Article

Taco Bell breakfast generating up to $120K in incremental sales

In less than six months, the brand's breakfast business is above breakeven and is about 7 percent of the menu mix.

July 18, 2014 by Alicia Kelso — Editor, QSRWeb.com

Yum! Brands’ flagship KFC China business appears to be rebounding solidly after a challenging 2013 incited by a chicken supply crisis. The company’s Q2 results were announced this week and include a worldwide systems sales jump of 6 percent year over year.

In an earnings call held Thursday, CEO David Novak and CFO Pat Grismer also touted the bottom line benefits of Taco Bell’s new breakfast lineup.

Taco Bell breakfast already above breakeven  

Taco Bell’s breakfast launch provided a big story during Thursday’s earnings call. Novak said the new daypart, launched in March, now makes up 7 percent of the sales mix.

“We fully expect it to be incremental, adding anywhere between $70,000 to $120,000 per unit in annualized sales,” he said. “In the past, McDonald’s got about $1 million in sales before 11 a.m. – before we even opened our doors. It’s a huge opportunity and we’re already adding money even with those incremental labor and food costs.”

Novak added that it took McDonald’s eight years to make money on breakfast and that Taco Bell is already above breakeven.  

“This is a great vehicle for us,” he said. “Now we can build our brand across all dayparts. We have more news coming and we think we have that combination of breakfast news and other daypart news to give us that one-two punch we need to go forward.”

Taco Bell celebrated a record-breaking sales week during Q2, a milestone Novak attributes to the added daypart. He also said that having breakfast available has enhanced the brand’s positioning with younger generations. Franchisees are also strongly on board and committed to breakfast for the long term, while asking for new products to add, he said.

Despite the breakfast buzz, however, same-store sales were “only” up 2 percent. Novak said this is due to the underperformance of the Cool Ranch Spicy Doritos Locos Tacos chicken.

“It ended up being too much of a niche product to overlap the 15-percent growth we’ve had the past few years with the introduction of Doritos Locos Tacos and the Cool Ranch,” he said.

The company anticipates a strong back half at Taco Bell, buoyed by the launch of the Quesarito (“a great, powerful innovation,” Novak said), as well as the impending launch of mobile ordering (expected in Q4) and last week’s introduction of the Power Cantina line.

KFC China’s continued recovery

KFC China initiated a marketing barrage in March to expedite recovery from last year’s supply chain and avian flu effects, and it seems to be making progress with consumer sentiment in that market – the company’s largest. China’s KFC system sales grew 25 percent, and same-store sales were up 21 percent.

As part of that initiative, KFC has redesigned its packaging, staff uniforms, menu boards and restaurants. It is also offering free WiFi now and a new mobile app that enables pre-ordering and payment, and the menu includes 15 new items with a sharper focus on the premium side of the barbell.

CFO Pat Grismer said this shift toward premium hits on a consumer demand shift.

“We’re confident we’re on the right path to keep the brand contemporary,” Novak said. “We’re rapidly improving new unit returns, which is setting us up nicely for aggressive new unit growth.”

That new unit growth is what excites the company the most, he added, stating both the KFC and Pizza Hut brands are still on the ground floor. New unit potential is driven by China’s macro trend of a growing consumer class. Novak said there were 300 million consumers in the market in 2012, and 600 million are expected by 2020, with disposable incomes growing as well.

“We expect over 700 new units this year and full steam ahead. We are well on our way to our target of 2,000 by 2020,” Novak said.

Fast casual tests

Finally, Yum! executives were asked about the fast casual concepts that have popped up in California and Texas – U.S. Taco Co. and Super Chix, repsectively – and what their plans were with those concepts. Novak said they were being used primarily as innovation labs where they can learn about what customers think of some new products.

“It is a real focus on learning more about the fast casual segment and using it as an incubator for what can go into our base business,” he said. “We are also looking at small-box derivatives that are offered to our base brand to give us more opportunities.”

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