Taco Bell Corp.

views updated May 18 2018

Taco Bell Corp.

17901 Von Karman
Irvine, California 92714
U.S.A.
(714) 863-4500
Fax: (714) 863-2214

Wholly Owned Subsidiary of PepsiCo, Inc.
Incorporated: 1962
Employees: 70,000
Sales: $3.5 billion (1995)
SICs: 5812 Eating Places; 6794 Patent Owners & Lessors

Taco Bell Corp. is a California-based fast service restaurant chain that specializes in Mexican-style fast food. Taco Bell—with 1995 sales in the United States of $3.5 billion dollars—held the largest share of the Mexican-style restaurant market in the United States. In mid-1997 the fast food chain was owned by the giant PepsiCo empire and was expected to soon become part of the restaurant holding company TRICON Global Restaurants, Inc., a far cry from its modest beginnings as a hot dog stand.

Taco Bell Precursor Opens in 1946

In 1946 Glen Bell, a World War II veteran, opened a hot dog stand in San Bernardino, California. The 23-year-old Bell decided to start his own business after working for a local gas company and a railroad system. Having bought a gas refrigerator at a discount from the gas company, Bell sold it for $400 and used the money to secure a lease for the food stand site and to buy building materials. Confident that the postwar economy would support his endeavor, Bell opened the shutters of “Bell’s Drive In” for business later that year.

Bell began unassumingly, remaining a one-person operation and serving only take-out food. His first day of business brought in $20 over a 16-hour day. Working long hours—the stand’s hours of operation extended from nine a.m. to midnight—he eventually averaged $150 a day in business during his first year.

In 1952 Bell sold his first stand and set about building an improved version. His new menu comprised hamburgers and hot dogs, then staples of the emerging fast food industry. Coin-cidentally, just as Bell built his second stand, the McDonald brothers were building their first fast food restaurant, also in San Bernardino. By 1955 Ray Kroc, a traveling salesman touting milk shake machines, would link up with the McDonald brothers and form the giant McDonald’s hamburger chain.

Bell Experiments with Tacos in 1950s

The phenomenal worldwide success of the McDonald’s restaurant chain would come later. But its successful beginnings in San Bernardino were enough to prompt Bell to find a niche in the fledgling Mexican-style food business. He settled on selling tacos by volume, rather than making and stuffing them individually, as was the case in full-service restaurants. As Bell later noted in a 1978 speech to a Taco Bell franchise convention, “My plan for experimenting with tacos was to obtain a location in a Mexican neighborhood. That way, if tacos were successful, potential competitors would write it off to the location and assume that the idea wouldn’t sell anywhere else.”

After choosing a location in an Hispanic neighborhood of San Bernardino, Bell began selling a chili dog from which he eventually developed his traditional taco sauce. He also developed taco shells that could be easily and quickly fried and later stuffed with ingredients. This stand was so small that Bell sold his first tacos at 19 cents apiece from a window on the side.

In 1953 Bell opened a second stand in Barstow, near San Bernardino. Tacos sold well in that locale as well, and Bell recruited Ed Hackbarth to run the stand. A year later, Bell began the construction of three Taco Tia stands in San Bernardino, Redlands, and Riverside. When the new stores were completed a year later, Bell achieved $18,000 in sales in his first month.

A small commissary was soon built to serve the three Taco Tia outlets and three other Bell’s Drive Ins outlets. Here vegetables were prepared daily, as were deep taco shells and sauces. To maintain freshness, meat was cooked at the individual restaurants.

In 1956 Bell sold his three Taco Tia restaurants to fund his expansion into the Los Angeles restaurant market. A recessionary economic atmosphere, however, drove up construction costs. Bell eventually went into partnership with four members of the Los Angeles Rams professional football team to reduce his start-up risk. In 1958 they formed the El Taco restaurant chain, which included a central commissary to serve up to 100 units. Three outlets were initially opened, producing profits of $3,000 after the first year of business.

First Taco Bell in 1962

Bell wanted to remain independent, however, so in 1962 he yet again sold his share in a successful restaurant chain and, a year later, opened the first Taco Bell outlet in Downey. Eight more outlets were built in the Long Beach, Paramount, and Los Angeles regions.

During this period the concept of franchising was catching on, first with car dealerships and then throughout the restaurant industry. Bell quickly seized on the idea. In 1964 Kermit Becky, a former Los Angeles policeman, purchased the first Taco Bell franchise in the South Bay area of Los Angeles. Other franchise buyers followed.

In 1965 Bell hired Robert McKay as general manager of the company to help franchise Taco Bell. McKay would later recall the challenge before him in Forbes: “[Franchising was really hot. Everyone wanted franchises in the mid-sixties. Then came the shakeout a few years later and franchising no longer was the easy game it once was.”

Public Offering in 1965

A year later, the Taco Bell chain went public on the Pacific Stock Exchange, enabling Bell to receive bank financing for the first time. Previously, all financing had been secured on a private basis. (The first Taco Bell was opened with 40 shares, each worth $100 and held mostly by Bell’s family.)

In 1967 McKay was named president of Taco Bell. At that time the company owned 12 restaurants, with an additional 325 franchises. By 1970 Taco Bell had become a $6 million operation, producing annual profits of approximately $150,000. The fast food chain’s success soon drew the attention of PepsiCo Inc., the snack food and soft drinks giant, which was seeking to diversify into the restaurant business.

During this time, Pizza Hut, a PepsiCo subsidiary, launched Taco Kid, a Mexican food concept to challenge Taco Bell. The launch failed, and Pizza Hut soon had to write off its investment. PepsiCo then altered its strategy and began wooing Glen Bell in order to buy Taco Bell outright. In February 1978 a deal was struck in which the Mexican fast food chain was purchased for just under $125 million in stock.

PepsiCo Leadership in Late 1970s

PepsiCo’s strategy in acquiring Taco Bell was simple; the fast food chain dominated the Mexican food market, so PepsiCo was buying market share. For PepsiCo the challenge was to make Taco Bell less a regional ethnic food phenomenon and more a national fast food chain. Glen Bell had originally sought to set Taco Bell apart from other fast food chains, McDonald’s in particular, and its preeminent position among other Mexican food chains, most all of them regional or local rivals, was already secure.

PepsiCo’s decision to reposition Taco Bell was a challenge to the fast food giants on a national scale. The PepsiCo strategy emphasized that Taco Bell outlets would sport spartan simplicity in decor and menu, with a concentration on predictable quality, affordable prices, and clean and convenient surroundings. Taco Bell also moved swiftly to redesign the company logo. The old logo, an Hispanic man dozing under a giant sombrero, was replaced by a sparkling bell atop the company name. As Larry Higby, senior vice-president of marketing at Taco Bell, noted in Advertising Age, “Usually when you try to turn something around, you look to develop breakthrough advertising. But we came to exactly the opposite conclusion: we needed to look more mainstream.”

The strategy worked. Taco Bell grew rapidly during the early 1980s. By 1983, when John E. Martin took over as president, the chain had 1,600 outlets in 47 U.S. states, producing a total of $918 million in sales. The average Taco Bell franchise claimed sales of $680,000 that year, a significant increase over the franchise average of $325,000 in sales only three years earlier. As a measure of market strength, Taco Bell’s nearest rival in the Mexican fast food segment was Naugles, a California-based chain with only 160 outlets and 1983 sales of $84 million.

A 1985 advertising campaign typified the company’s mainstream approach. The television spots stressed that Taco Bell offered the same ingredients as its burger rivals: beef, cheese, and tomatoes. It simply served the ingredients up in a different and, according to the company, more satisfying way. The campaign’s tag-line, “Just Made for You,” reminded consumers that more than 60 percent of Taco Bell products were custom-made and that no dish was prepared until it was ordered to ensure freshness. By 1986 Taco Bell had grown to 2,400 outlets with just over $1.4 billion in sales. Television advertising that year called Taco Bell “the cure for the common meal,” a pointed allusion to the staple foods offered by its competitors.

New Taco Bell outlets were also different from earlier models. The traditional arched windows and red-tile roofs were retained, but with the addition of exterior stucco. Interiors featured skylights, silk plants, and light-colored wood. New dishes, such as seafood salads and grilled chicken, were added to menus, and drive-through windows became a standard feature.

