For American Restaurant Chains, the Future Is Mexican
The Doritos Locos Taco from Taco Bell
Yum! Brands’ (YUM) most profitable fast-food chain in the U.S. isn’t Pizza Hut or KFC–for years, it’s been Taco Bell. With the success of Doritos Locos Tacos, the upscale Cantina Bell menu, and breakfast (available nationwide next year), Taco Bell’s comparable sales have been up for seven consecutive quarters, including a 2 percent increase in the most recent period.
The chain’s financial results are just one sign of the growing popularity of Mexican food in the U.S. Data from food researcher Technomic show that sales at Mexican-style restaurants grew 9.3 percent in 2012, outpacing the 5.8 percent increase among all limited-service restaurants. In fact in the U.S., tortillas outsell burger and hot dog buns, tortilla chips eclipse potato chips, and salsa tops ketchup, according to an Associated Press report.
“We know that for the U.S. to have a successful year, it’s important for our most profitable U.S. brand to do well, and we certainly have a lot going in our favor at Taco Bell,” said Yum chief executive officer David Novak during a recent earnings call. The late-night gordita joint now accounts for 60 percent of Yum’s operating profits in the U.S. There are 5,704 Taco Bells in the U.S., about 32 percent of Yum’s total in the country.
The burger-and-fries business, meanwhile, has seen better days. McDonald’s(MCD) same-store sales grew only 0.7 percent last quarter, Wendy’s (WEN) was up 0.4 percent, and Burger King (BKW) fell 0.5 percent.
Mexican quick-service restaurants offer “high value and appeal with millennial consumers and affluent groups,” says Darren Tristano, an executive vice president at Technomic. Popular burrito purveyor Chipotle (CMG) has led the way, and the 1,525-store chain just reported a same-store sales increase of 6.2 percent in the last quarter.
Even casual-dining giant Chili’s Grill & Bar (EAT), where comparable sales fell 1.9 percent last quarter, is looking for a rebound via its Mexican menu. “When you look at tacos, quesadillas, fajitas, that category represents really the biggest category that we have at Chili’s. Bigger than burgers,” said Wyman Roberts, CEO of Brinker International, Chili’s parent company, during an earnings call on Wednesday. Chili’s Mexican food, he said, will give the chain an edge over casual-dining rivals.
The plan for Chili’s is to focus on that part of its menu. A spokesperson for the restaurant chain wrote in an e-mail: “Mexican is a menu category our guests have given us all the permission in the world to expand, and with Southwestern ingredients already a part of our flavor profile, it is the natural next step in Chili’s menu innovation.”
So while burger and pizza chains remain the most popular in the U.S., diners and those trying to capture their attention are increasingly moving in a south-of-the-border direction.
Source: Bloomberg Businessweek