Taco Bell rings in value-priced menu: chain hits hard at competitors with three-tiered, under-$1 menu offerings

Nation's Restaurant News, Nov 5, 1990 by Richard Martin

Taco Bell rings in value-priced menu

Chain hits hard at competitors with three-tiered, under-$1 menu offerings

IRVINE, Calif. -- Even as burger-chain rivals smart from the traffic-siphoning effects of Taco Bell's 59-cent pricing strategy, Pepsico's fast-growing Mexican chain has struck again with an expanded, triple-threat "value menu" featuring slashed prices.

Taco Bell's Oct. 29 launch of a three-tier price structure -- which test marketing suggests will generate sales transactions more than 20 percent higher than previous levels -- puts the majority of its food items in streamlined 59-cent, 79-cent and 99-cent menu groupings.

Hinted at nationally in primetime TV advertising teases a few days before its debut, the new under-$1 menu format took hold simultaneously at nearly all of the fast-food chain's 3,100 outlets, according to president John Martin.

Based on year-long tests at about 150 Taco Bells in six markets, "our check average does go down slightly but our transactions go up significantly," Martin said.

Although he declined to specify sales goals or the dollar amounts of average tabs before and after the new menu's one-year trial, Martin said he is convinced the average Taco Bell restaurant now will enjoy a "20-percent-plus" boost in number of transactions.

Operators of the chain's 1,400 franchised outlets "are incredibly excited and enthusiastic about this," added Martin, noting that only about 2 percent of all franchised Taco Bells failed to immediately adopt the three-tier menu, which he said cost between $600 and $1,000 to install at the typical restaurant.

The rollout of the new menu to some 225 outlets in Northeastern states has been delayed, Martin said, because those restaurants introduced the original value menu later than the rest of the chain.

Despite a trend-setting practice of shaving its prices, Taco Bell has scored dramatic increases in profits, sales and customer traffic since a six-item core menu was pared back to 59 cents and introduced in December 1988.

Last year the chain enjoyed a 35-percent year-to-year increase in customer transactions while the fastfood segment overall experienced traffic gains of only 1 percent. Taco Bell also garnered a 21-percent systemwide sales gain for the year and a 19-percent rise in same-store sales over 1988 levels.

In this year's third quarter, ended Sept. 8, the chain posted a 29-percent gain in operating profits, to $52.3 million, on sales of $432.6 million, a 16-percent jump over the year-earlier period.

Taco Bell's revamped menu format still features its signature 59-cent grouping, consisting of its standard taco, soft taco, bean burrito, tostada, a pinto beans and cheese item, and a new Cinnamon Twists dessert.

In the 79-cent group are larger versions of the two taco types, both of which formerly were priced at $1.19 or more, plus nachos (formerly 89 cents), a MexiMelt item (formerly 99 cents), the new pita-bread-based Pocket Taco and the new Chilito, a ground-beef-chili burrito with cheese.

"There's no game-playing; there's no down-sizing," said Taco Bell spokesman Elliot Bloom, explaining that portion sizes of the items on the three-tier menu had not been cut despite reduced prices. "The bottom line is, you cannot fool the customer."

The new menu's 99-cent grouping includes two new items -- a chicken soft taco and a steak soft taco -- as well as a beef-and-bean burrito and a larger nachos item, both of which formerly sold for about $1.

Only six additional items exceed 99-cents: the Burrito Supreme, the Taco BellGrande, the Enchirito, an all-beef burrito, and a kids'-meal combination, each priced at about $1.69, and a $2.99 taco salad.

Martin said Taco Bell has reserved a repertory of 21 field-tested dishes, including some former menu standards, from which the chain can periodically select items for temporary promotions.

In addition to the positive response of test-market customers to the new menu, "employees like it because it seems to simplify the ordering process," Martin said.