The 1980s: Successful Pricing and Production Changes

In 1986, Taco Bell expanded overseas by opening a restaurant in London, England. Two years later, Taco Bell made widespread pricing and production changes. The resulting lower price of many of the items on the Taco Bell menu forced rival hamburger chains to follow suit. On the production side, Taco Bell began contracting out much of its food preparation, including the dicing and slicing of vegetables and the frying of taco shells, in order to get the kitchen out of the restaurant. Justin-time inventory controls were added to all outlets, resulting in reduced overhead costs. Electronic information systems installed in all Taco Bell outlets cut down significantly on management paperwork. Staff responsibilities changed as well, as Taco Bell reversed the 70 percent kitchen and 30 percent dining room ratio in all its outlets. As Zane Leshner, the company’s senior vice-president for operations, commented in Financial World in 1991: “We no longer dedicate an awful lot of labor and space to doing things that have no customer value at all.”

The strategy paid dividends for Taco Bell. The streamlining steps enabled the Mexican fast food chain to raise its profits by 25 percent annually during the late 1980s at a time when it was sharply dropping its prices.

The company’s success, coming when the late 1980s recession led to savage price-cutting and cutthroat competition in the fast food industry, impressed industry analysts. A 1991 article in the Harvard Business Review named Taco Bell as the best performer in the fast food industry at the time, surpassing traditional market leader McDonald’s. The authors wrote, “If McDonald’s is the epitome of the old industrialized service model, Taco Bell represents the new, redesigned model in many important respects.”

To keep customers focused on Taco Bell’s menu, the company in 1991 introduced a three-tiered value menu. Most products on the menu—from original tacos and bean burritos to cinnamon twists—would be sold at three main price levels: 59 cents, 79 cents, and 99 cents. In addition, new menu items introduced in 1991 included steak burritos to lure dinner customers and a test breakfast menu. These changes helped the company to achieve 60 percent more sales in 1991 than two years earlier.

Expansion in 1990s

New Taco Bell outlets were also being added to the company’s stable. The number had grown from 2,193 units in 1985 to 3,273 in 1990, marking an annual growth rate of 8.3 percent. That growth rate continued in the early 1990s as Taco Bell opened some new franchises and many new company-owned restaurants. In 1992 Taco Bell opened outlets in Aruba, South Korea, and Saudi Arabia, bringing the number of international locations to 11. In the United States, Taco Bell pursued several unconventional approaches to expand opportunities for sales. In addition to opening new restaurants, the company introduced Taco Bell Express—small outlets with a limited menu and little or no seating—in airports, business cafeterias, and sports stadiums. Street carts took this idea a step further.

In addition, to take advantage of the growing take-home food market, Taco Bell forged agreements with supermarkets for counters within their stores. Although such counters created competition for the supermarket’s own deli stands, the increased traffic through the store and the percentage the supermarkets got from the fast food sales was felt to offset any business stolen from delis. Taco Bell also entered the supermarket venue through a line of taco shells, salsa, and refried beans in 1993. In all, CEO John E. Martin hoped to have 250,000 distribution points by the next century.

However, this aggressive expansion raised the ire of many franchisees, who felt the new restaurants and outlets threatened their own sales. A comparison of Taco Bell Corp.’s profits and average sales growth per store seemed to validate the franchisees fears; between 1989 and 1992, the company’s operating profits had grown by approximately $100 million, whereas average sales growth per store had fallen from about 16 percent to seven percent a year. Some franchisees also felt threatened by the company’s move toward more company-owned stores. CEO Martin claimed that the problem stemmed from franchisees’ unwillingness to change. “Sometimes you have to lead people kicking and screaming to the right answer,” he explained to Amy Barrett of Business Week.

Parent company PepsiCo’s attitude toward aggressive expansion reversed itself in the mid-1990s, however. Its hefty investment in new outlets and company-owned stores failed to provide an adequate return, especially when compared to its other core businesses. Its restaurants, including Taco Bell, had operating margins of seven percent, whereas its beverage division was seeing margins of 13 percent, and its snack division, 17 percent. The initial solution tried by Roger Enrico, the new chairman and CEO, was to reduce the percentage of outlets owned by the company, which stood at 60 percent in 1995. Rather than have company money tied up in capital, Taco Bell could rely on franchisee investment, a strategy followed by McDonald’s, who owned only 20 percent of its restaurants in 1995.

Spinoff Planned in 1997

Still, this step did not satisfy PepsiCo’s need for a greater return on its assets, and the company prepared to sell its restaurant division. In the late 1990s, PepsiCo drew together its restaurant businesses, including Pizza Hut, Taco Bell, and Kentucky Fried Chicken (KFC), placing them in a single division. All operations were now overseen by a single senior manager, and most back office operations, including payroll, data processing, and accounts payable, were combined. In January 1997 the company announced plans to spin off this restaurant division, creating an independent publicly traded company called Tricon Global Restaurants, Inc. The formal plan, approved by PepsiCo board of directors in August 1997, stipulated that each PepsiCo shareholder would receive one share of Tricon stock for every ten shares of PepsiCo stock owned. The plan also required Tricon to pay a one-time distribution of $4.5 billion at the time of the spinoff. If approved by the Securities and Exchange Commission, the spinoff would take place on October 6, 1997.

Enrico explained the move: “Our goal in taking these steps is to dramatically sharpen PepsiCo’s focus. Our restaurant business has tremendous financial strength and a very bright future. However, given the distinctly different dynamics of restaurants and packaged goods, we believe all our businesses can better flourish with two separate and distinct managements and corporate structures.”

Taco Bell Corp.

views updated May 18 2018

Taco Bell Corp.

THINK OUTSIDE THE BUN CAMPAIGN
WANT SOME? CAMPAIGN

17901 Von Karman Avenue
Irvine, California 92614
USA
Telephone: (949) 863-4500
Fax: (949) 863-2252
Web site: www.tacobell.com

THINK OUTSIDE THE BUN CAMPAIGN

OVERVIEW

Despite being the number one fast-food chain serving up Mexican-style items like tacos and burritos, Taco Bell Corp. in 2001 had an image in need of a boost and sales that were in a steady decline. A former Taco Bell customer who had been eating at the fast-food chain for 10 years told Andrew Bluth of the Tribune Business News, "About six months ago, we just got fed up with Taco Bell … I'm not sure what's contributing to the problem, but I won't be back until they make some changes." In addition, Taco Bell in 2000 had canceled its long-running ad campaign featuring a Spanish-speaking dog described by Bluth as a "tired marketing strategy epitomized by an overused Chihuahua." To regain a marketing identity and win back customers, Taco Bell in September 2001 launched a campaign that featured the slogan "Think outside the Bun."

Created by Taco Bell's agency, Foote, Cone & Belding San Francisco, the $200 million advertising campaign was designed to encourage consumers to do what the slogan suggested and "rethink their eating habits and demand bold, innovative menu items like those found at Taco Bell … not to 'just settle for another burger or sandwich,'" reported Business Wire. The first ad in the campaign, a television spot, highlighted the technology popular with Taco Bell's core customers, young men. It featured Jeff Bezos, Amazon.com's chief executive officer, joined by other staffers discussing Taco Bell's newest "handheld," a chicken quesadilla. Continuing with the tech theme other TV spots included descriptions such as "three-cheese upgrade," "gooey interface," and "ergonomic design." Subsequent advertising, which included a multilevel sweepstake for gamers as well as television and print ads, featured tie-ins to Microsoft Corp.'s Xbox.

At the launch of the campaign, Taco Bell reported that same-store sales had dropped 24 of the previous 35 months, including a 2 percent drop for the quarter ending September 8. In May 2002, about eight months after the campaign's launch, Taco Bell reported an 8 percent increase in same-store sales for the first quarter of the year. The company cited the "Think outside the Bun" campaign as one of the reasons for the increase in sales.

