In this FDD Talk 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 2018 FDD
- Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Del Taco franchise, based on Items 5 and 6 of the company’s 2018 FDD
- Section IV – Number of franchised and company-owned Del Taco outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD
- Section V – Presentation and analysis of Del Taco’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:
- 2017 average, median, highest, and lowest sales for the 223 freestanding franchised Del Taco restaurants that had been operating for at least 12 months as of the end of the 2017 fiscal year
- 2017 average, median, highest, and lowest sales; and average, median, highest, and lowest operating profit for the 290 freestanding company-owned Del Taco restaurants that had been operating for at least 12 months as of the end of the 2017 fiscal year
- 2017 average sales, food and paper costs, labor costs, benefits, utilities, repairs and supplies, miscellaneous expenses, total controllable expenses, controllable profit, advertising, local advertising, insurance, operating profit before rent and real estate taxes, and imputed royalty for the 290 freestanding company-owned Del Taco restaurants that had been operating for at least 12 months as of the end of the 2017 fiscal year
Section I – Background Information
17 Things You Need to Know About the Del Taco Franchise
Launches Brand Refresh
1. At the end of June 2018, Del Taco unveiled its system-wide brand refresh, furthering its mission to be the category leader in the value-oriented QSR-plus space. Del Taco is implementing a combination of new back-of-house and guest-facing initiatives to further differentiate and separate itself in the crowded QSR and fast-casual landscape.
2. Barry Westrum, chief marketing officer of Del Taco, said, “We’re further leaning into what enables this brand to continue to differentiate itself from Taco Bell and Chipotle, with industry-leading value and traditional food prep, where our team members chop, dice, shred and grill throughout the day.”
3. Initiatives in the brand refresh include the following:
- New concept tagline – Fresh Mexican Grill;
- New holistic advertising campaign, “Celebrating the Hardest Working Hands in Fast Food,” reinforcing fresh ingredient preparation, including chopping, grilling, slicing, and shredding, which is prevalent across the brand’s menu items;
- A Fresh Produce Chalkboard posted in each restaurant, showcasing where produce is sourced from, when it was picked, and which team member prepared it that day;
- Reimagined packaging, with a more contemporary design and color palette inspired by the brand’s Southern California heritage;
- Hospitality initiatives, including a focus on creating more personalized interactions, such as calling guests by name versus order number, as well as team members introducing themselves by name;
- Redesigned panels of interior and drive-thru menu boards;
- Quesadilla equipment innovation designed to provide a more caramelized exterior and melty interior; and
- Crew uniforms that celebrate the fresh preparation Del Taco teams do everyday in each restaurant.
4. In addition to the above initiatives, Del Taco is expanding its Buck and Under menu with the introduction of its new Chicken Quesadilla Snacker. The new Chicken Quesadilla Snacker features freshly grilled chicken and hand-grated cheddar cheese, grilled to perfection in a flour tortilla in new foil packaging designed to enhance product integrity while on the go.
5. Westrum added, “The $1 Chicken Quesadilla Snacker is a perfect example of our barbell menu strategy, which highlights ingredients that are prepped fresh across our entire menu, from value to premium. It’s a Del Taco differentiator, and an attribute we’re fully leveraging, while empowering our team members to deliver a service experience that is on par with leading fast casual concepts.”
Fuels Existing and New Market Growth With Development Incentives
6. In the past few years, Del Taco has implemented several system-wide changes in order to fuel the brand’s renewed growth strategy. One of the brand’s latest strategies is to offer development incentives such as its 2018 franchise growth incentive program.
7. Due to the strong demand to expand with Del Taco beyond current markets, the program applies to new franchisees who commit to opening a minimum of five Del Taco restaurants in a new market within a specified time frame. Designed to attract franchisees with an interest in multi-unit expansion, the incentives include discounted initial fees and reduced royalties for up to three years, aiding unit-level profitability early on in the initial entrance phase of development in a new market.
8. Laura Tanaka, director of franchise development for Del Taco, said, “Del Taco has experienced 18 consecutive quarters of system-wide same-store sales increases thanks to menu innovation focused on producing fresh food from our working kitchens and a wide range of value, mid-tier and premium products designed to appeal to consumers across multiple dayparts and occasions. These attributes, along with favorable unit level economics generating category leading flow thru, have helped propel our franchise initiatives forward, and we’re thrilled to continue to expand our brand in a disciplined fashion with multi-unit franchise partners across specific regional geographies.”
Launches New Late Night Bites Menu
9. Around the end of May 2018, Del Taco launched its new Late Night Bites menu, which features items designed to entice night owls. Despite the name, all items on the Late Night Bites menu are available all day and night. The full late night menu includes:
- Queso Loaded Fries: Crinkle-cut fries topped with seasoned beef, creamy Queso Blanco, hand-grated cheddar cheese, fresh diced tomatoes, sour cream, and sliced jalapeños.
