TACO BELL CASE STUDY

Eashan Bhattacharyya
675556613
ebhatt2@uic.edu
EXECUTIVE SUMMARY

Taco Bell, built first in 1962 served a variety of Tex-Mex style foods, primarily operated in
the US. It was later bought by Pepsico in 1978 and then later in 1997 it became a part of
Yum! Brands. Though it had a presence in more than twenty-one countries, most of its
revenue came from the US. Yums profitability was the fact that it did not own most of its
restaurant, only 20 percent were company owned and rest were operated by franchisees.
Avoiding the burden of ownership and maintenance significantly boosted financial returns.
Taco Bells core customers were single young men between the age of 18 and 24. They
were a key group and they were dependent on them. It though was not a hit among other
demographic groups as they tried to introduce a low flat line of products called Border
Lights. Taco Bell's menu consisted of mostly classic Mexican dishes such as tacos and
burritos. Their prices were low which attracted its core customers. They also relied on
heavy advertisement and spent almost $300 million per year on the advertisement.
Breakfast was a key opportunity in the quick-serve restaurant world. Taco Bell wanted to
expand its market but failed several times. In this category, McDonald was the biggest
player having premium products such as Egg McMuffin, McCafe, and others. Taco bell
faced three primary challenges in the breakfast filed. First, the brand would need to get
the consumers to change their breakfast routine which was very difficult. The second was
winning over the support of the franchisees. And the third was to maintain the
advertisement support over a long period of time.
To enter the breakfast field, Taco made sure consumers could eat on the way and they
could produce the same in Tacos kitchen. They researched and came up with several
items such as Waffle Taco, AM Crunchwrap, Cinnabon Delights, and coffee. Initial
reaction from the customers was positive. The marketing team developed an aggressive
plan to support the launch of the breakfast line for the first six weeks. Yum! Brands top
officials wanted Taco Bell to generate revenue in the morning breakfast and thus tried
adapting different growth strategy.
SITUATION ANALYSIS
Taco Bell was founded by Californian Glen Bell. They sold a variety of Tex-Mex style
foods like tacos, burritos, quesadillas and nachos. Bell initially opened a small hot dog
stand and later expanded his business by opening a number of restaurant in Southern
California. He set up the first Taco Bell in 1962 in Downey, California which multiplied to
100 restaurants by 1967. In 1978, Pepsico purchased Taco Bell, which later became a
part of Yum! Brands in 1997.
Yum! Brands was one of the global leaders in the quick serve restaurant business. It is
based in Louisville, Tennessee and owned Taco Bell, KFC, Pizza Hut, WingStreet and
other brands. Yum's vision was to be "the defining global company that feeds the world".
In 2012 net income reached $1.6 billion as growth was a top priority for the company.
The key driver of the company's profitability was due to the reason that it did not own
most of its restaurant. Out of 40,000 locations, 20 percent were company owned and the
rest were operated by franchisees and licensees. The challenge for Yum! was that
franchises were demanding as they wanted to see a steady flow of customers coming
into their restaurants which were a responsibility of Yum!
Taco bell was the third largest brand of Yum! and contributed about two-third of Yum's
total US profits. Taco Bell primarily operated in the US though it had a presence in 21
countries. In 2013 Taco Bell's core customers were single young men between the age
group of 18 and 24. The marketers described it as "cheap, fast, delicious and messy." It
though was not a hit among other demographic groups as they tried to introduce a low
flat line of products called Border Lights. Taco Bell's menu consisted of mostly classic
Mexican dishes such as tacos and burritos. Its process was kept low as these low prices
resonated well their core customers. Taco Bell spent a huge amount of almost $300
million per year on the advertisement. Taco Bell's April Fool's day joke that it purchased
Liberty Bell on April 1, 1996, generated tremendous publicity along with a certain amount
of controversy. From 1997 to 2000, taco Bell used a Chihuahua in its advertisement
campaign with signature phrase "Yo quieo Taco Bell" and created few memorable ads.
Taco Bell's same-store sales growth continued in 2012 and 2013 though it dipped
marginally in 2011 due to a class action lawsuit alleging that its seasoned meat was
mostly fillers and not meat. The primary reason for 2012's improved results was due to
the launch of the Doritos Locos Taco. USA Today's description "Two commonly ridiculed
junk food- the Doritos chip and the Taco Bell- are being rolled into one." The concept
made an impact with customers and 100 million were sold in 10 weeks following the
launch. President Brian Niccol new creative slogan of "Live Mas"(Live More) also helped
Taco Bell's advertising campaign.