HISTORICAL CONTEXT

Taco Bell founder Glen Bell's first effort at selling fast food was in the early 1950s when he opened a stand offering hot dogs and burgers. Perhaps seeing the success of the McDonald brothers on the horizon, Bell turned his attention to alternative menu items and his personal favorite: tacos. He opened Taco Tia in 1954 and sold it in 1956 when he acquired El Tacos, which grew to 100 units by 1958. Preferring independent ownership—Bell said, "It's tough to share a dream"—he sold his share of El Tacos to his partners and built the first Taco Bell in 1962. After 13 years at Taco Bell's helm, Bell resigned as chairman of the board, and in 1978 he sold the 868-restaurant chain to PepsiCo, Inc.

Under PepsiCo's ownership Taco Bell went head-to-head with big burger chains, like McDonald's and Burger King, and developed both a marketing niche and a national presence by attracting its core customers, college students, with affordable menu items. Some analysts, however, believed Taco Bell's problems could be traced back to its time as a division of PepsiCo. Bluth reported in the Tribune Business News, "Sales hit record levels, and the chain found a niche. Then came Pepsi's attempt to have Taco Bell run a hamburger chain, Hot n' Now, and some sit-down restaurant concepts. Then the big mistake: 'Border Lights,' an attempt at a healthier Taco Bell menu. The dramatic 1995 food addition was a total flop."

Bluth wrote in 2000 that Taco Bell's sales suffered a two-year decline under "Border Lights" and did not experience a slight increase until the strategy was eliminated in 1997 and the talking Chihuahua was introduced with the "Yo Quiero Taco Bell" theme. But, he said, "sales were flat [in 1999] and by all accounts 2000 is even uglier." To turn around its falling sales and compete in a market saturated with fast-food and casual-dining chains, Taco Bell dropped the Chihuahua and "Yo Quiero" theme, upgraded the quality of its menu items, and introduced "Think outside the Bun."

TARGET MARKET

Taco Bell defined its core customers as young men who typically went out for fast food at least a dozen times each month. Bob Sandleman, of the market research firm Sandleman & Associates, said in an interview with the Orange County Register that the chain's new "Think outside the Bun" advertising efforts seemed perfectly planned to resonate with its target audience and the chain's core customers, young men. In an effort to further boost sales, company president Emil Brolick broadened Taco Bell's target audience to also include older consumers with more expendable income and with higher expectations that the food they purchased would be good quality.

Some analysts believed that Taco Bell's shift in marketing focus from its core customer to a broader audience could fail to achieve its intended goal of increased sales. Douglas Christopher, an analyst with Crowell, Weedon & Co., told the Orange County Register, "Targeting too many audiences at once might prove difficult. Becoming all things to all people never works." Other analysts, however, including Technomic Inc., believed that Taco Bell had the financial resources to pull off the strategy as long as the marketing included advertising that would resonate with the separate audiences.

COMPETITION

In 2000, as Taco Bell dumped its talking Chihuahua and was rethinking its marketing strategy, Del Taco, Inc., Taco Bell's number two competitor, was also restructuring its marketing and preparing to launch a new advertising campaign. Tim Hackbardt, Del Taco's vice president of marketing, told Nation's Restaurant News that the company would continue to target consumers 18 to 34 years of age, but the new advertising would be more focused on the chain's menu offerings. Hackbardt added that the Del Taco character, which, because if its resemblance to Zorro, had gotten the chain into legal trouble, had been eliminated. Additionally, although the company had traditionally turned to radio for its advertising, the new campaign would be focused on television spots with some radio support.

ONLINE MUSEUM PAYS TRIBUTE TO FOOD IMAGE SIGHTINGS

You never know what you will see looking back at you when you sit down with a slice of pizza, a piece of toast, or a bowl of nachos, but diners have been spotting images of everything from butterflies to the Liberty Bell to the Virgin Mary and Jesus in their food. To pay tribute to this unusual phenomenon, Taco Bell "launched a home for these edible 'visions' via the first online Food Sightings Museum at Tacobell.com," Amy Johannes reported in Promo. According to Johannes, the website was launched after consumers reported seeing images in the chalupa shells they purchased at Taco Bell. The website encouraged customers to submit photos of their food images online. Any food, not just Taco Bell's menu items, was admissible. People were also able to vote for their favorite image as well as whether the images were real, altered, or unrecognizable as anything other than the food pictured. "People are finding visions in many things," said a company spokesperson. "A customer a few years ago said he found Jesus in his Chalupa. We're playing off the phenomenon. We hope we get a lot of fun submissions."

Del Taco replaced its Zorro-like spokescharacter and launched its new ad campaign using another spokesman, Dan the Product Guy, for its new TV spots. By featuring the self-effacing product-development character Dan, Del Taco hoped to reach fast foodies, usually 18- to 34-year-old men, but not to alienate women. The marketing also was designed to focus on what Taco Bell did not offer and to clearly communicate the differences between the two chains.

In 1998 McDonald's Corp. entered the quick-service Mexican food competition when it acquired a minority interest in the Denver-based gourmet-burrito chain Chipotle Mexican Grill, Inc. With financial backing from McDonald's, Chipotle nearly tripled its size, growing to 100 units by the end of 2000 and claiming the number three spot in Mexican fast-food eateries, behind Taco Bell and Del Taco. The difference with Chipotle was it offered food that was not only spicy but freshly prepared daily. In addition, every restaurant had a unique design, and there were no children's menus. Chipotle's founder, Steve Ells, told BusinessWeek, "This is not the typical fast-food experience. This is something grown-up."

As part of its plan to develop branding and a corporate identity, Chipotle executives visited its different restaurants to talk with customers and created a website allowing consumers to submit comments about the chain. Based on the information gathered, Chipotle planned to increase the advertising promoting the freshness of its ingredients and to continue its "Food with Integrity" theme.

MARKETING STRATEGY

Taco Bell's "Think outside the Bun" theme was more than an ad campaign. It was also a brand repositioning effort that covered everything from marketing to food quality to how the company was run. It was designed to assure that consumers were aware of how Taco Bell differed from chains serving up burgers and sandwiches. In a move to further differentiate Taco Bell from other chains, its stores began offering a 98-cent value menu with a crunchy taco and a bean burrito, while burger chains were charging 99 cents for their value menu items. Another part of the new marketing strategy was that Taco Bell installed grills in its restaurants, enabling it to upgrade the menu and compete more effectively against "fresh Mex" chains, such as Chipotle. In addition, Taco Bell used tie-ins to high-tech products like Microsoft's Xbox to appeal to its core customers.

Moving the brand away from a campaign based on a chatty Chihuahua to a campaign that was food focused was also part of the strategy. San Francisco-based Foote, Cone & Belding Worldwide created Taco Bell's campaign, which connected fast food with the Internet and dot-coms and was designed to appeal to tech-savvy young men. The $200 million campaign launched with a television spot that featured two computer geeks eating lunch outside their office building and using computer-operating letter code to discuss their meals. In another spot the chain's chicken quesadilla was described as a hand-held device with an ergonomic design and gooey interface. Maintaining the technology theme, a print ad for the introduction of the chain's steak quesadilla tied it to the release of Microsoft's Xbox. The ad read, "The Xbox era begins at Taco Bell, 10.18.01."

OUTCOME

Taco Bell's "Think outside the Bun" campaign was a hit. The slogan and advertising received positive reaction from both frequent and casual customers of the chain. The success of the campaign was reflected in Taco Bell's sales numbers as well. After nearly three years of slipping sales, Taco Bell reported sales were up five straight months following the campaign's launch. Tricon Global Restaurants, the parent company of Taco Bell, said that fourth-quarter sales at Taco Bell stores open for more than one year rose 8 percent in 2001 over the same period in 2000. The company's marketing chief, Greg Creed, told the Orange County Register that "Think outside the Bun" was more than a clever slogan. Rather, he explained, the slogan was the "phrase that company leaders decided defines the brand. It's another reinforcement that we're not like the other guys." Based on the success of the campaign's youth-oriented and technology-based theme, Taco Bell expanded it through sponsorships such as the MTV 2002 Video Music and 2003 Movie awards.

WANT SOME? CAMPAIGN

OVERVIEW

In 1997 Taco Bell Corp. was the sixth-largest fast-food chain in the United States and the only Mexican-style fast-food restaurant operating nationwide. But in the previous two years the chain had experienced declining revenues. To repopularize itself and cement its brand image as a fun, appealing quick-service restaurant, in mid-1997 Taco Bell released a new marketing campaign created by ad agency TBWA\Chiat\Day of Venice, California.

