Taco Bell's Value Menu Pays Off
Price points and variety are key to Taco Bell's successful "Why Pay More" menu.
By David Farkas, Senior Editor -- Chain Leader, 6/25/2008 9:09:00 AM
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| Taco Bell's new value menu has helped increase same-store sales 6 percent since mid-May, roughly 3 percent above the overall average for all quick-service restaurants. For more on the price-value proposition consumers are looking for, read "Make Me an Offer" in Chain Leader's July issue. |
Lately, his challenges have been paying off. In June, UBS restaurant analyst David Palmer estimated Taco Bell same-store sales had climbed a hefty 6 percent since mid-May, roughly 3 percent above the overall average for all quick-service restaurants.
Palmer credited a new value-menu dubbed "Why Pay More"--a project in which Wagner, a 19-year veteran of the fast feeder, played a significant role.
"Our department was responsible for all the consumer testing as it related to the menu overall," Wagner says. Although he declines to offer specifics of such testing, Wagner agrees to share some useful insights into value menus.
99-cent Ceiling
Wagner's research shows, for example, that 99 cents is a critical price point. Consumers in search of price-value offerings do not want to pay more than a dollar per item. "That's a key point. Price is first," he says.
No surprise, then, that the ten menu offerings on the Why Pay More menu cost 79 cents, 89 cents and 99 cents. The items include nachos (79 cents), burritos (89 cents) and beef tacos (99 cents). Four items are brand new: Big Taste Taco (99 cents), Cheesy Double Beef Burrito (89 cents), Cheese Roll Up and Triple Layer Nachos (both 79 cents).
Wagner calls the three-tier pricing structure "fairly breakthrough" and contends Why Pay More's variety is a key selling point. Value menus, he adds, typically lack it.
"A lot of times they are compilations of smaller sizes [of existing products], and a lot of times they go over a dollar and they still call it a dollar menu," he explains.
Case in point: Taco Bell's Big Bell Value Menu, which crossed the crucial dollar border to $1.29 when it was launched in the summer of 2004. "Unlike many value menus you see at other fast-food chains, the Big Bell Value Menu offers big, filling products that fill our customers' stomachs without draining their wallets," Greg Creed, then Taco Bell's chief marketing officer, said at the time. (Creed is now president of Taco Bell.)
Given the slack economy, filling products are no longer a hot-button issue, Wagner claims. "The Big Bell Value Menu was focused more on filling-ness: what you get for what you pay," he says. "We've taken a lesson of our own learnings and said, 'Value menus are really about these price-value consumers. And price comes first.'"
Wagner, who defines "price-value customers" as those with annual household incomes of $75,000 and less, estimates 10 percent to 20 percent of Taco Bell customers order entire meals from the new value menu.
Controlling Food Cost
Palmer is concerned with the remaining 80 percent to 90 percent, who order regular price items and value-menu products as add-ons. That's because one item in particular, the 89-cent Cheesy Double Beef Burrito, has high a food cost, which Palmer reports as slightly above 50 percent. He dubs it Taco Bell's equivalent of a double cheeseburger, referring to the margin-squeezing sandwich that burger chains put on value menus last year.
"That's the bet," he says. "How much have [officials] underestimated that some of the orders will include items [like the burrito] from the value menu?"
Wagner, however, declines to reveal food costs, saying only that management uses a "portfolio approach" to managing costs on the Why Pay More menu, and "we are happy with the financial outcomes."
Investors of parent Yum Brands may be, too, as more customers head to the border. Says Palmer, whose company does not own shares of YUM: "We believe Taco Bell is getting significant sales traction with the Why Pay More menu."
For more on the price-value proposition consumers are looking for, read "Make Me an Offer" in Chain Leader's July issue.
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