In this FDD Talk 2016 post, you’ll learn the following:
- Section I – Background information on the Del Taco franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Del Taco franchise, based on Item 7 of the company’s 2016 FDD
- Section III – Presentation and analysis of Del Taco’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:
- 2015 and 2014 average net sales, food and paper costs, labor costs, benefits, utilities, repairs and supplies, miscellaneous expenses, total controllable expenses, controllable profit, advertising, local advertising, insurance, and operating profit before rent and real estate taxes for all freestanding company-operated Del Taco restaurants that the company has operated for at least one year
Section I – Background Information
Over 50 Years in Business
Del Taco was founded in 1964 by Ed Hackbarth and David Jameson in Yermo, CA. This first location was successful and a few more Del Tacos were opened in the area. A few years later, Dick Naugle, who had installed the kitchen equipment at one of the new locations, was impressed by the design of the restaurant and joined Hackbarth and Jameson.
In 1966, the trio founded Red-E-Food Systems, Inc. with the intention of franchising the Del Taco brand. That same year, Del Taco’s sun logo was created. A year later, in 1967, franchising officially began and Del Taco’s famous bean and cheese burrito with green or red sauce was introduced. Over the next few years, the company continued to expand throughout the Southern California region.
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Naugle left the company in the early 70s to open his own Mexican fast food chain, Naugles, and Red-E-Food Systems became Del Taco, Inc. In 1976, Hackbarth and Jameson sold Del Taco to a group of investors who then sold the exclusive rights to use and develop the Del Taco name throughout the United States (excluding California; Eugene, Oregon; and Yuma, Arizona) to W. R. Grace and Company. By the end of the 70s, Del Taco had over 100 locations.
At the end of the 80s, Del Taco merged with Naugles and all Naugles locations were converted to the Del Taco brand.
A few years later, in the early 90s, Del Taco bought its name back from W.R. Grace and Company and was able to expand outside of California. Del Taco had ambitious plans during the 90s, as the company planned to have over 700 locations open by 2000. However, in 1993, Del Taco filed for bankruptcy protection under Chapter 11. Around this same time, Del Taco was hit with a $3 million lawsuit by a supplier; the matter was eventually settled out of court.
By the end of the 90s, Del Taco’s prospects began to improve. In 2004, Del Taco was purchased by Sagittarius Brands, LLC, which is also the parent company of Captain D’s Seafood. Sagittarius Brands, LLC would remain owner of Del Taco until 2015, when the company was purchased by Levy Acquisition Corporation.
Del Taco became a public company on June 30, 2015. Today, Del Taco has more than 300 locations throughout the United States.
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Del Taco Tests New Mobile App
In early December 2016, Del Taco announced that it would be testing a new mobile app in the Sacramento, California region. The app, which was developed by Del Taco’s online ordering partner Olo, will allow customers to submit, pay, and fully customize their Del Taco order.
Orders placed through the app in advance can be picked up via the drive-thru window or inside at the designated pick-up counter, permitting guests to skip the line. The app will also allow customers to view Del Taco’s current promotions, see prior orders, track favorite menu items, and save payment methods.
Del Taco will use customer feedback from the testing region to optimize the app before a nationwide launch. The Del Taco app is currently available for use at 14 corporate-owned Sacramento locations and three select Orange County locations.
New Menu Items
Del Taco continues to keep its menu fresh by offering new foods, including both permanent and limited-time-offer items. In June 2016, Del Taco launched “The Del Taco.” The namesake taco is a “bigger, better-tasting crunchy beef taco” inspired by the original taco served at the first Del Taco location.
In October, The Del Taco became the restaurant’s most successful menu introduction, with the chain selling over 11 million Del Tacos. The success of The Del Taco helped drive the company’s sales growth in the third quarter.
Earlier in the year, Del Taco expanded its Buck & Under value menu. There are currently 16 items costing $1 or less on the menu.
Straying a bit from its fast food staples, in November, Del Taco launched a new premium menu offering of individually plated meals called Platos. The Platos consist of an entrée, two sides, and chips and salsa. Del Taco says the Platos are similar to what you would find at a sit-down style Mexican restaurant and require a fork and knife to eat.
Highs and Lows on Entrepreneur’s Franchise 500
In the last decade, Del Taco has only ranked on Entrepreneur Magazine’s Franchise 500 in the last few years. For 2014 and 2015, Del Taco ranked at No. 136. Del Taco dropped to No. 483 in 2016 and then recovered to No. 265 in 2017.
Section II – Estimated Costs
- Please click here for detailed estimates of Del Taco franchise costs, based on Item 7 of the company’s 2016 FDD (updated).