The $200 million campaign included a number of television commercials, several of which were set in a pink room intended to depict the inside of a hungry person's stomach. Each spot ended with the tagline "Want some?" and displayed the Taco Bell logo. The final spot in the initial campaign, "Chihuahua," starred a talking dog. Because it was not expected to be popular, it was televised only in the northeastern United States in September 1997. In the spot a male Chihuahua named Dinky sniffed his way down a street, seemingly in search of a female companion. Instead he passed by a female Chihuahua to approach a human eating food from Taco Bell. Dinky then said in Spanish, "Yo quiero Taco Bell" (I want Taco Bell).

Public reaction to the "pink room" spots was lukewarm, and they were short-lived. Because of the excitement surrounding the regional spot featuring the Chihuahua, however, Taco Bell chose to air it nationally in October. The company followed it up in late December 1997 with a campaign that focused exclusively on the hungry little dog. The spots promoted the value pricing of certain Taco Bell items while solidifying the Chihuahua's role as Taco Bell's brand icon and marketing mascot. In May 1998 Dinky returned as part of a $60 million campaign to promote Taco Bell's Gorditas, a new menu item. Dinky's position as top dog began to fade in 1999, when he was reduced to a supporting character in the chain's commercials, and in 2000 insiders were calling Dinky "overused." Later that year Taco Bell dropped the Chihuahua along with TBWA\Chiat\Day.

HISTORICAL CONTEXT

Although it was the only nationwide Mexican-style fast-food restaurant in the United States, in 1995 and 1996 Taco Bell suffered declining revenues, which was largely attributed to increased competition in the industry. In addition, the company's marketing campaigns were not successful in increasing sales or meeting company expectations. In an article in USA Today Taco Bell president Peter Waller stated, "We spend $200 million a year on advertising, and I really want that investment to pay off." He added, "We had a strong campaign in the late '80s, but since then, we haven't made a connection with the consumers." Analysts in the fast-food industry concurred, indicating that Taco Bell's image needed updating. A PaineWebber analyst remarked that "Taco Bell ha[d] gotten stale" and lacked new ideas.

In 1997 Taco Bell sought to reverse the drop in sales and give its image a face-lift. In March 1997 Taco Bell awarded advertising agency TBW\Chiat\Day of Venice, California, the creative portion of its marketing account. Industry executives shared with the Wall Street Journal their belief that "the biggest problem facing Taco Bell is its image, and it's one the people at TBWA Chiat/Day will need to work hard at." The Costa Mesa, California, office of the agency that had represented Taco Bell from 1994 to 1997, Bozell Worldwide, maintained media-buying responsibilities, and its managing partner, Peter Stranger, stated, "We lost the creative portion because Taco Bell is looking for magic in the creative areas which we have not struck with them to date. If they can find magic, we support that."

TARGET MARKET

TBWA\Chiat\Day chose to focus its marketing efforts on men between the ages of 18 and 34, the group that accounted for the majority of fast-food sales. According to an article in the Los Angeles Times, Taco Bell's "advertising and marketing gradually shifted toward a more general audience—and away from its most important customers, the hungry young males who drive fast-food sales." Taco Bell had hoped to expand its consumer base, but when the strategy proved ineffective, the company chose to focus again on its core consumer group. The new campaign by TBWA\Chiat\Day aimed to use offbeat, catchy commercials to gain the attention of Taco Bell's core market of young males.

The chain reported that its target market consisted of consumers aged 18 to 34 who were loyal customers of Taco Bell. Vada Hill, Taco Bell's chief marketing officer, stated, "Our consumers have an intense emotional tie with the Taco Bell brand and associate great memories and experiences with eating our food." TBWA\Chiat\Day's research revealed that Taco Bell's consumers were "incredibly savvy, individualistic and pragmatic," and thus the agency sought to create a campaign that would be appreciated by this target group. Lee Clow, TBWA\Chiat\Day's chief creative officer, said, "Taco Bell's consumers have grown up in a media-saturated environment and respond to brand messages that are direct, honest and funny … We wanted to create a campaign that incorporates those key elements and breaks through the clutter by speaking directly to our audience about the desire for Taco Bell in a fun, humorous and memorable way."

In an effort to appeal to a broader audience and include potential customers outside the target group, Taco Bell also began to offer a 100 percent guarantee on its food items and service: "You'll love it, or we'll eat it." The guarantee was incorporated into commercials and was designed to lure new customers by informing them that the quality of Taco Bell's food had improved.

HISPANIC REACTION

Not everyone was thrilled by Taco Bell's "Chihuahua" campaign. Many in the Hispanic community found the Dinky commercials insulting and inappropriate. Gabriel Cezares, the president of the Tampa Bay, Florida, chapter of the League of United Latin American Citizens (LULAC), was quoted in the Tampa Tribune as saying, "They have a little Mexican dog to represent Mexican people who work like dogs and are treated like dogs and don't even get a burrito from Taco Bell to put on their tables." Cezares proposed a boycott of Taco Bell and urged Hispanics to write protest letters to the company's headquarters. Others in the Hispanic community, however, disagreed. Belen Robles, LULAC's national president, told the Tampa Tribune, "LULAC has a good working relationship with Taco Bell. I seriously doubt they would intentionally air something that is offensive to the Hispanic community."

Peter Stack, Taco Bell's vice president of public affairs, stated that precautions had been taken and that Hispanic focus groups had responded positively to the spots. He said, "This research is done to ensure that our ads are received in the manner that they are intended: to entertain and inform, never to offend." Campaign creators Chuck Bennett and Clay Williams explained that they tried to be careful not to offend anyone, that the Chihuahua was portrayed as smart and heroic, and that Hispanic actors were used to provide the dog's voice.

COMPETITION

With more than 6,500 units in the United States, Taco Bell had no national competitors in the Mexican fast-food category. In 1997 it dominated the market, claiming more than two-thirds of all sales in Mexican quick-service food. Independent restaurants, with a share of 19 percent, followed Taco Bell. Regional chains such as Taco John's, Del Taco, Taco Time, and Taco Bueno made up less than 10 percent of Mexican quick-service sales.

In the overall fast-food market, Taco Bell held 2.1 percent of the national share in 1996 and ranked fourth, following McDonald's, Burger King, and Pizza Hut. Rounding out the top 10 fast-food restaurants were Wendy's, KFC, Hardee's, Subway, Dairy Queen, and Domino's Pizza. Thus, three divisions of Tricon Global Restaurants—Pizza Hut, Taco Bell, and KFC—were in the top 10, and their combined market share of 6.2 percent placed them second after McDonald's, which in 1996 had a market share of 7.7 percent.

Some of Taco Bell's competitors capitalized on the Chihuahua spot by creating marketing campaigns that included a Chihuahua. El Pollo Loco, a regional Mexican-style fast-food chain in southern California, aired a spot that mocked the talking Chihuahua by indicating that its growth might be stunted if it continued to feast on tacos. The spot was part of a series of spoof advertisements by El Pollo Loco. Jack in the Box also created a parody that featured a talking Chihuahua. The spot pitted the dog, visibly pudgier than Taco Bell's, against Jack in the Box's ball-headed Styrofoam Jack character and attempted to direct attention to Jack in the Box's specialty items.

MARKETING STRATEGY

In the late 1980s and early 1990s Taco Bell enjoyed growth in sales and continued to expand its locations. In 1995, however, earnings began to suffer. Same-store sales fell by 4 percent in 1995 and by 2 percent in 1996. Taco Bell appeared ready for change when it gave TBWA\Chiat\Day, an agency known for its innovative work, creative responsibilities for advertising in March 1997.

In planning the $200 million marketing campaign, Taco Bell hoped to update and build its brand image and to solidify its rank as one of the top fast-food chains in the country. It also wanted to boost store traffic and reverse the two-year sales slump. In the Los Angeles Times Hill discussed Taco Bell's goals by explaining, "The challenge isn't getting this core group to eat fast-food … The challenge is getting them to turn right into a Taco Bell as they drive down fast-food row instead of McDonald's or Burger King." Hill also noted, "It's not that they're not coming to our restaurants … It's just that we want them to come more often."

