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Taco Bell sold a ton of Nacho Fries

One out of every four orders included the LTO, which helped the chain compete in a tough market.

It’s official: Nacho Fries were popular.

Taco Bell sold 53 million of the fries, starting at $1, over the first five weeks of the promotion, making it one of the most popular product introductions in the chain’s history.

One out of every four orders during that period included the fries, which helped Taco Bell’s same-store sales rise 1% in the company’s first quarter ended March 31, parent company Yum Brands said Tuesday.

While that same-store sales number was small, it was compared with an 8% increase in the same period a year ago.

Consumers frequently added the fries to existing orders, driving incremental sales. “The $1 fries helped the business,” Yum CEO Greg Creed said on the company’s first quarter earnings call Wednesday. “The good news is a 25% incidence is great. Eight percent is a tough number to lap, given what’s going on with the marketplace.”

Taco Bell heavily advertised the $1 Nacho Fries during the quarter, and the Mexican quick-service chain has aggressively marketed its $1 items this year amid a tough, competitive market that is focused on value.

The chain recently started serving $1 Triple Melt Burritos and $1 Triple Melt Nachos at all 6,400 of its locations. The company is also testing new $1 products, including a Crispy Chicken Taco and a Beefy Crunch Burrito. The chain has vowed to introduce 20 new $1 menu items this year.

“We’re not a one-trick pony when it comes to value,” Creed said. “We’ve got a lot of really smart plays around value. We continue to do very well in a tough marketplace.”

Taco Bell also plans to pay more attention to its business at dinner and late-night, what it calls its After Dark program.

Company executives did not provide details, citing competitive reasons, but said that the program is aimed at improving speed and customer satisfaction to drive business in the evening and night hours. Executives said there is considerable opportunity to drive business during those hours.

Taco Bell has generally been the strongest-performing concept among the three brands Louisville, Ky.-based Yum Brands operates. Same-store sales at KFC rose 2%, including flat in the U.S.

Pizza Hut’s same-store sales rose 1%, including a 4% increase in the U.S. Overall, same-store sales at the brands rose 1%.

Yum Brands stock fell 5% in morning trading.

KFC's UK problems

Yum’s total same-store sales would have risen 2%, and KFC’s 3%, but for closures of numerous KFC restaurants in the United Kingdom due to a lack of chicken.

The chain changed its distributor in the country, which led to disruptions in the supply chain and left many KFC restaurants there without their primary product. Creed said all 871 KFC restaurants in the U.K. are now open, one-third of which are being supplied by the chain’s former supplier.

“As we recover from the incident, we’re applying lessons learned to assure this doesn’t happen anywhere else in the world,” Creed said.

Still, the chain had to stop advertising, other than a short, “clever” ad in the midst of the crisis. Executives believe consumers will forgive the problems, ultimately.

But David Gibbs, Yum’s CFO, said that the company has reached a settlement with “the parties that were responsible” for the problems.

“We think we helped franchisees get through this to the point where we can get the business back on track and back into a healthy situation,” Gibbs said.

Pizza Hut is struggling, but not in the U.S.

Pizza Hut’s international same-store sales declined by 2% in the quarter. “We understand we have a lot of work to do to turn things around,” Creed said, noting that the company is working on “digital execution,” speed, value and “consistent communication.”

“We’re working to implement these steps in each of our international markets,” he said.

The chain could take some lessons from its U.S. market, which is in the midst of a turnaround that Creed said “will be a gradual build.”

The chain is now the official sponsor of the NFL, which, along with its sponsorship of the NCAA, means that Pizza Hut “now owns … Thursday to Monday.”

“We have more opportunities to put fans at the center of everything we’re doing,” he said.

Creed said that the company has improved its pizza, is adding members to its loyalty program and is converting more locations to delivery and takeout units.

In addition, the chain has a lot of new operators: In the past 18 months, 2,000 Pizza Hut restaurants have been sold to new franchisees. That’s one-third of the system.

“Some of the new franchisees are delivering our best operating metrics,” Creed said. “As new franchisees come on board, they embrace” what the brand is doing and “jump to the top of operating metrics.”

Why Grubhub?

In February, Yum announced plans to invest $200 million into delivery and online ordering platform Grubhub. Yum got a seat on Grubhub’s board, and KFC and Taco Bell will get delivery through the service, which is fully integrated with the chains’ point-of-sale system.

“We’re encouraged by our initial results” of delivery tests at the two chains, Creed said.

Yum executives said they will have access to data from Grubhub’s Taco Bell and KFC customers, a “critical” component of the deal.

But executives said that they wanted more than just a basic delivery partnership.

“Given our scale and knowledge, we have a lot to offer an aggregator partner,” Gibbs said. “We want to have a front seat with what we think is the best-run aggregator to better understand the business model.

“The investment is part and parcel to get a board seat at Grubhub. We’re pleased with the stock response. Our investment is up. But it’s more about getting a seat on the board of directors.”

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