Taco Bell Beef Lawsuit Dismissed, But Yum Brands Menu Problems Persist

by Cynthia Wilson | April 20, 2011 8:28 am

Taco Bell and its parent company Yum Brands (NYSE: YUM[1]) thinks it scored a big victory this week when an Alabama law firm dropped its lawsuit challenging Taco Bell beef.[2] But truth be told, fast-food giant YUM may have actually lost this Taco Bell lawsuit in the court of public opinion.

Specifically, Taco Bell is having serious trouble courting health-conscious consumers looking for a meal they can grab on the go and feel good about eating or serving their kids. Think fast: When was the last time you said healthy meal and Taco Bell in the same sentence?

The sad part is that Taco Bell either doesn’t know it or it doesn’t seem to care.  The company spent millions this year on full-page newspaper ads, aired television spots, and on-line campaigns after the lawsuit was filed to tell consumers that its Taco filling is 88% beef. Not one cent appears to have been dedicated to developing healthier or higher quality menu items that can attract additional customers or warrant higher prices, as other industry players have.

taco bell beef ad[3]

For example, Wendy’s (NYSE: WEN[4]) introduced skin on fries with natural sea salt[5] to promote its “quality ingredients” campaign.  Meanwhile, McDonald’s (NYSE: MCD[6]) premium line of McCafe’ beverages have added a real boost to the chain’s bottom line.

But Taco Bell is content with serving up cheap eats for late night snackers. The company even went so far as the say in its press release[7] acknowledging the dropped lawsuit that “Taco Bell is not making any changes to products or advertising.” Thus, couch potatoes who are just seconds away from their next eating binge will know exactly where to turn when they see Taco Bell’s 99 cent Burritos ads screaming at them through their TV sets.

In all fairness, most people still don’t turn to McDonald’s, Wendy’s or Burger King for a health food fix or fine dining experience.  So maybe Yum Brands figures that it has all the food diversity it needs in varied storefronts — it operates A&W, Long John Silver’s, Pizza Hut and KFC in addition to Taco Bell. And Yum’s stock price, which is up more than 18% in the last year and trading just a few points below its 52-week high of $53.19, suggests things are going pretty well for the company.

But over the long term, tastes can significantly change and eating habits continue to bend towards healthier options. Taco Bell would be wise to stay ahead of the curve after this beef lawsuit wakeup call.

As of this writing, Cynthia Wilson did not own a position in any of the stocks named here.

  1. YUM: http://studio-5.financialcontent.com/investplace/quote?Symbol=YUM
  2. lawsuit challenging Taco Bell beef.: https://investorplace.com/29532/taco-bell-beef-quality-yum-brands-mcd-wen/
  3. [Image]: https://investorplace.com/wp-content/uploads/2011/04/full_1296257423TB_Beef_ad_FINAL_color.jpg
  4. WEN: http://studio-5.financialcontent.com/investplace/quote?Symbol=WEN
  5. skin on fries with natural sea salt: https://investorplace.com/15756/wendy%e2%80%99s-skin-on-fries-part-of-healthy-fast-food-push/
  6. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  7. its press release: http://www.tacobell.com/company/newsreleasearticle/Law-Firm-Withdraws-Class-Action-Lawsuit

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