Can Taco Bell Cook Its Way Out of Last Place?

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www.tacobell.com
The munchers have spoken, and Taco Bell isn't going to like what it's hearing. A recent Consumer Reports poll asked its readers to chime in with their opinions on the quality of signature items at leading fast food restaurants. It got an earful as more than 32,000 offered up their thoughts on more than 96,000 meals across 65 chains.

The most magnetic headline of the report was that McDonald's (MCD) burgers ranked dead last among the 21 largest burger flippers in the country. However, Yum! Brands (YUM) -- the parent company of KFC, Pizza Hut and Taco Bell -- got a double dose of bad news when KFC ranked eighth and worst on the list for chicken, and Taco Bell stumbled into a last-place eighth out of eight competitors in the burrito category.

The Fine Cuisine-Cost Conundrum

It's not necessarily ironic that the country's largest burger, fried chicken and Mexican chains ranked last in the Consumer Reports taste test. It makes sense. These chains tend to offer cheaper fare than their rivals, and part of that is a byproduct of lower spending on ingredients. Despite the advantages of buying in massive bulk, one should never expect the raw materials that go into a $1.49 Beefy 5-Layer Burrito at Taco Bell to be in the same category as those that go into a $6 burrito at Chipotle Mexican Grill (CMG).

There's also something to be said about the old adage that familiarity breeds contempt. The well-known top dogs will always be the easiest targets.

However, Taco Bell still needs to be careful. It used to be a compliment to be mentioned in the same breath as McDonald's, but these days, it's disparaging.

People Still Want Their Gorditas

Taco Bell can point to recent performance to prove that it's not being shunned by diners (relatively speaking) in the same way that McDonald's is. Outside of an unusual dip in its most recent quarter, Taco Bell has mustered positive comparable store sales pretty consistently in this country over the past couple of years. That hasn't been the case for McDonald's, which is coming off of three consecutive quarters of negative comps in the U.S.

Taco Bell should be able to turn things around for the quarter that ended in June. We'll find out how it held up later this month when Yum! Brands offers up fresh financials, but the late March arrival of the Waffle Taco and June's addition of the Quesarito likely resulted in a healthy uptick in traffic.

The Waffle Taco is noteworthy because it officially opens up the breakfast market for the chain. Even if the initial breakfast run is done more for the sake of novelty, it adds incremental sales. The quesadilla-wrapped burrito known as the Quesarito will also help as long as it can overcome the health concerns surrounding it -- it starts at 620 calories and 30 grams of fat.

However, before we start thinking that recent innovations will help improve the reputation of its burritos, let's consider that the greatest innovation to hit Taco Bell in years happened two years ago -- and it didn't improve consumer perception of quality. Doritos Locos Tacos paired up Taco Bell's signature taco in a shell with a dusting of Doritos flavoring. Taco Bell has sold 825 million of them.

The Price of Popularity

If Taco Bell wants to upgrade its image, it will mean paying the price of upgrading its ingredients -- and that may not actually benefit the chain if it translates into higher prices for its meals that consumers don't want to pay.

Yes, Taco Bell ranked dead last in the survey. It may want to embrace that position, because the steps it would have to take to correct those perceptions could cost it more than it has to gain.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our newsletter services free for 30 days.

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30 Comments

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csi2wayaz

For us it wasn't a problem with the food, they remodeled and started playing really LOUD pop music. That is why we stopped going to TB. We go to a restaurant to relax and betogether and eat, not be assaulted by music that we would never listen to voluntarily. Turn off the damn music and we would come back.

July 11 2014 at 9:50 AM Report abuse rate up rate down Reply
msgscot

People do like to bash and drag down. The facts are, it doesn't matter what the survey says. If the drive thru is full and they are selling, then the bash comments don't mean squat. As far as "it's not real mexican food". If it likes my taste buds it could be polish mexican, I don't care. I never wanted to travel to Mexico just to get a meal anyways.

July 11 2014 at 5:41 AM Report abuse rate up rate down Reply
festis707

The Taco supreme is made a lot smaller with both ends closed now. Quality and quantity has taken the ring out of the Bell for me......Next

July 11 2014 at 1:25 AM Report abuse rate up rate down Reply
captainjaneway26

maybe if taco bell took out the taco meat filler their sales might go up

July 11 2014 at 12:37 AM Report abuse rate up rate down Reply
ace

Part of the problem is people think crap like chipotles and welcome to moes are mexican food, they arent even close. Learn how to read a spanish menu and get some real mexican food for way less in the mexihood, instead of that americanized garbage.

July 11 2014 at 12:35 AM Report abuse +1 rate up rate down Reply
bfgair

It was interesting to read that since the new "WEED" law in Colo. Taco Bell has seen a 400% increase in sales there. Without stoned folks Taco Bell might just as well roll up the welcome mat. It also shows that smoking WEED does cause you to do things you normally wouldn' think of.

July 10 2014 at 11:12 PM Report abuse -1 rate up rate down Reply
itacurubi

I think Taco Bell is quite good ... y me crecia con este mismo tipo de comida.

July 10 2014 at 11:06 PM Report abuse rate up rate down Reply
rober4ga

All went down hill when you get empty shells

July 10 2014 at 10:08 PM Report abuse rate up rate down Reply
sugarcreekchile

I live in the SW where great Mexican food abounds. Eating at a Taco Bell is a sacrilege and grounds for deportation to New York City. No one with a taste bud would even let their dog eat there.

July 10 2014 at 9:03 PM Report abuse rate up rate down Reply
Ron

The downhill slide started when they began putting silica in the burger. Their newest offering is terrible, what a waste of money! If I get anything at all there it's steak.

I couldn't tell you the last time that I ate at McDonald's but it's been well over a year, maybe two.

July 10 2014 at 6:57 PM Report abuse +1 rate up rate down Reply