The new campaign was released in July 1997 on prime-time network television with several of the "pink room" spots, which were intended to convey the message "There's something inside you that's hungry for Taco Bell." The first commercial that appeared on network television showed two young men in an apartment who were awakened by their growling stomachs. Another spot featured a throng of youths dancing and thrashing about in a pink room, with the chaotic activity meant to symbolize the rumblings of an empty stomach. The final spot in the initial campaign, developed by the TBWA\Chiat\Day creative team of Clay Williams and Chuck Bennett, featured Dinky the male Chihuahua. Bennett explained the development of the spot in PR Newswire: "We wanted the Chihuahua's character to be perceived as a 19-year-old guy in a dog's body who primarily thinks about food and girls. We were able to craft the spots in such a way as to bring this character out and convey the message that the dog was on an undying quest for Taco Bell."

Williams and Bennett had come up with the Chihuahua concept while eating together at a Mexican restaurant in Venice, California. They spotted a determined-looking Chihuahua walking down the street by itself. Bennett explained, "He was a little dog totally on a mission, on full cruise mode to something only it saw … He appeared to have no concept that he was a [three]-pound dog in a giant world." Bennett and Williams decided that the Chihuahua could play an entertaining and effective role in the Taco Bell campaign.

In May 1998 new television spots starring Dinky began airing to promote Taco Bell's new food offering, Gorditas. The spots were tied to the release of the new Godzilla movie; one featured the feisty Chihuahua trying to trap the giant monster with a cardboard box and a few Gorditas while he beckoned, "Heeere, LEE-zard LEE-zard." The little dog also starred in a music video to promote a new rap/urban-pop album by Los Angeles Lakers basketball star Shaquille O'Neal.

The campaign was modified in 1999, with Dinky still playing a part but in a supporting role rather than as the star. A new tagline also replaced the popular "Yo quiero Taco Bell." Television spots that began airing in December 1999 used the tagline "Grande taste. Loco price. Only at Taco Bell," and in them the chain's food upstaged Dinky. One spot, titled "Bus," showed Dinky taking over a public bus in hot pursuit of a working mom on her way home in a minivan with a Taco Bell Grande Meal beside her on the front seat. The meal was meant to feed the mom's hungry family, but the Chihuahua had other plans for the dinner: claiming it for himself.

OUTCOME

Although the public did not embrace the original spots featuring the pink room, Taco Bell had a winner with the talking Chihuahua. The Licensing Letter quoted Peter Stack, Taco Bell's vice president of public affairs, as saying, "This is a phenomenon; it's safe to say it happens once in a brand's lifetime." "Yo quiero Taco Bell" became the mantra of the masses, the Chihuahua breed grew in popularity, and Taco Bell's two-year sales decline ended. In 1997 the chain enjoyed a 2 percent increase in same-store sales.

Taco Bell's Hill stated, "These ads are just the kind of break-through advertising that we challenged TBWA Chiat/Day to create." The Chihuahua spot was so successful that Dinky became the star of subsequent Taco Bell ads. Hill explained, "The original commercial captured the imagination and excitement of our consumers and the catch phrase 'Yo Quiero Taco Bell' is also becoming part of our target market's vernacular. The response has been so overwhelming that we had no choice but to bring back the Chihuahua." TBWA\Chiat\Day's Williams commented on the spot's effectiveness. "After the launch of the first Chihuahua commercial," Williams recalled, "it became apparent that this spot was creatively right on the mark. It was able to connect with our target market while at the same time being broad based enough to speak with the entire market as a whole."

The Chihuahua spots ranked among the top three most popular campaigns ever analyzed by Ad Track, USA Today's weekly poll designed to measure a campaign's popularity and effectiveness. Ad Track had covered more than 140 marketing campaigns since 1995. Only 8 percent of the poll's 566 respondents stated that they disliked the Dinky commercials, while 47 percent said that they liked them. Among the target group of 18- to 24-year-old consumers, 53 percent of the females and 40 percent of the males polled stated that they liked the spots. Minority groups surveyed also enjoyed the Chihuahua spots. Among Hispanic consumers 55 percent said that they liked the commercials, and 57 percent of black respondents gave their approval. When polled regarding the campaign's effectiveness, 36 percent considered the commercials to be effective. Entertainment Weekly rated a Chihuahua spot as one of the top 10 television commercials of 1997.

Billboards emblazoned with the Chihuahua's image appeared across the United States, and Taco Bell implemented a toll-free telephone number for customers who wanted to order Dinky T-shirts. Posters and cardboard cutouts of Dinky were displayed at Taco Bell restaurants, but Dinky proved so popular that the posters were frequently stolen. Taco Bell reaped the benefits of the Chihuahua craze with increased revenues and immense recognition in 1997 and intended to ride the Dinky wave as long as possible. According to the Virginian-Pilot and Ledger-Star, Taco Bell public relations manager Laurie Gannon stated, "When the commercials run their course, we'll move on to something else."

Despite earning accolades as one of the "most memorable ad campaigns in recent history," according to Knight Ridder/Tribune Business News, by 2000 Dinky the Chihuahua had worn out his welcome. The Knight Ridder/Tribune Business News article described the campaign as a "tired marketing strategy" and Dinky as an "overused Chihuahua." In mid-2000 Taco Bell reported that same-store sales had dipped 6 percent for the second quarter compared to the previous year. In response, the chain replaced its president, Peter Waller, and fired its ad agency and Dinky's creators, TBWA\Chiat\Day. In 2001 Taco Bell released a new marketing campaign, "Think Outside the Bun," created by the chain's new agency, San Francisco-based Foote Cone & Belding.

Taco Bell Corporation

views updated May 18 2018

Taco Bell Corporation

17901 Von Karman
Irvine, California 92614
U.S.A.
Telephone: (949) 863-4500
Fax: (949) 863-2252
Web site: http://www.tacobell.com

Wholly Owned Subsidiary of YUM! Brands Inc.
Incorporated: 1962
Employees: 166,000
Sales: $1.7 billion (2004)
NAIC: 722211 Limited-Service Restaurants

Taco Bell Corporation is a California-based fast service restaurant chain that specializes in Mexican-style fast food. Taco Bell, with 2004 combined company and franchisee sales reaching $5.7 billion dollars, holds the largest share of the Mexican-style restaurant market in the United States. More than 35 million consumers visit a Taco Bell each week and over 80 percent of its 6,500 locations are franchised. The company, with restaurants in Canada, Guam, Aruba, Dominican Republic, Chile, Costa Rica, Guatemala, Puerto Rico, Ecuador, Hawaii, Asia, and Europe, operates as a subsidiary of YUM! Brands Inc., the largest restaurant company in the world.

Taco Bell Precursor Opens in 1946

In 1946, Glen Bell, a World War II veteran, opened a hot dog stand in San Bernardino, California. The 23-year-old Bell decided to start his own business after working for a local gas company and a railroad system. Having bought a gas refrigerator at a discount from the gas company, Bell sold it for $400 and used the money to secure a lease for the food stand site and to buy building materials. Confident that the postwar economy would support his endeavor, Bell opened the shutters of "Bell's Drive In" for business later that year.

Bell began unassumingly, remaining a one-person operation and serving only take-out food. His first day of business brought in $20 over a 16-hour day. Working long hours (the stand's hours of operation extended from nine a.m. to midnight), he eventually averaged $150 a day in business during his first year.

In 1952, Bell sold his first stand and set about building an improved version. His new menu was comprised of hamburgers and hot dogs, then staples of the emerging fast food industry. Coincidentally, just as Bell built his second stand, the McDonald brothers were building their first fast food restaurant, also in San Bernardino. By 1955, Ray Kroc, a traveling salesman touting milk shake machines, would link up with the McDonald brothers and form the giant McDonald's hamburger chain.

Bell Experiments with Tacos in 1950s

The phenomenal worldwide success of the McDonald's restaurant chain would come later. However, its successful beginnings in San Bernardino were enough to prompt Bell to find a niche in the fledgling Mexican-style food business. He settled on selling tacos by volume, rather than making and stuffing them individually, as was the case in full-service restaurants. As Bell later noted in a 1978 speech to a Taco Bell franchise convention, "My plan for experimenting with tacos was to obtain a location in a Mexican neighborhood. That way, if tacos were successful, potential competitors would write it off to the location and assume that the idea wouldn't sell anywhere else."

