FDD Talk 2018: Taco Bell Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Taco Bell franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Taco Bell 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 Taco Bell’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2015, 2016, and 2017 average, median, lowest, and highest net sales; average and median cost of sales; and average and median cost of labor for the Single-Brand Company-Owned Taco Bell Restaurants that were open for at least one year as of December 22, 2015; December 27, 2016; and December 26, 2017, respectively

• 2015, 2016, and 2017 average, median, lowest, and highest net sales for the Single-Brand Franchisee-Owned Taco Bell Restaurants that were open for at least one year as of December 22, 2015; December 27, 2016; and December 26, 2017, respectively

Section I – Background Information

19 Things You Need to Know About the Taco Bell Franchise

Grows Urban Footprint With New York City Expansion

1.  In a recent press release from the beginning of August 2018, Taco Bell revealed that it was focusing on growing its new urban concept and expanding the brand’s presence in New York City. According to Taco Bell, historically New York has been an underserved market for the brand but under a new agreement there, 125 metro New York locations will be opened over the next five years. These locations will feature either Taco Bell’s Cantina or Urban In-Line concepts.

2.  Taco Bell’s Urban In-Line and Cantina restaurants are tailored for highly-walkable areas and do not have drive-thrus. These restaurants are designed to fit the local community, with open-kitchen concepts, local artwork, shareable tapas-style menus, free WiFi for customers, outlets for charging devices, and modern restaurant designs that invite customers to stay and socialize over their meal.

3.  Taco Bell also used the press release to highlight its recent growth. The brand said that over the past year, it has opened six new urban concepts – three Urban In-Line and three Cantina restaurants – in the boroughs of New York, with plans to open three more NYC Cantinas by the end of the year. Additionally, Taco Bell has opened a total of 16 Cantina and Urban In-Line restaurants in cities across the country within the past year.

4.  So far in 2018, Taco Bell has opened 90 new restaurants in the U.S., with 100 more set to open by the end of the year. The brand’s long-term goals include opening 1,000 new domestic restaurants by 2022 – 300 of which will be Cantina or Urban In-Line concepts.

5.  Taco Bell will also have over 500 international restaurants in nearly 30 markets around the world by the end of the year, with the goal of expanding the brand’s international footprint to 1,000 restaurants by 2022. Lastly, Taco Bell wants to have 9,000 restaurants in operation globally by the end of 2022.

Signs First Master Franchise Agreements

6.  In late June 2018, Taco Bell announced that the brand had signed its first ever master franchise agreements, continuing its global expansion and path to becoming a $15 billion brand by 2022. Taco Bell will be collaborating with two key franchisees, Sforza Holding Group in São Paulo, Brazil and Casual Brands Group (CBG) in Spain. These deals make both groups two of the largest Taco Bell franchisees globally by store count.

7.  Liz Williams, president of Taco Bell International, said, “We are thrilled to be partnering with two talented organizations in our first two master franchise agreements. This growth will take us further down the path of becoming a truly global brand. We have found two strong partners in both Sforza and CBG, and I am confident they will take our California-inspired brand to new heights in the coming decade.”

8.  Sforza Holding Group, led by founder and CEO Carlos Wizard Martins and his son, Taco Bell
Brazil CEO Lincoln Martins, began working with Taco Bell International in 2016. The Martins family, who own and operate all Taco Bell restaurants currently open in Brazil, set a Taco Bell development record with the opening of more than 20 restaurants in less than two years. By 2027, the state of São Paulo, Brazil will be home to more than 200 Taco Bell restaurants.

9.  CBG, led by CEO Ignacio Mora-Figueroa, has been working with the Taco Bell brand since 2008 and currently owns and operates 40 Taco Bell restaurants throughout Spain. In 2016, CBG won Taco Bell’s prestigious International Franchisee of the Year Award, which recognized them as a valuable global partner. The agreement signed between Taco Bell and CBG guarantees that more than 200 restaurants will be built over the next decade, adding more than 4,200 new jobs in Spain.

Releases Tortilla Chips in Grocery Stores Nationwide

10.  At the end of March 2018, Taco Bell announced that it was releasing a line of branded tortilla chips. Beginning in May, Taco Bell rolled out its tortilla chips to grocery and convenience stores around the country. Available in Fire and Mild sauce packet flavors, as well as Classic, the brand’s latest launch gives fans the chance to enjoy the taste of Taco Bell in tortilla chip form.

11.  The Classic tortilla chips are salted and crispy, the perfect sidekick for your dip of choice. The Mild tortilla chips are seasoned with the bold flavor of Taco Bell’s Mild sauce, including hints of three chili peppers and cumin. The Fire tortilla chips convey the fiery flavor of Taco Bell’s Fire sauce, with hints of jalapeño, chili peppers, and paprika.