- Regular Size Queso Loaded Nachos: House-made chips piled high and loaded with a choice of seasoned beef, fresh grilled chicken, or fresh grilled carne asada steak, slow-cooked beans made from scratch, and creamy Queso Blanco, all topped with sour cream, fresh diced tomatoes, and sliced jalapeños. Available as Regular Size on the Late Nights Bites menu, and Large on the existing menu.
- Churro Dipper Shake: A crispy cinnamon churro dipped in a vanilla shake with chocolate swirls.
10. Although Del Taco is excited about the new Late Night Bites menu overall, the one item the company is promoting the most is the Churro Dipper Shake. Barry Westrum, chief marketing officer of Del Taco, said, “For as long as I can remember, we’ve been forced to choose between a straw and a spoon to enjoy our favorite shakes. Inspired by our fans’ passion for deliciously Instagrammable content, we wanted to go all in with a fun and craveable late-night offering, perfect for the warm summer nights ahead.” Westrum added that Del Taco feels that the churro is “the perfect tool for collecting and savoring the leftover chocolate sauce and ice cream that the straw couldn’t quite get.”
11. Ed Hackbarth and David Jameson founded Del Taco in Yermo, California in 1964. Hackbarth and Jameson sold tacos for 19¢, tostadas, fries, and 24¢ cheeseburgers – they ended up making $169 on opening day. The success of this first location led to more Del Taco openings in California, including two in Barstow, one in Needles, and the fifth in Corona.
12. Dick Naugle, who installed the kitchen equipment in the Corona store, joined Hackbarth and Jameson in running Del Taco. The three business partners established Red-E-Food Systems, Inc., with the idea of franchising the Del Taco brand in 1966. That same year, Del Taco’s iconic sun logo was introduced and a year later, Del Taco added its now famous bean and cheese burrito with red and green sauce to its menu.
13. In the early 1970s, Naugle left the company to start his own Mexican fast food chain, which he named after himself. Red-E-Food Systems became Del Taco, Inc. in 1973 and Del Taco continued to grow in Southern California. Despite the company’s growing success, Hackbarth and Jameson sold Del Taco to a group of investors in 1976. The new investors 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.
14. By the beginning of the 1980s, Del Taco had over 350 restaurants, still primarily located in California. As growth continued, Del Taco merged their restaurants with the 171 Naugles locations. Around this time, the brand decided to keep its restaurants open 24 hours.
15. In 1992, Del Taco was able to buy back the rights to its name from W.R. Grace and Company and the brand was finally able to start expanding outside of California. During the early 1990s, Del Taco launched a series of initiatives to revamp the brand and push national expansion. Unfortunately, Del Taco had to file for protection in 1993 under Chapter 11 in U.S. Bankruptcy Court and over the rest of the decade, the company decreased in size.
16. Since then, Del Taco has stabilized and continues to grow the brand across the United States. In 2015, Del Taco was purchased by Levy Acquisition Corporation and became a public company.
Entrepreneur’s Franchise 500
17. Del Taco ranked No. 188 on Entrepreneur’s 2018 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Del Taco franchise costs, based on Item 7 of the company’s 2018 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on Del Taco’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 243
- Outlets at the End of the Year: 247
- Net Change: +4
- Outlets at the Start of the Year: 247
- Outlets at the End of the Year: 241
- Net Change: -6
- Outlets at the Start of the Year: 241
- Outlets at the End of the Year: 252
- Net Change: +11
- Outlets at the Start of the Year: 304
- Outlets at the End of the Year: 297
- Net Change: -7
- Outlets at the Start of the Year: 297
- Outlets at the End of the Year: 310
- Net Change: +13
- Outlets at the Start of the Year: 310
- Outlets at the End of the Year: 312
- Net Change: +2
Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis
Part 1 – Freestanding Franchised Restaurant Average Sales (Fiscal Year 2017)
- Presented below are the average sales figures for the freestanding franchised Del Taco restaurants that had been operating for at least 12 months, as of the end of the 2017 fiscal year.
- During the fiscal year surveyed, no freestanding franchised restaurants closed after being open less than 12 months.
- At the end of Del Taco’s most recent fiscal year ended January 2, 2018, it had a total of 252 franchised restaurants. Of those, 236 constitute freestanding franchised restaurants, and 223 of them have operated for more than one year.
- These freestanding franchised Del Taco restaurants operate in Arizona (29), California (107), Colorado (21), Florida (2), Georgia (1), Idaho (7) Michigan (4), Nevada (1), New Mexico (7), Oregon (8), South Carolina (1), Utah (32), and Washington (3).
- Sales for purposes of this Item 19 means the total net cash sales for all of the restaurants in each category, and includes the sales of all food, beverages, and promotional items, net of sales taxes. The Franchise Agreement requires franchisees to pay a 5% royalty on sales.