After choosing a location in a Hispanic neighborhood of San Bernardino, Bell began selling a chili dog from which he eventually developed his traditional taco sauce. He also developed taco shells that could be easily and quickly fried and later stuffed with ingredients. This stand was so small that Bell sold his first tacos at 19 cents each from a window on the side.

In 1953, Bell opened a second stand in Barstow, near San Bernardino. Tacos sold well in that locale as well, and Bell recruited Ed Hackbarth to run the stand. A year later, Bell began the construction of three Taco Tia stands in San Bernardino, Redlands, and Riverside. When the new stores were completed a year later, Bell achieved $18,000 in sales in his first month.

A small commissary was soon built to serve the three Taco Tia outlets and three other Bell's Drive In outlets. Here vegetables were prepared daily, as were taco shells and sauces. To maintain freshness, meat was cooked at the individual restaurants.

In 1956, Bell sold his three Taco Tia restaurants to fund his expansion into the Los Angeles restaurant market. A recessionary economic atmosphere, however, drove up construction costs. Bell eventually went into partnership with four members of the Los Angeles Rams professional football team to reduce his start-up risk. In 1958, they formed the El Taco restaurant chain, which included a central commissary to serve up to 100 units. Three outlets were initially opened, producing profits of $3,000 after the first year of business.

First Taco Bell in 1962

Bell wanted to remain independent, however, so in 1962 he again sold his share in a successful restaurant chain and, a year later, opened the first Taco Bell outlet in Downey. Eight more outlets were built in the Long Beach, Paramount, and Los Angeles regions.

During this period, the concept of franchising was catching on, first with car dealerships and then throughout the restaurant industry. Bell quickly seized on the idea. In 1964, Kermit Becky, a former Los Angeles policeman, purchased the first Taco Bell franchise in the South Bay area of Los Angeles. Other franchise buyers followed.

In 1965, Bell hired Robert McKay as general manager of the company to help franchise Taco Bell. McKay would later recall the challenge before him in Forbes: "Franchising was really hot. Everyone wanted franchises in the mid-sixties. Then came the shakeout a few years later and franchising no longer was the easy game it once was."

Public Offering in 1966

The following year, the Taco Bell chain went public on the Pacific Stock Exchange, enabling Bell to receive bank financing for the first time. Previously, all financing had been secured on a private basis. (The first Taco Bell was opened with 40 shares, each worth $100 and held mostly by Bell's family.)

In 1967, McKay was named president of Taco Bell. At that time, the company owned 12 restaurants with an additional 325 franchises. By 1970, Taco Bell had become a $6 million operation, producing annual profits of approximately $150,000. The fast food chain's success soon drew the attention of PepsiCo Inc., the snack food and soft drinks giant, which was seeking to diversify into the restaurant business.

During this time, Pizza Hut, a PepsiCo subsidiary, launched Taco Kid, a Mexican food concept to challenge Taco Bell. The launch failed, and Pizza Hut soon had to write off its investment. PepsiCo then altered its strategy and began wooing Glen Bell in order to buy Taco Bell outright. In February 1978, a deal was struck in which the Mexican fast food chain was purchased for just under $125 million in stock.

PepsiCo Leadership in the Late 1970s

PepsiCo's strategy in acquiring Taco Bell was simple: the fast food chain dominated the Mexican food market, so PepsiCo was buying market share. For PepsiCo, the challenge was to make Taco Bell less a regional ethnic food phenomenon and more a national fast food chain. Glen Bell had originally sought to set Taco Bell apart from other fast food chains, McDonald's in particular, and its preeminent position among other Mexican food chains, almost all of them regional or local rivals, was already secure.

PepsiCo's decision to reposition Taco Bell was a challenge to the fast food giants on a national scale. The PepsiCo strategy emphasized that Taco Bell outlets would sport spartan simplicity in decor and menu, with a concentration on predictable quality, affordable prices, and clean and convenient surroundings. Taco Bell also moved swiftly to redesign the company logo. The old logo, an Hispanic man dozing under a giant sombrero, was replaced by a sparkling bell atop the company name. As Larry Higby, senior vice-president of marketing at Taco Bell, noted in Advertising Age, "Usually when you try to turn something around, you look to develop breakthrough advertising. But we came to exactly the opposite conclusion: we needed to look more mainstream."

The strategy worked. Taco Bell grew rapidly during the early 1980s. By 1983, when John E. Martin took over as president, the chain had 1,600 outlets in 47 U.S. states, producing a total of $918 million in sales. The average Taco Bell franchise claimed sales of $680,000 that year, a significant increase over the franchise average of $325,000 in sales only three years earlier. As a measure of market strength, Taco Bell's nearest rival in the Mexican fast food segment was Naugles, a California-based chain with only 160 outlets and 1983 sales of $84 million.

A 1985 advertising campaign typified the company's mainstream approach. The television spots stressed that Taco Bell offered the same ingredients as its burger rivals: beef, cheese, and tomatoes. It simply served the ingredients up in a different and, according to the company, more satisfying way. The campaign's tag-line, "Just Made for You," reminded consumers that more than 60 percent of Taco Bell products were custom-made and that no dish was prepared until it was ordered to ensure freshness. By 1986, Taco Bell had grown to 2,400 outlets with just over $1.4 billion in sales. Television advertising that year called Taco Bell "the cure for the common meal," a pointed allusion to the staple foods offered by its competitors.

New Taco Bell outlets were also different from earlier models. The traditional arched windows and red-tile roofs were retained but with the addition of exterior stucco. Interiors featured skylights, silk plants, and light-colored wood. New dishes, such as seafood salads and grilled chicken, were added to menus, and drive-through windows became a standard feature.

Company Perspectives:

Taco Bell works with its suppliers to deliver great tasting, high quality food. Our food is topped, layered, loaded, melted, and grilled fresh for you, right when you order it. This means two things. First, you get your food prepared exactly how you want it. And second, it always tastes fresh.

Successful Pricing and Production Changes in the Late 1980s

In 1986, Taco Bell expanded overseas by opening a restaurant in London, England. Two years later, Taco Bell made widespread pricing and production changes. The resulting lower price of many of the items on the Taco Bell menu forced rival hamburger chains to follow suit. On the production side, Taco Bell began contracting out much of its food preparation, including the dicing and slicing of vegetables and the frying of taco shells, in order to get the kitchen out of the restaurant. Just-in-time inventory controls were added to all outlets, resulting in reduced overhead costs. Electronic information systems installed in all Taco Bell outlets cut down significantly on management paperwork. Staff responsibilities changed as well, as Taco Bell reversed the 70 percent kitchen and 30 percent dining room ratio in all its outlets. As Zane Leshner, the company's senior vice-president for operations, commented in Financial World in 1991: "We no longer dedicate an awful lot of labor and space to doing things that have no customer value at all." The strategy paid dividends for Taco Bell. The streamlining steps enabled the Mexican fast food chain to raise its profits by 25 percent annually during the late 1980s, a time when it was sharply dropping its prices.

The company's success, coming when the late 1980s recession led to savage price-cutting and cutthroat competition in the fast food industry, impressed industry analysts. A 1991 article in the Harvard Business Review named Taco Bell as the best performer in the fast food industry at the time, surpassing traditional market leader McDonald's. The authors wrote, "If McDonald's is the epitome of the old industrialized service model, Taco Bell represents the new, redesigned model in many important respects."

To keep customers focused on Taco Bell's menu, the company in 1991 introduced a three-tiered value menu. Most products on the menu, from original tacos and bean burritos to cinnamon twists, would be sold at three main price levels: 59 cents, 79 cents, and 99 cents. In addition, new menu items introduced in 1991 included steak burritos to lure dinner customers and a test breakfast menu. These changes helped the company to achieve 60 percent more sales in 1991 than two years earlier.

