app in 2015 but the competition is catching on.
Several Mexican chains also started app based rewards programs like a Qdoba and Moe's.
In 2018, Chipotle also started testing a loyalty program which they expanded nationwide in March of 2019.
Its digital sales grew almost 66 percent in the fourth quarter of 2018.
Those sales account for 12.9 percent of its sales.
Another growth driver for Taco Bell is delivery.
In 2018, Taco Bell made a 200 million dollar investment in the digital food ordering and delivery platform, GrubHub.
According to the company,
Taco Bell spent nearly a year integrating its systems to create seamless ordering and delivery experience.
In February of 2019, Taco Bell rolled out nationwide delivery through the GrubHub partnership.
But despite its popularity Taco Bell is facing struggles in its C-Suite.
Some of that is due to the departure of the former CEO Brian Niccol.
Now that is gone some wonder if the company's momentum can continue.
Once Niccol defected, he relocated Chipotle's Denver Colorado headquarters to Newport Beach, California.
Right in Taco Bell's backyard.
Some say it made it easier for Niccol to poach Taco Bell's top talent;
a process that looks already to be underway.
Taco Bell executives Chris Brandt and Tressie Lieberman have both left
Taco Bell and joined Chipotle way since Nicole's departure.
But when you talk about some a company like Chipotle, I think Brian
Niccol will have to play certainly growing in the years ahead.
They're going to open a lot more restaurants they're going to their sales will continue to climb.
But I just I don't ever think that Chipotle they will surpass Taco
Bell as being this Mexican experience that Americans love because
they're just both going to occupy their own different corner of the industry and that's going to work out for both of them.
CNBC reached out to Taco Bell about Nichols departure and the 2006 E. coli outbreak.
The company declined to comment.
Even with Niccol gone, sales still look good but the pressure is on
talk about to stay consistent as KFC and Pizza Hut struggle find a
solid footing in the restaurant industry remains worried about the rising labor and commodity costs.
Taco Bell's trajectory seems to be up but only time will tell if the
Mexican-American chain is ready to tackle the challenges ahead.