According to NPD, a market research firm estimated that breakfast accounted for 12.5
billion restaurant visits in 2013 which was about 21 percent of all restaurant visits. The
biggest competitor in the field of breakfast was McDonalds. Nearly 25 percent of
McDonalds US sales, nearly accounting for $9 billion dollars came from breakfast meal
sales. Darren Tristano analyzed to find that McDonalds breakfast sales were more than
Taco Bells total sales globally. McDonald started with its breakfast menu with Egg
McMuffin in 1972 and expanded in 1997. In 2001, it launched its premium coffee products
in response to the growth of the coffee business of Starbucks and Dunkin Donuts.
Though Taco Bell tried to enter the breakfast meal several times, all attempts failed. Taco
Bell faced few challenges in breakfast. Taco Bells specialization was Mexican food and
thus found it difficult to change the customers breakfast routine. One of the managers of
Taco Bell mentioned that humans are hard-wired in the morning and it tough to get people
to change. The support from franchisees was also a major challenge as, without their
support, the initiative wont be a success. The third challenge was to maintain constant
advertising support over a long period as the competition was huge and mere launching
wont be too effective.
The new products team at Taco Bell spent most of 2012 in developing and testing a line
of breakfast products which could be launched in early 2013. The development of new
products was done keeping in mind that customers ate breakfast on the go. They made
sure it could be prepared in a Taco Bells kitchen, as franchises were unlikely to invest
capital for preparing breakfast.
The menu items launched by Taco consisted of the Waffle Taco, AM Crunchwrap,
Cinnabon Delights, coffee, and others. The Waffle resembled a taco, but rather than a
tortilla a waffle was folded around a filling of eggs and sausage or bacon, accompanied
by syrup. AM Crunchwrap was developed to be an easy pickup and eat which consisted
of eggs, steak, and bacon. Cinnabon Delights were cinnamon rolls filled with cream
cheese frosting. Taco Bell considered offering espresso-based drinks but was concerned
that the equipment priced at $10,000 would have been too much of investment for the
franchise. Other items on the menu included breakfast burritos and tacos. All the items
were priced low to make it affordable for the customers.
Initial results from consumer tests were positive. Appreciation for Taco and AM Grilled
Taco gave Taco Bell a boost for the newly launched menu. A concern that Taco Bell had
was whether young customers who were their primary customers would walk into their
stores between 9 and 11 AM. The marketing team developed aggressive plans to launch
their new premium line of breakfast items. They plan to attack McDonald by portraying
them as old-fashioned and out of touch with younger people. Taco Bell plans to redirect
all marketing support to the breakfast line for the first six weeks of the launch.

PROBLEM DEFINITION

Taco Bell, which served a variety of Tex-Mex style foods had long eyed the breakfast
opportunity. They tried to enter the breakfast meal occasion three times, but each attempt
failed. Breakfast was a key opportunity in the quick-serve restaurant world but US market
was captured by McDonald.
When Yum! Brands researched, they found McDonald's earning $1 million in sales before
Taco Bell opened its store at 10 AM. So, they found that there was a lot of potential
earning that Taco was missing out and not capitalizing. In 2014, Taco Bell was in dilemma
whether to expand Doritos Locos Tacos or launch a line of breakfast items.
Taco Bell though was successfully growing in 2013, they always wanted to capture the
breakfast market and compete with McDonald. But introducing breakfast line of products
wasnt easy as it was difficult to make changes in consumers habit to try Mexican food in
the morning. Taco Bells restaurant was mostly operated by franchisees and to make
breakfast initiative success required all franchisees to agree to their expansion plan.

ALTERNATIVE ACTIONS
Taco Bell primarily operated in in the US. Though they had a presence in twenty-one
countries, most of its revenue came from the US itself. So, they can expand their business
in the countries where their presence is limited. It will affect the businesses of bigger
companies like McDonald as the prices of Taco Bells products were comparatively
cheaper. Also, this would increase customer loyalty and fetch good profits. Creating a
franchise in foreign countries is quicker to set up rather than starting from starch. Also, it
would be simpler to market as the product is already established in a market share. But
on the hindsight, the cost of franchising will be high as the company must pay continuing
management service fees. They also must bear the initial cost of buying the franchise.
Another suitable alternative might be to increase their online presence and advertise their
breakfast menu. This will be great initiative as it will connect to the youth as they are more
tech savvy and connected to the social sites like Facebook, Instagram, and others.
Customers will get more information about the new line of premium products launched by
Taco and thus will be more curious to try them in morning. Also in the process, they would
be able to provide information to the large section of people. Though social media is a
great platform to invest in, sometimes such platforms generate negative publicity and may
land in some controversies as well. People make negative comments which discourage
other potential customers.
Taco Bell must also provide additional services to their loyal customers. The introduction
of value cards, ad promo credits, online contest, customer referral program will encourage
customers to come back to eat again and again. Discounts for breakfast items is also a
viable option the company can consider. Attractive offers of combo meal will generate
more interest among the customers. If the customers like the taste of breakfast items,
sales will increase and it will generate good profits for the company. As Taco Bell has to
invest in such kind of offers, they have bear with some amount of losses in the beginning.
But in the longer run, if the products are hit with their customers then Taco Bell can soon
recover the amount they have invested.
RECOMMENDATIONS

Taco Bell idea of growth largely revolved around cracking the breakfast section.
According to an analysis, McDonald earned $1million in sales before the Taco bell stores
opened. Taco wanted to capture their rivals market share but were unsuccessful in each
attempt. Introducing a new flavor of Doritos Locos Tacos was a safe option but it would
be having an incremental impact on the business. But breakfast section looked more
compelling and market could be captured
To compete with big brand like McDonald, Taco bell needs to heavily advertise their
breakfast line of products and reach out to their customers though all types of media.
Taco Bells breakfast line of products can be successful if they can attract their loyal
customers in the morning. However, as their loyal customers were young, they started
functioning at around 12 PM which way too late. They can start free home delivery for
first five orders. This will make young customers order in the morning and they can
develop the taste of Mexican food in the breakfast. This can also encourage other age
groups as well. The company must increase their online presence and connect with the
youth and invite them by various promo codes and referral system.
Taco Bell must also try to prepare special items for each day with discounted price, as
this lets customers try all their products. They can introduce combo meals which will give
consumers more options to try out. In wont be easy to draw out other generations, but
still they can also advertise on the health benefits of their breakfast products which can
target old age group. This initiative might make an impact of old age groups and thus will
increase the customers of Taco Bell.
They certainly must try to capture the breakfast market as it has a huge opportunity
though McDonald has already captured huge portion. Though they might have failed in
previous three occasions they still can provide great competition to McDonald and
generate good revenue in their breakfast section. Taco Bell must consider various
benefits to customers through vale and gift cards which will make a lasting impact with
the customers. This will increase the loyalty fan base and greater revenue will be
generated in the breakfast sales and thus Yum! would make good profits.