LAS VEGAS, NEVADA – MARCH 30: An exterior view shows a Taco Bell restaurant on March 30, 2020 in … [+]
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Taco Bell took an especially big hit during Yum Brands’ first quarter, with the coronavirus pandemic taking morning commuters off the road and essentially grinding its thriving breakfast business to a halt.
Granted, the chain finished Q1 with positive same-store sales growth of 1%, a rare plus sign in a quarter that included the cruel month of March. But those sales were trending toward 6% before the coronavirus set in, well above industry averages.
That doesn’t mean CEO Mark King is pessimistic about a recovery, however. In fact, quite the opposite.
“It’s been a difficult 45 days. But in some ways, we are well positioned because of what consumers are looking for right now,” King said during a phone interview last week. “Our insights group tells us customers want it to be safe to buy their food and [they want] value. The top word to describe Taco Bell is ‘value.’’
Taco Bell recently added a comprehensive list of new measures to fulfill that safety demand. And, its reputation for value should indeed position the brand strongly as economic recovery from the crisis is expected to take a long time. More than 30 million Americans have filed for unemployment in the past six weeks alone, representing nearly 20% of the U.S. labor force. We haven’t seen numbers like this since the Great Depression.
Taco Bell has had plenty of success with its extensive history of value, including a beefed up Cravings Value Menu launched in late 2018 that features a whopping 20-plus $1 menu items. That particular price point has long worked for Taco Bell–its $1 menu items garnered more than $500 million in sales in 2017 alone, for example–and could provide a bit of an oasis for cash-strapped consumers.
Although the loss of breakfast revenue has no doubt put a damper on the chain’s performance, it has been relatively insulated thanks to its drive-thru-heavy real estate portfolio. More than 70% of Taco Bell’s business comes from the drive-thru, a table stakes channel in this pandemic.
However, perhaps the biggest opportunity for Taco Bell in this environment and beyond is its digital order-ahead and curbside pickup channel. The chain was leaning into pickup prior to the coronavirus outbreak, but plans to press the gas on its order-ahead business now. Digital represented 10% of sales at Taco Bell during the quarter. Expect that number to grow steadily as the company shifts its focus here.
“We thought we could improve on ordering ahead and making experiences faster and easier, so when the crisis hit, it accelerated this future for us,” King said. “People want to take control and make it their own experience and I think that’s through the mobile app and curbside pickup. We’re going to take advantage of that. I don’t think it will replace the drive-thru, but I think this is definitely one of those areas that sticks as consumers are taking control, looking for safety, contactless and convenience.”
Taco Bell plans to be more bullish on this channel than even delivery, which King said is bigger now because of the crisis and will continue to grow, but added, “I don’t know that delivery will be a big part of QSR.”
It’s worth noting that it didn’t take a pandemic to drive more interest in pickup. Shortly before the coronavirus forced lockdowns and shut down dining rooms across the globe, Rakuten Ready’s order for pickup data report showed a sharp uptick in this channel, driven by speed and convenience. The study shows that order for pickup service is up to 137% faster than other channels.
Further, nearly 80% of customers said they would be willing to choose order for pickup over delivery if they knew their food would be ready the moment they arrived, which could be a particular advantage for brands with a strong breakfast daypart when morning commuters hit the road again.
Prior to the lockdown, the compound annual growth rate for order for pickup in the QSR segment was at 57%. That number should be even higher in a post-pandemic world when safety-minded consumers’ hastened routines return.
Notably, whenever that “return” happens, King believes there are other a number of other advantages at play for Taco Bell.
For example, he thinks customers will harbor a strong affinity for the brand, as well as its sister brands KFC and Pizza Hut, for their community efforts during the crisis. There is an undeniable correlation between companies that give back and customer loyalty, so his predictions carry some weight. The efforts Taco Bell has made during this crisis–like transforming its headquarters into a “Truck-Thru at HQ” for truck drivers, deploying its Taco Bell Taco Truck to feed over 7,000 (and counting) frontline workers and donating $1 million to No Kid Hungry–are likely to resonate with those seeking goodwill.
“All the work our franchisees are doing for first responders and truckers, that’s the gratifying part of the whole thing is how much goodness has been done,” King said.
Finally, King believes Taco Bell will be in a good spot because it is part of a broader system in Yum Brands, which enabled the chain to glean learnings from Yum China
YUMC
Yum Brands has a lot of cash on hand, about $1.15 billion, and is leveraging that liquidity to offer franchisees grace periods for near-term payments, including royalties. Franchisees can also defer their 2020 capital obligations for remodels and development.
Whether driven by this support or something else, King said the relationship between corporate and franchisees is stronger than ever. That is arguably the greatest advantage Taco Bell can take away from this situation. After all, happy franchisees point to a healthy system.
“When I think about that panic we all felt 45 days ago, I think about how we came together as a group during so much unknown. We overcommunicated and listened to our franchisees’ concerns,” King said. “The key for us was doing it together, communicating and being calm. I think Taco Bell is well positioned to come out of this because it is just a great franchised community.”