12.  The chips’ packaging is designed to look like Taco Bell’s signature sauce packets and features the brand’s “saucy wisdoms.” Marisa Thalberg, chief brand officer of Taco Bell Corp., said, “This launch of our first line of sauce packet-inspired chips gives our fans a new way to access a taste of Taco Bell. Our sauce packets are one of the brand’s most unique aspects and were the natural choice for both the flavors and packaging of our tortilla chips.”

Company History

13.  The origins of Taco Bell began in 1950 when Glen Bell opened Bell’s Hamburgers and Hot Dogs in San Bernardino, California. Across the street from Bell’s restaurant was Mitla Cafe, a Mexican restaurant, which Bell noticed often had a long line of customers. Bell began regularly eating at Mitla Cafe in an attempt to reverse engineer their hard-shelled taco recipe. Eventually, the owners of Mitla Cafe showed Bell how the tacos and their other food were made.

14.  Around late 1951 or early 1952, Bell opened a new food stand, selling tacos under the name Taco Tia. Over the next few years, Bell acquired a few more restaurants, including four called El Taco. Bell decided to sell his El Taco restaurants to his business partner, and built the first Taco Bell in 1962 in Downey, California. The success of this first Taco Bell location led to franchising in 1964.

15.  The first franchise was sold to retired L.A. policeman Kermit Becky in Torrance, California. After franchising started, Taco Bell grew rapidly and by the start of the 1970s, there were over 300 locations. Bell continued to operate Taco Bell until 1978 when he sold the company to PepsiCo.

16.  Taco Bell continued to grow throughout the 1980s, and in 1984 two new menu items were added, the Taco Salad and Taco BellGrande. Around 1986, several Zantigo restaurants, a Midwestern U.S. chain, were converted into Taco Bells after PepsiCo acquired the company. In 1991, to bring its food to customers on the go, Taco Bell launched the Taco Bell Express concept, which featured a limited menu with most items priced under $1.

17.  In 1995, Taco Bell began co-branding with PepsiCo’s other restaurant franchise, KFC. A few years later, PepsiCo spun off its restaurant division and established Tricon Global Restaurants, which is now Yum! Brands. Taco Bell is now often co-branded with other Yum! Brands concepts such as Pizza Hut and Long John Silvers.

18.  Since then, Taco Bell has expanded around the world and continues to create innovative items and concepts. In 2015, Taco Bell launched the Taco Bell Cantina concept, which features special menu items as well as alcohol. The brand also started selling its iconic sauce in grocery stores in 2014 along with its taco shells and taco seasoning. Taco Bell plans to open more Cantina-style restaurants over the next few years.

Entrepreneur’s Franchise 500

19.  Taco Bell ranked No. 8 on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Taco Bell 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 Taco Bell’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

Franchised

2015

• Outlets at the Start of the Year:  5,272
• Outlets at the End of the Year:  5,501
• Net Change:  +229

2016

• Outlets at the Start of the Year:  5,501
• Outlets at the End of the Year:  5,687
• Net Change:  +186

2017

• Outlets at the Start of the Year:  5,687
• Outlets at the End of the Year:  6,117
• Net Change:  +430

Company-Owned

2015

• Outlets at the Start of the Year:  926
• Outlets at the End of the Year:  894
• Net Change:  -32

2016

• Outlets at the Start of the Year:  894
• Outlets at the End of the Year:  879
• Net Change:  -15

2017

• Outlets at the Start of the Year:  879
• Outlets at the End of the Year:  647
• Net Change:  -244

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• The performance statements in this Item 19 contain data for specific Taco Bell Restaurants owned and operated by the franchisor’s predecessor and/or affiliates (“Company-Owned Restaurants”) or its franchisees (“Franchisee-Owned Restaurants”) that are single-brand. Taco Bell does not represent or warrant that you can expect to realize these sales.

Part 1 – Average Performance of Single-Brand Company-Owned Restaurants

• The franchisor’s predecessor and affiliates own and operate both single-brand and multi-brand traditional Taco Bell Restaurants. This financial performance representation represents the averages for a subset of all Taco Bell Restaurants in the United States during the time periods stated.

• Each subset consists of traditional, single-brand Company-Owned Restaurants that were opened for at least one year (“Single-Brand Company-Owned Restaurants”), and excludes all Company-Owned Restaurants that are multi-brand, as well as Taco Bell Restaurants, single or multi-brand, that were owned or operated by franchisees or licensees of Taco Bell.

• The financial performance representation does not include non-traditional, Express, seasonal, multi-brand, or any type of Taco Bell Restaurant other than Company-Owned Restaurants that are traditional, single-brand Restaurants that had been open a minimum of one year as of the end of each of the stated fiscal years.

A.  2015 Average Performance of Single-Brand Company-Owned Restaurants

• As of December 22, 2015, although there were a total of 894 traditional Company-Owned Restaurants in the United States, there were only 804 Single-Brand Company-Owned Restaurants.

• The subset information set forth below addresses only the financial results of these 804 Single-Brand Company-Owned Restaurants for the fiscal year ending December 22, 2015.