Expansion in the 1990s

New Taco Bell outlets were also being added to the company's stable. The number had grown from 2,193 units in 1985 to 3,273 in 1990, marking an annual growth rate of 8.3 percent. That growth rate continued in the early 1990s as Taco Bell opened some new franchises and many new company-owned restaurants. In 1992, Taco Bell opened outlets in Aruba, South Korea, and Saudi Arabia, bringing the number of international locations to 11. In the United States, Taco Bell pursued several unconventional approaches to expand opportunities for sales. In addition to opening new restaurants, the company introduced Taco Bell Express, small outlets with a limited menu and little or no seating, in airports, business cafeterias, and sports stadiums. Street carts took this idea a step further.

In addition, to take advantage of the growing take-home food market, Taco Bell forged agreements with supermarkets for counters within their stores. Although such counters created competition for the supermarket's own deli stands, the increased traffic through the store and the percentage the supermarkets got from the fast food sales was felt to offset any business stolen from delis. Taco Bell also entered the supermarket venue through a line of taco shells, salsa, and refried beans in 1993. In all, CEO John E. Martin hoped to have 250,000 distribution points by the next century.

However, this aggressive expansion raised the ire of many franchisees, who felt the new restaurants and outlets threatened their own sales. A comparison of Taco Bell Corp.'s profits and average sales growth per store seemed to validate the franchisees' fears: between 1989 and 1992, the company's operating profits had grown by approximately $100 million, whereas average sales growth per store had fallen from about 16 percent to 7 percent a year. Some franchisees also felt threatened by the company's move toward more company-owned stores. CEO Martin claimed that the problem stemmed from franchisees' unwillingness to change. "Sometimes you have to lead people kicking and screaming to the right answer," he explained to Amy Barrett of Business Week.

Parent company PepsiCo's attitude toward aggressive expansion reversed itself in the mid-1990s, however. Its hefty investment in new outlets and company-owned stores failed to provide an adequate return, especially when compared to its other core businesses. Its restaurants, including Taco Bell, had operating margins of 7 percent, whereas its beverage division was seeing margins of 13 percent, and its snack division, 17 percent. The initial solution tried by Roger Enrico, the new chairman and CEO, was to reduce the percentage of outlets owned by the company, which stood at 60 percent in 1995. Rather than have company money tied up in capital, Taco Bell could rely on franchisee investment, a strategy followed by McDonald's, which owned only 20 percent of its restaurants in 1995.

Key Dates:

1946:: Glen Bell opens a hot dog stand in San Bernardino, California.
1962:: Taco Bell is established.
1964:: Taco Bell begins to franchise.
1966:: The company goes public.
1978:: PepsiCo Inc. buys Taco Bell.
1986:: The company opens its first international restaurant in London, England.
1993:: A line of taco shells, salsa, and refried beans hits supermarket shelves.
1997:: PepsiCo spins off its restaurant division as Tricon Global Restaurants Inc.
2002:: Tricon changes its name to YUM! Brands Inc.

Spinoff in 1997

Still, this step did not satisfy PepsiCo's need for a greater return on its assets, and the company prepared to sell its restaurant division. In the late 1990s, PepsiCo drew together its restaurant businesses, including Pizza Hut, Taco Bell, and Kentucky Fried Chicken (KFC), placing them in a single division. All operations were now overseen by a single senior manager, and most back office operations, including payroll, data processing, and accounts payable, were combined. In January 1997, the company announced plans to spin off this restaurant division, creating an independent publicly traded company called Tricon Global Restaurants, Inc. The formal plan, approved by PepsiCo board of directors in August 1997, stipulated that each PepsiCo shareholder would receive one share of Tricon stock for every ten shares of PepsiCo stock owned. The plan also required Tricon to pay a one-time distribution of $4.5 billion at the time of the spinoff. The deal was approved by the Securities and Exchange Commission and completed on October 6, 1997.

Enrico explained the move: "Our goal in taking these steps is to dramatically sharpen PepsiCo's focus. Our restaurant business has tremendous financial strength and a very bright future. However, given the distinctly different dynamics of restaurants and packaged goods, we believe all our businesses can better flourish with two separate and distinct managements and corporate structures."

After the spinoff was complete, Tricon immediately began to implement new strategies intended to bolster revenues and profits. The company also looked to strengthen its relations with its franchise locations. In the case of Taco Bell, the company began selling off company-owned stores to its franchisees. It also launched a new advertising campaign featuring a talking Chihuahua at the end of 1997. Management hoped the new campaign as well as the addition of several new menu offerings including the Gordita, Chalupas, and Grande Meals would shore up sales in the late 1990s.

Despite its efforts, Taco Bell was pushed to shelve the popular advertising campaign featuring the Chihuahua in 1999 after its franchisees demanded that future commercials tout the company's fresh food. Prompted by faltering sales, the firm launched its "Think Outside the Bun" slogan in an attempt to lure customers to its new, fresher products. At the same time, two men filed suit against chain claiming the firm stole their advertising idea for the talking Chihuahua. In 2003, a federal jury awarded $30.1 million to the two men. Taco Bell planned to appeal the verdict.

Overcoming Problems in the 2000s

Weak sales, rising cheese prices, and growing franchisee debt followed the company into the 21st century. During 2000, Taco Bell took a $26 million charge for expenses related to franchisee debts. At the same time, the company was forced to recall the taco shells used in its restaurants after it was discovered that the taco shells sold in supermarkets contained genetically modified corn, which was not approved for human consumption. While the shells used in the restaurants were not linked to the shells sold in grocery stores, Taco Bell voluntarily set the recall in motion.

Emil Brolick, Taco Bell's president and chief concept officer, commented on the company's overall situation in a February 2001 Wall Street Journal article, claiming, "We are not doing a great job in terms of quality, in terms of friendliness, in terms of speed, in terms of cleanliness in the store." To remedy this situation, the company began to focus on offering menu items with improved quality and replaced its ground beef and refried beans with thicker, tastier products. It also added more upscale menu items including steak tacos, quesadillas, Grilled Stuft Burritos, and Border Bowls, which featured grilled chicken, salsa, red tortilla strips, seasoned rice and beans, and a three-cheese blend over a bed of iceberg lettuce.

Taco Bell's strategy appeared to pay off when sales began to rebound in 2002. In fact, the company began performing better than the other chains in YUM! Brands' arsenal. (In 2002, Taco Bell's parent company changed its name to YUM! Brands Inc. after it acquired A&W All American Food Restaurants and Long John Silver's.) Taco Bell launched its Big Bell Value Menu in 2004, which offered seven items priced under $1.29, including a half-pound bean burrito and a half-pound beef and potato burrito. It also launched Mountain Dew Baja Blast, a lime-flavored drink made exclusively for Taco Bell.

Under Brolick's leadership, Taco Bell had reformed its financial record and by 2004 was in the midst of its third consecutive year of sustained growth. That year, Taco Bell came to an agreement with the Coalition of Immokalee Workers (CIW), ending a long-running boycott by the group of tomato farm laborers in Florida. As part of the agreement, Taco Bell agreed to pay a penny-per-pound surcharge on tomatoes and also work to improve farm labor standards and pay policies. With recalls, lawsuits, and boycotts behind it, Taco Bell appeared to be well positioned for success in the years to come.

Principal Competitors

Del Taco Inc.; Doctor's Associates Inc.; McDonald's Corp.

Taco Bell Corp.

views updated Jun 11 2018

Taco Bell Corp.

founded: 1962 by glen bell

Contact Information:

headquarters: 17901 von karman
irvine, ca 92714 fax: (949)863-2246 phone: (949)863-4500 url: http://www.tacobell.com/

OVERVIEW

Taco Bell is the largest Mexican-style quick-service restaurant chain in the United States, dominating more than two-thirds of the market. The United States has more than 7,000 Taco Bell locations and other countries have more than 170. Approximately 32 percent of the U.S. units and 42 percent of the international units are company-operated, while the rest are independent franchises. Taco Bell serves more than 55 million people each week, selling over 4.5 million tacos every day. Lunchtime sales account for 50 percent of the company's business.

COMPANY FINANCES

In 1997 Taco Bell's worldwide sales exceeded $4.9 billion. Average U.S. sales per traditional restaurant location were $972,000. Same-store sales increased by 2 percent, after drops of 2 and 4 percent in 1996 and 1995, respectively.

