FDD Talk: The Taco Bell Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Taco Bell franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Taco Bell franchise, based on Item 7 of the company’s 2015 FDD

• Section III – Presentation and analysis of Taco Bell’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:

• 2012, 2013, and 2014 average net sales, cost of sales, and cost of labor for Single-Brand Taco Bell-Operated Restaurants that were open for at least one year as of December 25, 2012; December 24, 2013; and December 24, 2014, respectively

Section I – Background Information

Quesalupa Gets Buzz Going for Taco Bell

The Taco Bell Quesalupa, the newest menu item at the popular Mexican fast-food chain, made a splashy entrance in February 2015 with an ad during Super Bowl 50 that followed weeks of teasers.

The Quesalupa, a chalupa whose shell is filled with melted pepper jack cheese, is celebrated in the ad as being bigger than hoverboards, drones and even football (both North American and European) and bears the hashtag #biggerthan.

Some of the tongue-in-cheek teaser ads featured celebrities holding bricks instead of the product, saying they had no idea what menu item they were promoting. Customers were similarly lured with a blind preorder page that enabled customers to pick up their Quesalupas Saturday, two days before they would actually go on the menu. The preorders sold more than 67,000 Quesalupas.

The name was not officially released until the Super Bowl ad, but the hashtags #TacoBell and #Quesalupa were trending nationally on Instagram for a full day before the ad ran. The top-secret ad, therefore, wasn’t so secret after all; in fact, a news release announcing the Quesalupa was titled “Taco Bell Finally Unveils the Worst Kept Secret: It’s the Quesalupa.”

TiVo announced that Taco Bell’s Super Bowl ad was the third-most engaging, based on data such as rewinding and playing the ads. Taco Bell kept the fun going beyond the Super Bowl with commercials for the season opener of “The Walking Dead” and during the Grammys.

Original Location Moved to Irvine HQ

Taco Bell, based in Irvine, California, serves a variety of Tex-Mex cuisine. The chain was founded in 1962 by Glen Bell, who had previously sold tacos under the brand names Taco-Tia and El Tacos. He opened the first Taco Bell restaurant in Downey, California.

That original location was moved to Taco Bell’s headquarters on November 19, 2015.

No. 18 on Franchise 500

Taco Bell was No. 18 on Entrepreneur’s Franchise 500 list for 2016, its best finish in recent years. The chain has been steadily improving after dropping to No. 45 in 2012.

International Jump-Start

Taco Bell is stepping up its international expansion plans. The chain announced in December 2015 that it would increase its approximately 280 international locations from 280 to 1,000 by 2020. The push is already underway, as Taco Bell opened double the international restaurants in 2015 than in the prior year.

The chain opened its first store outside the U.S. in 1977 in Guam. It recently entered Japan.

Cage-Free Eggs By End of 2016

Taco Bell did some leapfrogging in November 2015 when it jump-started its food sourcing. Previously the only major fast-food chain to not yet announce such a plan, Taco Bell announced it would not only switch to cage-free eggs, it would do so by the end of 2016.

Burger King has said it would make the switch by 2017, while Panera Bread and Starbucks committed to doing so within five years. McDonald’s, the largest buyer of eggs in the U.S., has a 10-year plan.

Vegetarian

In October 2015, Taco Bell unveiled its certified vegetarian menu. The 13 menu items are certified by the American Vegetarian Association, which has also certified 35 specific ingredients, 26 of which are also vegan. In addition to the vegetarian menu items, customers can swap ingredients, including switching meat to beans.

New Concept Restaurants Sell Alcohol

Taco Bell announced in September 2015 the launch of a new concept featuring the sale of alcoholic beverages. The Taco Bell Cantina restaurants, which opened in Chicago and San Francisco, sell beer and wine in the Chicago location and beer, wine, sangria and twisted Freezes in San Francisco.

These concept restaurants have a tapas-style menu of appetizers during specific evening hours, along with the standard menu. The cantinas will have open kitchens and no drive-through lanes.

Loyalty Program Brings Rewards Via Puzzles

Taco Bell has partnered with mobile rewards company Kiip for a loyalty program called Taco Bell Explore. The program, which debuted in December 2015, enables users to unlock rewards by completing puzzles that are sent in connection with interaction on social media and within Taco Bell’s mobile app, Live Más. The rewards range from free tacos to $100 Taco Bell gift cards.

Section II – Estimated Costs

• Please click here for detailed estimates of Taco Bell franchise costs, based on Item 7 of the company’s 2015 FDD.

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis