Taco Bell Goes Gourmet

by Jeff Reeves | June 6, 2012 10:35 am

Taco Bell has made a name for itself with cheap late-night fare. The chain offers plenty of low-priced items, was one of the first chains to stay open into the wee hours, and pushed its so-called “Fourthmeal” to folks looking for a midnight snack.

But as rival restaurants continue to connect with consumers by offering higher-quality meals at higher price points, Taco Bell has decided to reverse its own course and go upscale.

This summer, you will see a new menu at Taco Bell, formulated by a celebrity chef and described as “gourmet Mexican” by execs.

Lorena Garcia, a Latina chef from Venezuela, will rely on fresh ingredients including cilantro rice and citrus-marinated chicken to craft the new dishes. Garcia has been a featured guest on NBC’s Today Show, the reality competition America’s Next Great Restaurant and Bravo’s Top Chef — Allstars, along with making appearances on various Spanish-language shows.

Expect to see Garcia front and center in ads, with a launch of the new eats sometime in early July.

Yum! Brands (NYSE:YUM[1]), the company that owns Taco Bell along with restaurants Pizza Hut and KFC, clearly has decided to shift toward higher tastes instead of lower prices at its 5,600 locations. That’s no surprise considering the rise of casual-dining chain Chipotle Mexican Grill (NYSE:CMG[2]) and privately owned Qdoba Mexican Grill.

The Associated Press reports that new items were tested for months in Kentucky, near Yum! corporate headquarters, and in California. The results were encouraging, so Taco Bell is going national with its plan.

Of course, that Doritos Locos Tacos[3] with a nacho cheese Doritos shell won’t be going anywhere — at 100 million sold in 10 weeks[4], it’s the company’s most successful product launch ever — so don’t worry too much.

The biggest question, of course, is whether this move will pay off. Taco Bell accounts for about 60% of Yum!’s profits, so this chain is more important than any other — and its menu experiments are the most closely watched.

Leaders at the company clearly have been eager to win over new customers, as evidenced with the launch of breakfast service[5] at nearly 800 restaurants this year, and an initial foray into premium food via the Cantina menu[6].

Results are mildly encouraging so far. Taco Bell’s sales rebounded in the first three months of 2012 after a nearly yearlong slump. However, it must be noted that some of that could be because of waning interest in an ugly debate about whether Taco Bell’s beef was in fact beef at all. The beef over Taco Bell beef certainly hurt sales in 2011, and now the company appears to have put that in the past. Shares of YUM stock are up more than 21% in the past 12 months, vs. a relatively flat stock market.

But if Taco Bell wants growth to continue on top of the 6% gain seen in same-store sales to start the year, it’s going to have to prove it can take on fast-growing chains like Chipotle. After all, Chipotle stock is up 45% in the last year — double Yum! Brands — as revenue jumped almost 25% in the first quarter of this year.

Taco Bell is right to envy that kind of success. But whether it can replicate the growth of Chipotle with this strategy is quite a tall order.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[7] Write him at editor@investorplace??.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the stocks named here.

  1. YUM: http://studio-5.financialcontent.com/investplace/quote?Symbol=YUM
  2. CMG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMG
  3. Doritos Locos Tacos: https://investorplace.com/2012/03/doritos-taco-keeps-yum-looking-tasty/
  4. 100 million sold in 10 weeks: http://www.ocregister.com/articles/taco-356978-bell-doritos.html
  5. the launch of breakfast service: https://investorplace.com/2012/01/taco-bell-breakfast-burritos-yum-brands/
  6. the Cantina menu: https://investorplace.com/2012/03/can-taco-bell-cantina-bell-take-down-chipotle-yum-cmg/
  7. “The Frugal Investor’s Guide to Finding Great Stocks.”: http://www.amazon.com/dp/B007KB9CSI/ref=rdr_kindle_ext_tmb

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