Taco Bell reports soft sales despite success of Nacho Fries
Yum! Brands Inc. blamed flat same-store sales during the first quarter on a KFC chicken shortage in the United Kingdom, a massive supply failure that left nearly 900 restaurants without their core product earlier this year.
The Louisville, Ky.-based operator also saw a slip from Taco Bell, typically its best-performing brand. During the quarter ended March 31, same-store sales at Taco Bell grew 1 percent, compared with a rise of 8 percent the previous year.
Analysts were surprised by the significant year-over-year drop, given that the Irvine, Calif.-based chain set a product sales record during the quarter with the introduction of Nacho Fries.
Taco Bell said the fries boosted “incidents” at restaurants, but the Dollar Cravings menu item put pressure on margins.
“The launch of fries was definitely a factor” in the soft sales, Yum CFO David Gibbs said during a conference call Wednesday with investors.
Since the start of the new year, Taco Bell has been pushing its rotating menu of new dollar menu items. The chain earned buzz when it crossed over into burger territory with the debut of Nacho Fries in late January.
The seasoned fries, served with nacho cheese dipping sauce, sold more than 53 million orders in the first five weeks. The sales record ousted previous new-product champion Doritos Locos Tacos.
Creed said to expect more “smart plays” around value at Taco Bell.
He also hinted that at an “after dark initiative” was coming this summer to Taco Bell. When asked to provide more details, he only stated that it would be a program focused at improving order accuracy at dinner and late night.
“We don’t want to give too much away,” he said.
At Pizza Hut, the chain remains in a turnaround phase, Creed said.
Same-store sales increased 1 percent for the quarter, compared with a 3-percent drop the previous year. In the U.S., Pizza Hut same-store sales increased 4 percent for the quarter.
“Turnaround of the brand in the U.S. will be a gradual build,” Creed said.
To improve sales, Pizza Hut must become “hot, fast and reliable” for the customer, Creed said.
Yum leaders also briefly discussed the company’s recent partnership with Chicago-based Grubhub.
Since the deal was announced in February, KFC, Taco Bell and Grubhub have been testing online ordering for pickup and delivery at some restaurants.
Part of the test includes integrating Grubhub’s ordering platform with POS systems at each restaurant. This increases order accuracy and speed because employees don’t have to re-enter orders coming in from a third-party delivery tablet.
Getting delivery right is crucial as consumers will gravitate towards concepts that “make it easy to order, easy to pay and easy to get,” Creed said.
Digital sales are becoming a key area of focus for the entire industry. Restaurants reported 1.75 billion delivery orders in 2017, according to The NPD Group, a Port Washington, N.Y.-based market-research firm. From 2012 to 2017, delivery sales increased 20 percent, to $16.9 billion.
On Monday, Chipotle Mexican Grill announced a plan to add delivery at 1,500 restaurants through a partnership with DoorDash.
For the quarter, Yum posted net income of $433 million, up 55 percent.
Contact Nancy Luna at [email protected]
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