Taco Bell is big enchilada at Yum Brands


Taco Bell Corp., the nation's largest Mexican fast-food chain, started its sales comeback in the fourth quarter of 2001. Last year, sales at Taco Bell restaurants open for at least 12 months rose 7 percent, and so far this year same-store sales are up 1.5 percent.

Along the way, Taco Bell, best known for selling tacos and burritos for less than $1, has gone upscale by introducing a $2.99 Chicken Caesar Grilled Stuft Burrito and the Southwest Steak Border Bowl for $3.49.

"We're repositioning the brand," said Greg Creed, Taco Bell's chief marketing officer.

Taco Bell has quickly gone from the weakest to the strongest of the fast-food chains owned by Yum Brands Inc. of Louisville, Ky.

Yum Brands, formerly known as Tricon Global Restaurants, was spun off in 1997 by PepsiCo Inc. Yum Brands also owns KFC and Pizza Hut, and last year it added seafood chain Long John Silver's and A&W; All-American Restaurants.

Best performer

In the second quarter, Yum Brands reported that its earnings fell 13 percent to $122 million, but its sales rose 10 percent to $1.94 billion.

The company does not break out profits for its restaurant chains, but Wall Street credits Taco Bell for much of the parent company's rebound. Yum Brands shares fell 9 cents to close at $28.83 on the New York Stock Exchange yesterday.

[Dow Jones reported that the latest results included a $35 million pretax charge from last month's verdict against Yum Brands in a lawsuit involving the origin of the Chihuahua character in Taco Bell ads. Excluding that and $2 million in other charges, Yum Brands said it would have earned 48 cents a share, not the 40 cents it recorded, Dow Jones said.]

"It's been a great couple of years for Taco Bell. It's really the bright spot now in the portfolio," said analyst Andrew M. Barish, who follows Yum Brands for Banc of America Securities. Yum Brands' shares have climbed 21 percent this year.

Taco Bell is the fifth-largest fast-food company in the United States, with $5.2 billion in sales last year.

But within Mexican fast food, Taco Bell is pretty much the category, with nearly a 70 percent market share, according to Technomic Information Services, a Chicago restaurant consulting firm. Smaller competitors are privately held Del Taco Inc. of Lake Forest, Calif., and Taco John's International Inc. of Cheyenne, Wyo.

Much of the growth in Mexican restaurants is seen at the higher-priced end. Last year, sales at the McDonald's Corp.-owned Chipotle chain rose 55 percent to $225 million, and sales at Wendy's International Inc.'s Baja Fresh chain gained 41 percent, to $249 million.

"But even with these chains coming into our market, we have continued to grow," Creed said. "We're getting more heavy users as well as light or lapsed users, customers who had rejected us before."

Wall Street credits much of the chain's turnaround to Taco Bell President Emil J. Brolick. He was hired in 2000 after spending 12 years at Wendy's as senior vice president for new product marketing, research and strategic planning.

At Taco Bell, Brolick's goals were to have cleaner, nicer-looking restaurants, and offer higher-priced items with better ingredients.

Troubled franchises

He also had to deal with many financially troubled Taco Bell franchises. In an 18-month span from 2000 until the fall of 2001, Taco Bell's same-store sales kept falling and in one four-month period Taco Bell suffered double-digit drops in sales. Some franchisees fell into bankruptcy, and others, buried under debt from a recent expansion push, pleaded for help from the company.

Taco Bell ended up restructuring deals with nearly 1,800 of its restaurants, or almost 30 percent of the chain. The company bought 147 restaurants for $76 million, spent an additional $28 million to purchase land, buildings and equipment from 52 others, and committed $45 million for future franchise capital expenditures. The company also set up a $15 million loan program to help troubled franchisees.

Rolling out a higher-price menu helped boost Taco Bell's average sales to $964,000 per restaurant last year - nearly on par with rival Burger King - and up 7.6 percent from $896,000 in 2000.

Besides changing the menu and grooming some of its disheveled outlets, Taco Bell also cut 25 seconds from its delivery time at the drive-through windows, which accounts for 66 percent of Taco Bell sales.

In the fast-food trade, delivery time is measured as precisely as an Olympic sprint. In last year's drive-through survey done by QSR magazine, a trade publication, Taco Bell had the fourth-quickest food delivery time, at 167.15 seconds, ranking behind Wendy's, Atlanta-based Chick-fil-A and McDonald's.

The Los Angeles Times is a Tribune Publishing newspaper.

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