Financing

Low-income consumers are apparently flocking to Taco Bell

Some fast-food chains are losing customers to grocers over pricing issues. But the Mexican chain is apparently gaining them.
Taco Bell
Taco Bell locations in lower-income areas are outperforming the system. | Photo: Shutterstock.

If fast-food chains are losing lower-income customers to grocery stores, nobody told Taco Bell.

The Mexican quick-service chain is apparently gaining lower-income consumers, even as some of its fast-food brethren are losing them.

“With the low-income consumer, I know there’s been a lot of talk about, are they dropping out?” David Gibbs, CEO of Taco Bell parent company Yum Brands, told analysts on Wednesday. “For Taco Bell, it looks like we’re doing a great job of holding onto them.”

Gibbs said that, for all of 2023 and in the fourth quarter, Taco Bell’s stores in low-income areas outperformed the rest of the system. “I think that speaks to the strength of Taco Bell in this environment,” he said.

The comments come days after McDonald’s CEO Chris Kempczinski told analysts that his chain was losing customers making $45,000 or less. “Eating at home has become much more affordable,” he said.

That seemed to confirm concern in the industry that months of price increases at fast-food restaurants have eroded their reputation for affordability—and social media comments on stories about this topic seemed to reflect that. As such, lower-income consumers may be more likely to avoid eating out some days, opting to eat at home.

Prices at limited-service restaurants increased 5.9% year over year in December, compared with a 1.3% increase at grocers, according to federal data.

To be sure, Taco Bell’s same-store sales rose just 3% in the fourth quarter. But executives cited difficult comparisons. The key metric increased 11% a year ago, largely due to the company’s reintroduction of the Mexican Pizza, which generated ultra-strong sales.

Executives said sales improved in December, up 5%, and they expressed confidence sales would remain strong this year. They also noted that, on a two-year basis, Taco Bell’s same-store sales were up 15%.

Gibbs said Taco Bell has been able to get low-income customers because of its strong reputation for value among U.S. consumers.

The company recently made some changes with its $3 and Under menu, Gibbs said. That menu is overindexing “a little bit” with consumers, compared with how it performed in test. “It’s a real competitive advantage for us, and it’s designed to maintain franchisee profitability,” Gibbs said.

That has also burnished its reputation for value among consumers. “It is a value leader in so many ways,” Gibbs said. “When you talk to consumers about value, they win every value perception score and they can do value with innovation, which is a great combination.”

“It’s a brand that thrives in a value environment,” he added.

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