Taco Bell goes gourmet

Can a chain defined by its cheap Fourthmeal and Doritos tacos dominate the premium burrito biz?

By InvestorPlace Jun 6, 2012 10:06AM

Taco Bell has made a name for itself with cheap late-night fare. The chain offers plenty of low-priced items, was one of the first chains to stay open into the wee hours, and pushed its so-called Fourthmeal to folks looking for a midnight snack.

But as rival restaurants continue to connect with consumers by offering higher-quality meals at higher prices, Taco Bell has decided to reverse its own course and go upscale.

This summer, you will see a new menu at Taco Bell, formulated by a celebrity chef and described as "gourmet Mexican" by execs.

Lorena Garcia, a Latina chef from Venezuela, will rely on fresh ingredients, including cilantro rice and citrus-marinated chicken, to craft the new dishes. Garcia has been a featured guest on NBC's Today show, the reality competition America’s Next Great Restaurant and Bravo’s Top Chef -- Allstars, along with making appearances on various Spanish-language shows.

Expect to see Garcia front and center in ads, with a launch of the new eats sometime in early July.

Yum Brands (YUM), the company that owns Taco Bell along with restaurants Pizza Hut and KFC, clearly has decided to shift toward higher tastes instead of lower prices at its 5,600 locations. That’s no surprise, considering the rise of casual-dining chain Chipotle Mexican Grill (CMG) and privately owned Qdoba Mexican Grill.

The Associated Press reports that new items were tested for months in Kentucky, near Yum's corporate headquarters, and in California. The results were encouraging, so Taco Bell is going national with its plan.

Of course, that Doritos Locos Tacos with a nacho cheese Doritos shell won’t be going anywhere -- at 100 million sold in 10 weeks, it’s the company’s most successful product launch ever.

The biggest question, of course, is whether this move will pay off. Taco Bell accounts for about 60% of Yum's profits, so this chain is more important than any other and its menu experiments are the most closely watched.

Leaders at the company clearly have been eager to win over new customers, as evidenced with the launch of breakfast service at nearly 800 restaurants this year, and an initial foray into premium food via the Cantina menu.

Results are mildly encouraging so far. Taco Bell's sales rebounded in the first three months of 2012 after a nearly yearlong slump. However, it must be noted that some of that could be because of waning interest in an ugly debate about whether Taco Bell’s beef is in fact beef at all. The beef over Taco Bell beef certainly hurt sales in 2011, and now the company appears to have put that in the past. YUM stock is up more than 21% in the past 12 months in a relatively flat stock market.

But if Taco Bell wants growth to continue on top of the 6% gain seen in same-store sales to start the year, it’s going to have to prove it can take on fast-growing chains like Chipotle. After all, Chipotle stock is up 45% in the past year -- double Yum Brands' -- as revenue jumped almost 25% in the first quarter of this year.

Taco Bell is right to envy that kind of success. But whether it can replicate the growth of Chipotle with this strategy is quite a tall order.

Read more about the record-breaking sales of the Dorito-shell taco here.

More from InvestorPlace.com

Jun 6, 2012 11:49AM
How do you get more upscale than a Dorito taco? 
Jun 6, 2012 3:50PM
Taco Bell is starting to go the way of Krystal, they're charging WAY too much for a low quality food item. I've seen the tacos go from 4 for $1 to now only 1 for a $1 (or more) for .10 (or less) worth of material. I have local Mexican restaurants that serve a lunch for around $4.25. Guess which I'd rather go to for the same amount of money. TB, I think you're messing this up!!!!
Jun 6, 2012 2:36PM
Say it aint so Taco Bell. I like the Tacos and Burritos just the way they are. I cut back on wendy's because they changed there burgers so much. Oh and putting Sandwiches in a box really doesn't make them better. Some Exec Thinks he knows everything and he probably hasn't even been to a Taco Bell.
The movie Demolition Man heralded Taco Bell as the winner of the fast food wars, resulting in them going upscale into the fine dining market.
Jun 6, 2012 2:35PM
Taco Bell is screwing things up. There prices are too high and their Menu has become too confusing. Fix those problems and people will come back. Its that simple!
Jun 6, 2012 5:28PM
Bring back the Tostada!!   The flat one with beans, cheese etc.
Jun 6, 2012 2:41PM
Taco Bells prices have gone too high ( now as much as other fast food) and their Menu has become too complicated. Fix those problems and all will be okay. Its that simple.
Jun 6, 2012 3:14PM
Yea and I bet Lorena Garcia is at all these Taco Bells making these upscale dishes. Oh that's right it's still the young teens working there.
Jun 6, 2012 2:47PM
You can put better food in a "bell but the staff will screw it up anyway. Remember the cantinos taco?
Jun 6, 2012 5:33PM

taco bell and upscale and gourmet in the same article....is that even legal?

Jun 6, 2012 6:27PM
I guess I don't understand the logic in their plan.  Taco Bell is/had always been  known for it's quick, cost efficient (ok cheap) food, and easily accessible (drive thru).  I think they will lose a HUGE portion of their customer who simply either cannot afford or do not want to spend the money on higher priced meal.  I for one do like some of the upper range places, but due to budget constraints, they are not feasible OR easily accessible.  I don't know of a single Qdoba with a drive through.  Maybe if the keep the low cost items (or most of them) and add a higher price point meal too, they might be successful.  BUT, if they are going to do away with the cheap quick food, they will do away with a lot of business too!
Jun 6, 2012 6:18PM
Taco Bell goes upscale?  you mean they're gonna stop using grade E meat?  I have had friends who work there I know exactly what kind of food they make.  It's why I don't eat there.
Yum brands is up because they have finally decided to give the consumer a quality product...sounds like they are taking a que from GM and Ford.  TOE CUTTER, your right, until these fast food places learn that you get what you pay for, their staff will always be substandard!  When you pay someone a below living standard wage they don't care, they can just go get a job at McDonalds or Burger King.   We pay minimum wage to the people resposible for handling our food?  Don't know about you, but this scares the hell out of me.   
Jun 6, 2012 1:49PM
Hopes don't fix problems. Hopes are only for Wall Street. The Bulls are running on ****!!
Jun 6, 2012 6:34PM
One other thing Taco Bell can do is to improve their greeting in the drive though. For sometime now all you get is a: "How you doing"? - "order when ready"   It's really fun to reply with a "Thanks for asking '- how are YOU doing today"?  There is usually a period of silence that follows because you have thrown them "off script".     What's wrong with a "welcome to taco bell" - "May I take your order please" type of opening.  At least it would make it appear that you gave a damn.
Jun 6, 2012 1:33PM

Freedom ghost, you're f%$*ing bat sh&^t crazy!

Jun 7, 2012 10:27PM
what a waste of calories this place is!!!!
Jun 7, 2012 3:07PM
Taco Bell - Gourmet isn't this a oxymoron
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