| LOS ANGELES, March 19
LOS ANGELES, March 19 Taco Bell turned in an
unexpectedly strong sales in 2012, but delivering a second
consecutive year of restaurant sales growth will be a difficult
task for the No. 1 Mexican fast-food chain.
Taco Bell's two-track strategy - cheap Doritos tacos for
hungry young men and the slightly pricier and higher-quality
Cantina Bell menu for more mature audiences - helped it
outperform the industry in an otherwise tough year.
But maintaining that momentum could be a challenge for the
chain, which has had a multiyear streak of uneven results.
"It's been awhile since they've been able to lap a good year
with another good year," Sanford C Bernstein Research Analyst
Sara Senatore said of Taco Bell.
Taco Bell last put up consecutive years of same-restaurant
sales gains from 2002 through 2006, the company said.
The 5,700-unit chain owned by Yum Brands Inc for
decades has used inexpensive food to build loyalty among
cash-strapped teens and late-night party people.
But before 2012, Taco Bell struggled to find new
game-changing food. It has grappled with food safety issues,
including a 2006 E. coli outbreak that forced the temporary
closure of dozens of units. And, in 2011, sales were hurt by a
quickly dropped lawsuit that challenged its meat quality.
Last year's debut of exclusive Doritos Locos Tacos, priced
slightly above $1, hit a bull's-eye with the chain's base of
young male customers - quickly becoming the most successful
product launch in Taco Bell's 51-year history.
The chain accounts for nearly 20 percent of Yum's overall
operating profit, but for years has been overshadowed by the
company's KFC business in China, which generates 40 percent of
total operating profit and remains Yum's main growth engine.
Good performance from Taco Bell is like the "icing on the
cake," said Telsey Advisory Group restaurant analyst Peter
Saleh. "It's not going to be the driver of the stock."
TAKING THE 'OVER'
Sales at established U.S. Taco Bell restaurants rose 8
percent last year, more than the 7.1 percent rise booked by
burrito chain Chipotle Mexican Grill Inc, which has been
one of the restaurant industry's best performers.
The results made Taco Bell a stand out in 2012, a year when
dominant chains like McDonald's Corp and Chipotle saw
business cool, but they followed 2011's 2 percent
same-restaurant sales drop.
Taco Bell Chief Executive Greg Creed wouldn't forecast sales
for 2013, but he did say that Taco Bell would clear its biggest
hurdle from last year - 13 percent same-restaurant sales growth
in the second quarter.
"I'm taking the over that we can beat plus 13," Creed said
in a recent interview.
To do that, it needs continued strong performance from the
Doritos line. Taco Bell has sold more than 350 million Doritos
Locos Tacos since the flagship Nacho Cheese version rolled out a
year ago and was followed by the debut of Cool Ranch this month.
Creed aims to sell half a billion Doritos Locos Tacos in
2013, when Taco Bell plans to add a third flavor based on
spicier chili-lime Flamas Doritos and benefit from a
switch from local to more effective national advertising.
Time will tell if Flamas tacos can match the success of
their predecessors, which are based on the two most popular
Doritos chip flavors.
GOING HEALTHY TOO
As it expands that cheap Doritos line, Taco Bell is adding
new food to its healthier, and pricier, Cantina Bell menu aimed
at women and older men. Among the new offerings are fajitas that
will set a new high price of $5.49 for the chain.
Taco Bell's Cantina menu resembles the one upscale rival
Chipotle built its business on, but is priced about one-third
lower. Unlike Chipotle, Taco Bell does not use premium organic
produce and antibiotic-free meats.
In addition to pushing through the $5 price barrier with new
fajitas, Taco Bell has plans for $4.99 steak quesadillas.
The chain might not get the sales they want from the new,
more expensive food, but "it may keep the Taco Bell customer
from graduating up to Chipotle a little longer," Saleh said.
Taco Bell said the Cantina Menu accounts for 4 percent to 5
percent of overall sales and helped the chain rebuild its
reputation after the beef quality lawsuit.
Taco Bell's quality score dropped to a low of minus-10 after
news of the meat quality lawsuit hit in 2011, according to
YouGov BrandIndex. Its current score has improved to 4, but
still lags 8 for McDonald's and 14 for Chipotle.
Every restaurant operator, including industry leader
McDonald's, hopes to attract a broad audience with both value
and premium-priced food - and they all struggle to get it right,
said Bob Goldin, an executive vice president at food service
consulting firm Technomic.
"It's very hard to do. The more you move away from your
core, the more you risk losing your core," Goldin said.