YUM - TACO BELL'S NEW LOW

Taco Bell has a storied history of being a brand that is disruptive to the pricing structure of the industry. 

 

In 1Q10, the same-store sales performance (down 2%) at Taco Bell was the biggest disappointment.  I recently had breakfast with in NYC with Greg Creed, president of Taco Bell, and he commented that while the new products and marketing initiatives were working well, it did not offset the decline in the sales of drinks and combo meals.  In 1Q10, 40% of the decline in average check was due to lower drink sales. 

 

More importantly, the sales of its combo meals - peaked at 31% of all sales in 2008 - are now down to the “low 20’s” of sales.  What he would not tell me at breakfast was what he was going to do to fix what was causing the decline in same-store sales.  At the time he said they were testing a $2 combo meal, but there were no plans to roll it out nationally.  I guess now that has changed! 

 

While there is no official press release from YUM, there are media reports talking about the new combo meal and a quick stop by our local Taco Bell confirmed these reports (see picture below).  As was reported in USA Today, you get a taco or burrito, a medium soft drink, and a bag of Doritos chips - all for $2.  If you compare three items at MCD (a protein, a side dish and a drink), you end up paying $3. 

 

The interesting twist to this combo meal is the bag of Doritos.  At breakfast Greg mentioned a new partnership with Frito-Lay, but did not provide any details.  Since our meeting there has not been a press release about that either, but we can see where this may be going now they are including a bag of Doritos’s in a combo meal.  The new combo meal does not seem to be discounting any of the core items on the menu. 

 

I have no doubt that the YUM marketing machine will be going heavy and hard to get the news out on a $2 price point, which is sure to help Taco Bells’ declining sales trends.

 

YUM - TACO BELL'S NEW LOW        - 5 16 2010 9 36 46 PM

 

Howard Penney

Managing Director


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