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Del Taco's new CEO prepares chain for national growth
10/7/09 - Christa Hoyland
*Paul Murphy was named Del Taco chairman and CEO in February.
*Click here to view a slideshow of images from Del Taco's stores and menu.
Paul Murphy has spent his first eight months as CEO of Del Taco wisely. Not only has he learned the ins and outs of the California-based regional chain, but he's been preparing it for a growth spurt once the economy turns around.
"We're really taking advantage of [the macroeconomic conditions] and setting ourselves up for growth," he said. "We're investing in the business, we're adding people. We seem to be countercyclical to what's happening in the industry, but I look at this time and I see there's opportunity there. You just have to look a little harder."
Del Taco's growth plans include developing into a national brand in the next few years. The chain now has about 500 locations in 18 states, with most in California.
It's not the first time the company has looked at having enough stores to directly compete with No. 1 Mexican quick-service brand Taco Bell. In the mid 1990s, executives hoped to reach 1,000 stores by the year 2000. Those plans fell through, but Murphy, who spent 11 years with fast casual franchisor Einstein Noah Group prior to Del Taco, believes the disciplined approach he brings to the company will help make it a national brand.
Del Taco certainly could use some stability. Prior to Murphy taking the helm, the company was led by Shirlene Lopez, who had a 30-year career with the brand, including one year as its president and chief operating officer. Nick Shepherd, then-chairman and CEO of Del Taco parent company Sagittarius Brands, took over the role for a few months before leaving for Carlson Restaurants Worldwide Inc., parent company of TGI Friday's and Pick Up Stix.
Shepherd had big plans for Del Taco, telling AllBusiness.com that he foresaw the company's sales doubling over the next five years to $1 billion. Murphy said that goal is still attainable but may take a few years. The key to the company's successful growth is to lay the foundation first, from a strong infrastructure to good support systems.
"If you don't start today with disciplined long-range planning, you'll end up two years from now looking around and realizing we really haven't moved," he said. "The No. 1 thing is you have to be able to support [that growth] and really meet your obligations as a franchisor."
Jim Lyons, chief development officer for Del Taco, is helping the company lay that foundation. He is leading its market planning efforts, including determining the best prospective direct marketing areas on a national as well as neighborhood level.
As the company plans for new markets, Lyons is ensuring those new stores will be supported effectively by the company's supply chain and its marketing efforts. Growth will be a mix of infill, contiguous markets and new DMAs. And it will be smart.
"We're not going to go into every DMA in the country, we're not going to be in every state in the country, we're just going to go to ones where we think we can make a difference," Lyons said.
To help franchisees, especially in the tight credit market, Del Taco is testing two new prototypes as well as endcap stores with drive-thrus. The new prototypes are smaller and more cost effective, with one store at nearly 2,200 square feet and another at 1,750 square feet. Re-engineered construction and more competitive pricing also help with cost savings, Murphy said.
The company also is developing a reimaging plan for its existing stores as well as new growth models. Nontraditional units are under consideration. And store conversions have proven successful.
"It gets down to having the right business model, that right facility and having a good sales to investment ratio so you can be successful — and picking the right site," Lyons said. "The last step in growth is after the store opening"
Preparing for the recovery
Del Taco also has been focused on keeping its customer base during the recession and will use many of the same tactics as the economy moves toward recovery. The brand has not discounted but led its promotions with value items, such as its 59-cent regular taco and 99-cent chicken soft taco. At the same time, it has introduced limited-time premium offerings like its shredded beef burrito.
"While we're going to be leading with value, we're also going to be reinforcing … that there are premium items that have a great flavor profile at a reasonable price," Murphy said.
Focusing on strengthening Del Taco's brand regard is another priority during the turnaround. The goal is to retain those customers who turned to the brand — and other quick-service chains — for lower prices during the recession once their discretionary income levels improve.
Del Taco already has a strong brand presence, Lyons said, and that should continue after the recession. The company, which does not report its earnings, experienced continuous quarterly positive same-store sales for the 10 years leading up to the recession.
Murphy said he expects consumers to continue to focus on value for the next 12 to 18 months and possibly beyond because the recession has deeply impacted their spending habits. "They're going to be more disciplined in how they handle their discretionary income. They don't want to be caught again."
The company also is focusing on menu development, led by a new senior director of research and development, Mike Salem. Now in a new facility next to company headquarters, the R&D team is developing more limited-time-only products as well as new product lines. One new addition Murphy pushed is a condiment bar to replace the use of sauce packets. The flavor stations feature pump bottles for the chain's signature Mild, Del Scorcho and Del Inferno sauces.
Murphy said Del Taco's menu with continue to offer a mix of offerings, from value to premium as well as healthy to indulgent.
"We view it as building a menu that gives our customer the choice of how they want to use us," he said. "We're going to have a good opportunity to mix and match on our menu."
