Financing

Why Taco Bell thinks it can get just as big as McDonald's

The Mexican fast-food chain, the nation’s fourth-largest restaurant brand, believes there’s “no reason” it can’t have the same number of restaurants in the U.S. as the Golden Arches.
Taco Bell U.S. growth
Taco Bell believes it can add another 6,000 units in the U.S. | Photo: Shutterstock.

Taco Bell wants to get bigger in the U.S. And it has a goal: McDonald’s.

The Mexican fast-food chain, the fourth-largest brand in the U.S. according to Restaurant Business sister company Technomic, believes it can grow domestically through unit development and building in-store sales. In both cases, it is looking to the largest chain in the U.S. as its gold standard.

“We think there’s going to be thousands more Taco Bells in the U.S.,” Chris Turner, CFO of Taco Bell parent company Yum Brands, told the Bank of America and NYSE European Investor Conference on Tuesday, according to a transcript on the financial services site Sentieo/AlphaSense.

“If you look at one of our leading competitors in the U.S., they’ve got 13,000, 14,000 restaurants,” he added. (McDonald’s operates 13,400 locations domestically.) “We’re just a little over half that. There’s no reason we can’t have the same number of restaurants in the U.S.”

Turner said that the company has strong unit economics and a good development pace. Taco Bell did add new locations at a healthy clip, opening a net 196 locations in 2022—2.8% unit growth, according to Technomic. It opened more locations than all but four restaurant chains last year.

“We’d like to continue to accelerate that,” Turner said.

But the company’s growth would also come within existing restaurants. And that’s where Turner’s comments get interesting. “We have good breakfast and lunch business,” he said. “But if you compare it to a couple of our competitors, if we could get the same penetration as lunch as they have, there’s $1 million per-store opportunity there.”

McDonald’s and Taco Bell aren’t thought of as direct competitors. Taco Bell likes to consider itself as a “category of one,” with no major direct competitors.

But the brands do compete to the extent that they’re targeting consumers in need of a convenient meal. And though Taco Bell is one of the four largest chains in the U.S., it has a ways to go before it can match its larger rival. McDonald’s operates 6,000 more restaurants than Taco Bell. And a typical McDonald’s location generates an additional $1.7 million in revenue per year.

Or, put it another way: Taco Bell would have to add sales the equivalent of a typical Popeyes location to catch McDonald’s.

Still, the comments are indicative of what the Mexican fast-food chain is thinking. If it can match Yum Brands’ goals, the company would generate another $25.7 billion in U.S. system sales.

“Their strategies are focused on … driving accelerated same-store sales growth over the long haul in Taco Bell U.S.,” Turner said.

But Taco Bell isn’t just focused on the U.S. The brand wants to grow in international markets. It is concentrating on building a presence in individual global markets, rather than just adding a few stores here and there. The brand now has more than 1,000 restaurants outside the U.S., including four markets where it operates 100 locations apiece.

The strategy helps the brand ramp up enough to do more marketing. “Taco Bell, it takes a little more trial,” Turner said. “Our old strategy, we were opening a couple of restaurants here, a couple of restaurants there. But that lack of scale prevented us from doing the kind of marketing we needed to do to tell the Taco Bell brand story. That’s why we shifted the strategy to get to 100 units.”

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