How Taco Bell stays cheap
- Taco Bell is outperforming its rivals in the fast food industry.
- The company says it has doubled down on value meals, and it's paying off.
Fast food prices have soared in recent years, and while Taco Bell hasn't been immune to these, it's still considered one of the cheaper options.
Earlier this year, it overhauled its Cravings Value Menu, adding six new "meal-sized" items costing under $3.
And the company says its focus on value meals has helped to boost sales.
The chain reported a 5% increase in same-store sales in the most recent quarter, outpacing its sister brands — KFC and Pizza Hut — and industry competitors such as McDonald's, which reported a drop in sales in the same period.
So how does it keep its prices low?
1. Its core ingredients are cheap.
Experts say many of Taco Bell's base ingredients — such as beans or rice — are fairly inexpensive.
Secondly, as its parent company — Yum! Brands — manages several other restaurant chains, it benefits from being part of a buying "co-op," Rob Dongoski, an expert in food and agribusiness at consultancy Kearney, told Business Insider.
This means it has more leverage to get better prices from suppliers when buying in bulk.
2. Menu items can be reworked to create different combinations.
Many fast food and restaurant chains face the dilemma of offering a broad range of items to cater to a large audience.
While Taco Bell does offer variety, it often uses the same ingredients across its menu but is clever in how it assembles them, Phil Kafarakis, president and CEO of the International Foodservice Manufacturers Association, said.
This means presenting similar dishes differently — for example, in a taco shell, fried chalupa, or burrito.
Using the same ingredients on various items across its menu also means buying fewer items in bulk, again helping it to have more leverage to get better deals from suppliers.
3. Additives keep food fresher for longer, reducing waste.
Filler ingredients also help to keep its costs down, Neil Saunders, managing director of GlobalData Retail, said, adding that waste is minimized by ensuring ingredients have a long shelf life.
Take its eggs, for example — a staple ingredient on its breakfast menu— which, according to a breakdown on its website, include xanthan gum and guar gum. These additions help to thicken the eggs and increase the shelf life.
"This may raise some questions about the quality of the food and how healthy it is. But many consumers seem to accept that tradeoff for lower prices," Saunders said.
4. AI as a supplement to the workforce
The company is also looking at how it can reduce its labor costs.
Yum! Brands recently said it will take an "AI-first" approach to its brands and announced plans to use voice AI in hundreds of its Taco Bell drive-thrus by the end of this year. More than 100 Taco Bell locations in the US already use this technology.
This tech could help the company cut down on staffing costs and, in turn, keep its prices low for consumers. This is especially relevant as states such as California raise the minimum wage for fast food workers, and industry insiders question whether this will have a knock-on effect in other parts of the country.