Del Taco introduced Beyond Meat to its tacos in April, and it quickly became one of the most successful product offerings in company history—so successful that the chain has since added the fake meat to its burritos.
Bolstered by the product’s popularity, the Lake Forest, Calif.-based chain’s same-store sales rose 2.2% systemwide in the second quarter ended June 18, including 1.7% at the chain’s company-operated locations, which account for slightly more than half of its 583 restaurants.
Speaking on the company’s earnings call Monday, Del Taco executives said that the chain’s Beyond Taco and Beyond Avocado Taco accounted for a 6% product mix following its introduction, which increased to 7% following the introduction of burritos.
“We believe the sustained, mid- to high single-digit Beyond sales mix in each of the first 13 weeks is indicative of a permanent demand dynamic,” CEO John Cappasola said on the earnings call.
But the Beyond Meat products are not a panacea. Same-store sales growth came from a higher average check, and not more customers. Though transaction count improved from the first quarter, it still declined by 2.5% at company locations.
And the products have not been able to prevent what appears to be a July swoon for the chain. “We experienced an unexpected traffic-driven slowdown since week three” of the company’s fiscal third quarter, which began in early July, Cappasola said.
The results disappointed Wall Street: The company’s stock was down nearly 6%.
The lessons from Del Taco could offer some insights for the industry as more restaurant chains add plant-based products to their menus.
Numerous chains have introduced either Beyond Meat or Impossible Foods products, including many quick-service chains that are making them featured, branded products as part of primary menu items. Notably, Burger King plans to expand its Impossible Whopper nationwide by the end of the year.
The sudden popularity of such products on restaurant menus has helped propel Beyond Meat stock, which has soared 800% since its May IPO. The company said on Monday that its restaurant sales increased nearly 500% last quarter, propelled by chains such as Del Taco—the first publicly traded chain to report earnings after a quarter of offering Beyond products.
Del Taco executives said Monday that its Beyond Taco customers fall into two “buckets.” In one bucket are some of the chain’s existing customers who are trading up into the product in the hope of eating less meat now and then.
The company believes access to the Beyond Meat products will increase those customers’ frequency over time.
Cappasola said that the company has traditionally had success offering lighter and better-for-you options, such as ground turkey. He believes that customers over time will demand such options more frequently.
“We think there are some deeply rooted, longer-term fundamental characteristics here in regards to the better-for-you need states that we do not think will go away,” he said. “Now, will the platform have to continuously optimize and improve over time depending on how those need states shift? Yes, of course.”
Incrementality, however, is coming from vegetarians and vegans who are coming in and trying the product—the second bucket. That group, however, is proving to be more challenging.
“These guests are just lighter users compared to the average Del Taco user,” Cappasola said.
The company says it is a “very relevant group for us,” but that it has to “educate” the customers on the chain’s positioning to “build their frequency over time.”