ANALYSTS' OPINIONS

In March 1998, analysts were issuing "buy" recommendations for the stock of Taco Bell's parent corporation, Tricon. This was based on the concerted effort being made to franchise existing company-operated stores and on a major initiative to establish Taco Bell in Australia.

HISTORY

In 1962 Glen Bell built a small restaurant stand in Downey, California, called Bell's Drive-In. Bell learned the business as he ran it. His second unit was only large enough for one person to operate, but he instituted changes to help boost profits and simplify operations. In 1952 Bell sold his first stand and built another restaurant, which sold hamburgers and hotdogs. McDonald's restaurants opened around the same time, and the two operations nurtured the public's new fast-food habit.

Bell sold his first franchise in 1964. By the time the company, now known as Taco Bell, went public in 1969, there were 325 restaurants. PepsiCo acquired Taco Bell in 1978; there were 868 locations. In 1997 Taco Bell—along with the other PepsiCo-owned chains, KFC and Pizza Hut—was spun off to create TriCon Global Restaurants, Inc.

STRATEGY

Taco Bell implemented its "Value Strategy" in 1989; it was a three-tier pricing system that allowed customers to easily choose a meal within their budget. However, within a few years Taco Bell executives realized the company could not depend exclusively on the "value" end of the fast-food market, and it needed to boost its higher-priced offerings as well. One such attempt was the "Border Lights" line in 1995, but it made a disappointing showing, as even a $75-million marketing push failed to convince customers to pay more for lower fat items.

In 1995 Taco Bell also opened up new markets by increasing its number of non-traditional units. These units included mobile carts, kiosks, school lunch programs, and express units located in sports arenas, universities, airports, and movie theaters. In 1997 Taco Bell initiated a marketing and product development effort called "Project Gold," a plan to raise consumer quality expectations and create demand for a broader range of menu offerings.

Television commercials are a very important element of the company's marketing strategy. Several popular campaigns in the late 1990s featured celebrities such as basketball star Shaquille O'Neal. Promotional campaigns built around the Star Wars and Batman movies also helped to bring families into the restaurants.

FAST FACTS: About Taco Bell Corp.

Ownership: Taco Bell is one of the three divisions of Tricon Global Restaurants, Inc., a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: YUM

Officers: Peter C. Waller, Pres., 43, $834,433; Thomas E. Davin, COO, 40

Employees: 100,000

Principal Subsidiary Companies: Taco Bell, Pizza Hut, and KFC were subsidiaries of PepsiCo until 1997 when the restaurants were spun off to form Tricon Global Restaurants.

Chief Competitors: Taco Bell competes with other fast-food and pizza restaurant chains, including: Burger King; McDonald's; Wendy's; Subway; Domino's; and Little Caesar's.

CHRONOLOGY: Key Dates for Taco Bell Corp.

1962:: Glen Bell builds a small restaurant stand called Bell's Drive-In
1964:: Bell's becomes Taco Bell; the first Taco Bell franchise opens
1969:: Taco Bell goes public
1978:: PepsiCo purchases Taco Bell
1986:: Taco Bell opens its first international franchise in London, England
1997:: All PepsiCo restaurants are spun off to form Tricon Global Restaurants

In mid-1998 Taco Bell launched a television campaign featuring its now famous Chihauhua dog; the ads took shots at competitor Burger King and also tied into the promotion of Godzilla and Taco Bell's new product Gorditas. A nationwide taste test showed that men preferred Taco Bell's new Gordita Supreme Taco 58 to 42 percent over Burger King's Whopper. While some people found the commercials clever and funny, some Latino groups protested that the commercials unfairly stereotype members of the Hispanic community.

INFLUENCES

The fast-food market is extremely competitive. Even market leader McDonalds must constantly strive to keep customers coming, as new restaurants appear on the scene or new marketing efforts are launched by existing players. Therefore, Taco Bell has made continuing efforts to increase customer satisfaction by gathering feedback. Customers dining in or picking up food via the drive-through were given questionnaires focusing on several different aspects of the Taco Bell dining experience. By 1993 Taco Bell had collected feedback from 800,000 customers through the written questionnaires and a toll-free hotline.

After reviewing several marketing studies indicating that Taco Bell had a higher brand awareness among shoppers than other food companies, the company decided to move into the supermarket retail business. In 1993 it introduced 18 new items in 3,000 stores throughout Ohio, Georgia, Michigan, Chicago, and Indiana. These locations were chosen for diversity in consumer demographics, taste preferences, and Taco Bell brand-name awareness. Taco Bell made this move with virtually no advertising, with the exception of newspaper inserts and in-restaurant couponing. The new products became successful almost immediately, and soon Taco Bell became the number-one or number-two ethnic food brand in supermarket Mexican food sections. By 1994 Taco Bell had expanded into over 10,000 supermarkets nationwide.

CURRENT TRENDS

In May 1993 Taco Bell moved into the "fresh Mex" dining market. The company purchased Chevy's Mexican Restaurants, a full-service restaurant/bar chain. Research conducted by Taco Bell showed that as fast food diners grew older and had more disposable income, they moved toward a casual dining atmosphere, with table service and a broader menu. Acquiring Chevy's allowed Taco Bell to keep customers as they made this transition. However, both Chevy's and another Taco Bell subsidiary, Hot 'n Now, were sold in 1997 in connection with the TriCon spinoff since they were judged peripheral to the organization's core business.

PRODUCTS

Taco Bell serves Mexican-style foods such as tacos, burritos, and nachos. Expansion of the product line beyond its Mexican roots is expected as the restaurant chain seeks to establish a "hip" image. It is likely to capitalize on the popularity of a wide variety of food served in "wraps," a trend well suited to its taco and tortilla format.

CORPORATE CITIZENSHIP

Taco Bell is engaged in a five-year, $15-million partnership with the Boys and Girls Clubs of America called TeenSupreme. Its purpose is to enhance citizenship and leadership among young people, as well as to promote job preparation skills by "expanding and enhancing the educational, vocational, and service opportunities for teens in Boys & Girls Clubs across the country."

The program has three key components that serve and enhance the clubs: TeenSupreme(R) Centers, Teen-Supreme(R) Training Academy, and TeenSupreme(R) Keystone Club. The Centers will provide special hours and teen-oriented programs that emphasize career exploration, job preparation, and job placement for more than 80,000 teens nationwide. The Academy will train more than 2,000 Boys & Girls Club professionals to implement strategies and program models for "recruiting, engaging, mentoring, and retaining teenagers in the Clubs." The Keystone Clubs are for members 14 to 18 years old. They provide more than 9,000 teens with the skills to become productive citizens and community leaders, mainly through the creation and execution of community-service projects.

GLOBAL PRESENCE

In 1997 Taco Bell operated nearly 200 restaurants in Canada, Guam, Grand Cayman, Japan, the Dominican Republic, Chile, Egypt, Poland, Jamaica, Peru, and several other countries, and it was beginning to move into Australia.

EMPLOYMENT

Taco Bell employs more than 100,000 people in its restaurants and corporate offices. Many of the restaurant positions are part-time.

POOCH REIGNS AT FAST-FOOD FRANCHISE

Taco Bell's advertising campaign featuring a talking Chihuahua is one of the most popular advertising efforts in years. Although it came under some scrutiny early on, a recent study by USA Today found that 55 percent of Hispanic consumers liked the campaign. The loveable dog has become the focus of most Taco Bell commercials since his debut in 1997.

The Chihuahua is intended to represent an average 19-year-old guy, according to the ad's developers at TBWA/Chiat Day Advertising. As each commercial unfolds, Taco Bell is finding that its consumers are following the commercials as if they were a television show. Each time a new one airs, viewers anticipate what will happen next.

Taco Bell is trying to meet its consumers' demands for more Chihuahua commercials while the dog remains popular. In the meantime, the catch-phrase that can be heard everywhere is "Yo quiero Taco Bell," which means "I want Taco Bell."

When Tricon was formed in the spinoff of PepsiCo's restaurant businesses, the new company's president, David Nowak, was expected to institute many of the employee and franchisee-friendly policies he had been known for at KFC. These policies included restaurant visits by upper management to meet with franchisees and hear their concerns, as well as employee performance awards.