Home Business How Franchises Are Fueling Taco Bell’s ‘Explosive Growth’

How Franchises Are Fueling Taco Bell’s ‘Explosive Growth’

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If there is any silver lining from this past year in the restaurant space, it’s that we now have a few solid case studies from brands that fared pretty well despite the crisis.

Count Taco Bell among them.

The chain inched up by one percentage point for both same-store sales and net new unit growth during its most recent quarter. While these numbers aren’t necessarily sexy on the surface, peel back some of the layers and it’s clear Taco Bell is in as good a shape as ever.

For starters, the chain continues to lead on value–a necessity in an economically-ravaged, post-COVID landscape. It’s also pressing the gas on innovation in a category that isn’t quite as crowded as others.

Perhaps most notably, Taco Bell is riding the pandemic-induced digital wave-turned-tsunami, with its digital sales mix approaching 20% and generating about $1 billion for the full year 2020. There’s no reason to believe this momentum won’t continue with the launch of its iterative loyalty program and the diversification of its real estate assets to appeal to digitally-native consumers.

Take, for instance, its new Go Mobile model designed specifically for those consumers, with a dedicated digital-order-ahead drive-thru lane and smart kitchen technology integrated through the app.

“We want you to order ahead and quickly reorder and get to a point where we direct you to an easier experience. That’s where we’re all running to–a seamless, easy experience for the customer,” Mike Grams, president and global COO, said during an interview last week.

Indeed, several quick-service and fast casual chains are running toward a digital-centric real estate model. Grams believes Taco Bell will maintain a favorable position amid the growing competition, however, because the drive-thru has always been a strength for the brand. The company is also making investments in the back-of-the-house to support its growing digital business; for example adding a third production line and a new kitchen display system.

Another mobile-centric model will open this summer in Brooklyn Park, Minnesota. It features multiple pickup lanes, some under a canopy, and dumbwaiters serving food to those who have ordered ahead. This one-of-a-kind restaurant showcases another fundamental strength of Taco Bell’s–its relationship with its franchisees. The design was born out of a conversation with brothers Jeff and Lee Engler, who founded Taco Bell franchise company Border Foods.

“They called me during the first month of the pandemic and said, ‘We think digital is going to accelerate. Let’s build a drive-thru location to accommodate this,’” Grams said.

These new real estate assets, combined with the brand’s traditional restaurants and its Cantinas, make up an increasingly diversified and flexible portfolio for Taco Bell, aimed at meeting consumers’ growing omnichannel demands accelerated by the pandemic.

That Cantina design, by the way, was also introduced by a franchisee–Diversified Restaurant Group, which owns 216 Taco Bell locations across three states. Taco Bell’s franchisee-inspired portfolio is expected to help the company achieve its goals of hitting $20 billion in sales, 50% in digital sales, and 10,000 global locations. Domestically, with the new Go Mobile design in the mix, Taco Bell has a clear path to its next 1,000 restaurants, Grams said.

“The last six months have really shown us the power of our franchisees and their entrepreneurial spirit in this business,” he said. “We’re on an explosive growth trajectory fueled by our franchisees playing a much bigger role–not just by putting capital behind their restaurants, but in contributing to that creativity the brand is known for. All of us are focused on the idea of merging the mobile connection with the human experience right now.”

There’s good reason for that. Digital sales are now expected to make up more than half of limited-service business by 2025, which is a 70% increase over pre-COVID estimates and no doubt driven by the 40% increase in mobile app usage throughout the past year.

As such, there is urgency behind Taco Bell’s mobile-focused development plans. The company expects to open about 50 Go Mobiles this year, for example. None are currently open yet.

“Our franchisees see this as a no-brainer. The question we have now is how do we get these prototypes out to the market quickly,” Grams said.

Taco Bell’s digital elements won’t be hoarded by its Go Mobile locations, however.

Diversified Restaurant Group, started by David Grieve and SG Ellison, is focused on bringing mobile order-ahead and other digital features, like kiosks, to its Cantinas. The company will bring those elements to a corporate-owned Times Square Cantina slated to open this spring.

“[Diversified] invented the idea of the Cantina and the concept does well. It is digital meets human connection come to life in a restaurant. That experience is built for a consumer that has adapted to mobile and order ahead,” Grams said. “So many times, you hear what a brand wants to do and all the work that is done to get franchisees excited. This is the reverse of that.”

When Diversified Restaurant Group comes up with such ideas, Ellison said they “bombard” the executive team at Taco Bell.

“We have good and healthy discussions. Our confidence level is extremely high with Taco Bell. They had no reason to give us a chance to open our first Cantina in 2015, but they gave us a shot. We tend to push limits and they bring us back a bit, but we get there together,” Ellison said. “There’s no reason not to believe Taco Bell isn’t willing to stay ahead of trends in QSR and doing things that others haven’t wrapped their head around yet.”

His Diversified Restaurant Group recently opened a suburban Cantina in Danville, California, that has Grams “particularly excited,” as it exemplifies a marriage between convenience and experience. During the throes of the pandemic, the restaurant was open for takeout only. Now, it boasts an outdoor dining area with 70 seats, a lawn and two fireplaces, and has attracted a loyal family crowd.

Diversified Restaurant Group has other models in the works, too, including another California Cantina planned to open later this year that will feature gaming components, complete with consoles throughout the restaurant for kids. Additionally, the company is working on a sports-themed Cantina location in Kansas City with an indoor/outdoor bar, and a Go Mobile location in Las Vegas, both of which are slated to open by the end of this year.

“Our assets are uniquely positioned to test and bring along the brand. We were fortunate to find some really unique assets that were all positioned well for kiosk use and mobile technology and delivery,” Ellison said. “Our San Francisco Cantina generated 90% of its sales through digital channels during parts of the pandemic.”

These numbers illustrate an interesting position overall for Taco Bell. The company is developing a smaller footprint, mobile-first model while simultaneously leveraging digital in its Cantina models without compromising their experiential nature, complete with frozen cocktails and gaming and DJs. That is intentional.

“For Taco Bell to be leading the rebound, we have to be ready to show consumers an experience that they historically have not had,” Ellison said, adding that now is the right time to build such models because consumers will be ready to come back to in-restaurant experiences by the end of the year.

From a corporate perspective, Grams said Taco Bell is on track to achieve its ambitious pre-pandemic goals because its franchisees are pushing the brand to be creative.

“What makes Taco Bell special is that collaboration. The premise of that collaboration is us listening to each other and being committed that we don’t just force things, but ultimately do things together,” Grams said. “When the system works like that, you can really grow the brand.”

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