How Taco Bell Continues to Outpace the Fast Food Segment
Taco Bell is on a completely different level than its Yum! Brands counterparts.
The Mexican concept saw its in-store and system sales grow 5% and 7%, respectively, in the second quarter, far outpacing those of KFC, Pizza Hut and The Habit Burger Grill. Taco Bell shifted from consumer check management earlier this year to check growth in the second quarter, driven by items per transaction.
The chain’s sales are up about 10% across all revenue cohorts, which CEO David Gibbs says proves that “desirable innovation” can still win at a higher price point with today’s consumers. He’s referring to the Cantina Chicken platform, which offers the Cantina Chicken Soft Taco, Cantina Chicken Crispy Taco, Cantina Chicken Burrito, Cantina Chicken Quesadilla and Cantina Chicken Bowl. Since the platform launched, the brand’s chicken sales mix has increased 10 percentage points. Nearly 25% of orders include an item from the Chicken Cantina platform. In the third quarter, the brand launched the Cantina Chicken Cheesy Street Taco Chalupas, which are off to a strong start.
Taco Bell also intrigued customers with the Cheez-It Crunchwrap and Secret Aardvark Fries.
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Gibbs doesn’t expect the brand’s momentum to slow in the second half of 2024. He pointed to Taco Bell’s ever-present value message, specifically the Cravings Value Menu, which features 10 choices.
“These are unique items that no one else in the industry is offering. And they’re not smaller versions of a commodity item,” Gibbs said. “They’re unique. They stand out in their own right. They’re incredibly desirable. That’s served us well and it’s really created a value gap.”
The CEO also mentioned the $7 Luxe Box, which includes a seasoned beef chalupa supreme, a 5-layer beef burrito, a double-stacked taco, chips and nacho cheese sauce, and a medium fountain drink. He said Taco Bell is “outperforming the quick-service industry by a wide margin.”
“We have a great way of playing the value card, which makes it hard for others to compete. And then you add to that things like the launch of Cantina Chicken in the second quarter, which is really a platform that we’ll continue to innovate on as we move forward. … We’ll probably relaunch Cantina Chicken in the fourth quarter. And then you have all sorts of other great things happening at Taco Bell, like speed of service, improving loyalty program launches.”
Digital business, which grew 35% in the second quarter, is also fueling Taco Bell’s growth. Loyalty product sales also increased more than 30% in the quarter. These expanding channels improve labor productivity and generate industry-leading margins. At Yum!’s 488 U.S.-owned Taco Bell restaurants, store-level margins reached 25.6% in the second quarter, with mature locations reaching more than 27%.
“I think Taco Bell’s margins are very impressive in the context of a value-driven environment,” said Chris Turner, CFO. “The Taco Bell business serves consumers, creates buzz in the marketplace, delivers great innovation and delivers value when consumers need it. And yet you see us maintain these industry-leading margins. That’s because we leverage our scale on our food purchases and our franchisees leverage that scale. And I think over the long term, you’ll see us continue to be more and more productive in terms of running our restaurants.”
The rapid evolution of digital has Taco Bell accelerating voice AI at the drive-thru at a faster pace than it anticipated three months ago. The technology is currently in more than 100 Taco Bell restaurants and will expand to hundreds by the end of 2024. Another pilot is underway at KFC Australia. The chain has consistently seen improvements in customer experience and employee productivity. The AI ​​uses digital menu boards, which will become a brand standard in 2025, and Yum! Poseidon’s proprietary POS system.
Taco Bell opened 56 restaurants in the second quarter, including 17 in international markets. The brand ended the quarter with 7,458 stores in the U.S. and 1,107 locations abroad.
Elsewhere in the Yum! portfolio, KFC saw its global comparable store sales decline 3%. International comparable sales declined 3% in several markets due to the ongoing conflict in the Middle East. Markets outside China, which were not materially impacted by the conflict in the Middle East, reported a single-digit increase in comparable store sales. Comparable sales in the United States declined 5%.
KFC has opened 598 outlets in 57 countries. This brings the chain’s gross openings to 1,107 outlets since the beginning of the year, a new record for the brand in the first half of the year. China, India, Thailand and Japan were the main drivers of development. Over the past year, KFC has seen positive development trends in South Africa, the Philippines and Brazil. In the second quarter, the company completed the transaction to purchase 216 stores in the United Kingdom and Ireland, one of its most profitable markets. Yum! now owns 434 KFC restaurants, most of which are located in the United Kingdom.
The chicken giant ended the second quarter with 3,771 units in the United States and 26,918 international stores.
Gibbs said Yum!’s total gross openings at the end of the year will be similar to those of 2022 and 2023. He would like to see that number increase each year, but he understands there is an impact in the Middle East. It is possible that additional closures could occur in the second half of the year, perhaps more than usual. However, he stressed that the stores that will close, particularly in Middle Eastern markets, will be low-volume locations.
“The development is really very encouraging,” Gibbs said. “If you consider the impact of the conflict on sales in some markets, we still see pretty broad-based growth around the world. (…) The development is positive. Why? Because I think franchisees have a lot of long-term confidence in the strength of our brands and their businesses around the world and they’re getting good returns on their investments. We’re tracking the returns on investments in every market across the country very carefully to make sure our franchisees are getting a good return on their investments.”
Pizza Hut same-store sales declined 1% in the U.S. and internationally. Comparable sales outside the U.S. were negative due to a stalled recovery in Malaysia and Indonesia. Despite this negative situation, the brand is seeing increasing trends domestically and encouraging recovery in international markets such as Thailand and Hong Kong. In the U.S., the chain increased its average weekly transactions per restaurant by focusing on value-based promotions such as the My Hut Box. Pizza Hut has 19,864 restaurants worldwide, including 6,573 in the U.S. and 13,291 internationally.
At The Habit Burger, same-store sales declined 6%. With California’s new fast-food wage law putting pressure on margins, The Habit Burger’s management team focused on preserving profitability to remain competitive. These efforts culminated in a store-level labor optimization initiative that resulted in a 520 basis point increase in restaurant-level margins compared to the first quarter. This success comes despite double-digit labor rates increases at California locations. The Habit has 380 locations worldwide, including 372 in the U.S. and eight internationally.
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