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Taco Bell Sales Grow

Blue MauMau has asked me to look at Taco Bell’s U.S. sales trends, in light of its rollout of the new Doritos Locos Taco. Some have wondered on BMM if sales at Taco Bell were stagnant. After looking at the recent Taco Bell Q1 earning call, making unit visits and reviewing marketing/new product information, I observe the following about the chain's operating tempo (OPTEMPO): U.S. sales look to be up.

U.S. sales grow

Unlike other restaurant brands, YUM releases only quarterly combined US Taco Bell/KFC and Pizza Hut company store margins and notes the same store sales (SSS) gain (and not components) by brand via a single sentence. On April  18 2012, for the Quarter ending March 24 2012, US Taco Bell same store sales were up 6%. This looks to have broken a year long sales decline, resulting among other things from the bad publicity that surrounded the 2011 “altered beef” lawsuit. The good news is that Taco Bell’s U.S. same store sales moved from minus 2% in Q4 2011 to +6% in Q1 2012.

It should be noted, however, that the only way to tell for sure about the Doritos Locos Tacos figures is to look at the daily sales results. Taco Bell HQ has that data so one must trust their word that when they say sales have risen because of the introduction of the Doritos tacos that this is the case.

Before the 2011 “altered beef” lawsuit, Taco Bell sales were up 4% in Period 1 of 2011 and then sales fell to minus single digits for the rest of the year. U.S. YUM Brands have had supply chain problems in the past and sales typically recover in a 6-12 month cycle.

YUM didn’t breakout the components of the 6% same store sales gain, but it noted that its U.S. brands have had 3% price increases flowing through the brands at this time.  So our best guess is that of the 6%, 3% was price, 3% was traffic. It’s very possible that sales number will be even better next quarter, with a full quarter affected by the Doritos Taco and the associated media campaign, versus only 16 days in Quarter 1.  

Restaurants need same store sales gains every year

Because of the rising cost of labor and other operating expense, restaurants need an increase of 2-3% in same store sales every year just to cover inflation. If food inflation is higher, then even more of a same store sales gain is needed. YUM’s food inflation has moderated a bit in 2012, which is good news. So, same store sales is vitally needed but doesn’t equal big profits unless the “sales pop” is big.

Sales to continue to grow with new products and increased media weights

While delighted that news of new products seems to be driving visitation, that is to be expected with new products and heavy media expenditure. Press reports pinned the marketing (corporate and franchisee) cost at $75 million. It is unknown how much of that is incremental. Properly, YUM is working this carefully, but we need to watch for the duration of the sales lift.

One of YUM's problems since 2008 is that its sales bumps for new product rollouts have been short lived. It is hoped that Taco Bell's $75M in ad budget doesn’t just borrow funds from one quarter to another and leave the rest of the year unfunded.

Those are reasons that Taco Bell needs to be watched closely. Same store sales gains and new product news are vital to enabling profits, the reason the company and franchisees are in business.  

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About john a. gordon

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John A. Gordon, founding principal of Pacific Management Consulting Group provides analysis and advisory services relative to complex restauant topics. This includes buy or sell due diligence, operational analysis and improvemenrs, expert litigation support and business investigation and analysis.

Gordon focuses on restaurant strategy, operations and financial management topics, and has a 45-year background in restaurant operations and financial management staff roles for both franchisors and franchisees. He is a certified Master Analyst of Financial Forensics (MAFF). He supports both franchisees and franchisors, and has a franchise standards and practices sub speciality.

Pacific Management Consulting Group provides creative, detailed and effective insight, independent research and analysis that is free of conflicts of interest. The company provides chain restaurant earnings and economics analysis, research, expert witness engagements, suppors both consulting and sell side equity research firms, due diligence and other analytical investigations. He routinely partners with other restauant subject matter experts in a variety of specialities.

Visit him at Pacific Management Consulting Group. Contact him by email or call (619) 379-5561. Gordon blogs on on his website and publishes discussion papers; his press clips and a real time restaurant analysis blog, is included.

Area of Interest
Franchise Operations