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Del Taco evolves value beyond a ‘Buck & Under’

The Mexican QSR chain is adding a “Buck & Change” menu to give $1 items a place to go when costs force price increases.

Del Taco Restaurants is preparing its popular dollar menu for the future.

The Lake Forest, Calif.-based Mexican fast-food restaurant is adding a “Buck & Change” menu to its popular “Buck & Under” menu at most system restaurants, company executives said this week.

The idea, CEO John Cappasola said on the company’s first quarter earnings call Thursday, is to “evolve our value platform and expand the mid-tier of our menu.”

But, he said, it’s also a plan for the future. Ultimately, it gets more difficult to keep items under that $1 price point. “Buck & Change will complement the Buck & Under menu and represents a path to migrate select products beyond a dollar price point over time,” Cappasola said.

He said that the Buck & Under menu “will not go away,” and the company plans to innovate around the menu. For instance, it plans to launch a new grilled chicken quesadilla snacker at $1 this June.

The new Buck & Change menu is already in 400 of the chain’s restaurants. The chain’s franchisees have been using that menu “at an increasing rate over the past several years … to provide them some price flexibility,” Cappasola said.

Del Taco’s same-store sales have performed strongly in recent years, in part based on the chain’s “barbell” strategy involving a combination of low-price items and more premium offers. That includes comparable-store sales of 3.7% systemwide, including a strong, 5.2% same-store sales figure at franchisee-owned outlets. Franchisees operate 251 of the chain’s 566 locations.

First quarter same-store sales grew thanks to an increase in average check and an increase in same-store transactions. It was Del Taco's 18th straight quarter of same-store sales increases.

Cappasola said the chain’s same-store sales results thus far prove that the Buck & Change menu isn’t alienating consumers.

“We’re in a pretty good position there and feel strong about the platform,” he said. “Our value platform and our data and market experience suggest we’ll be able to flow through some price increases on the Buck & Under menu at a fairly high percentage rate with minimal risk to traffic.”

But, he said, adding items to the Buck & Under menu at the same time will help the chain “manage value perceptions and obviously do our best to limit that traffic impact of the Buck & Change move.”

Executives said that breakfast was the chain’s best-performing daypart in the quarter, thanks to a “Break Fiesta” promotion offering a $2.49 bundle at breakfast. “We like what breakfast does to same-store sales when we focus on it,” Cappasola said. He said the company plans to focus on breakfast again this fall.

The chain is also planning to launch a new late-night menu, with items such as a Churro Dipper Shake. “We think we’ve got some same-store sales upside from late night over the summer months as well,” Cappasola said.

Del Taco’s stock rose more than 4% in morning trading Friday following the earnings report. The company’s net income declined slightly to $3.2 million, or 8 cents per share, from $4.2 million or 10 cents in the same period a year ago. And restaurant margins fell 70 basis points to 18.4% of sales.

Cappasola said the margin was actually better than expected, because “We had our lowest expected level of menu pricing coupled with our highest level of expected food inflation for the year.”

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