Taco Bell: When You Don’t Have Time for Freshness
In order to better serve its customers, Taco Bell stopped cooking its meat.
“We’re really not in the business of making food. We’re in the business of feeding people.” – John Martin, former CEO of Taco Bell (Trapp, 2014, p29).
Though most restaurants would characterize their value proposition as “making good food,” Taco Bell established a business model focused on “feeding people” – and feeding them quickly and cheaply. According to a study done by Jackie Hueter and William Swart, Taco Bell customers don’t mind waiting up to five minutes in line, but after that, customer opinion changes dramatically; perceived wait-time increases exponentially after 5 minutes. (Hueter and Swart, 1998). So speed of service is critical to Taco Bell customers. In addition, low prices are crucial for Taco Bell’s target market: “20-something” males.
Since the 1980s, Taco Bell has focused its operations strategy on meeting this value proposition: feeding people quickly and cheaply.
Logistically, it’s difficult for a restaurant like Taco Bell to be speedy at all times. 52 percent of Taco Bell’s business is done between the hours of 11:00am and 2:00pm. (Hueter and Swart, 1998). The hours of Taco Bell locations vary dramatically, but the Taco Bell in my hometown is open 7:00am-5:00am. This means that 52% of Taco Bell business is transacted in a time frame representing only 14% of its operating hours.
In order to keep wait times short during the lunch rush, Taco Bell could keep substantial finished product inventory on hand. Unfortunately, most orders at Taco Bell are customized and must be made-to-order, so Taco Bell is unable to utilize finished goods as a lever for speed. (Caveat: Taco Bell does keep substantial work-in-progress inventory – including washed lettuce, unbagged cheese, and packaged nachos – on hand).
As an alternative, Taco Bell adjusted the worker utilization rate. Instead of maintaining a consistently high worker utilization rate (which would result in longer customer wait times), Taco Bell has landed on a low worker utilization rate.
But how can Taco Bell maintain low worker utilization while keeping the cost of labor at the industry standard of 30% of sales? (Taco Bell, 2014). Answer: It can stop cooking its meat. Not cooking the meat would reduce prep time required for each order and, as a result, reduce worker utilization.
That is to say, Taco Bell began outsourcing the cooking of its meat to its suppliers. Given that it purchases 290 million pounds of beef each year and is integrated with other Yum! Brands including KFC and Pizza Hut, Taco Bell is well-positioned to make demands from its suppliers, while maintaining low costs. (tacobell.com). From personal experience working at Taco Bell, I can confirm that there are no big grills or stovetops for cooking meat. Upon delivery to Taco Bell, meat needs only to be re-heated (often in a plastic bag placed in hot water). CEO John Martin confirmed, “The three things that generally go on in fast-food are preparation, assembly and delivery…We’ve come to the point where we pretty much just assemble and deliver.” (Cortez, 1993, p.44).
While outsourcing meat cooking could deteriorate the value proposition at other restaurants (like Benihana), it does not create a problem at Taco Bell, since cooking is not part of Taco Bell’s value proposition.
Operationally though, the decision to outsource the meat cooking has many implications.
First, as previously mentioned, it limits prep time and worker utilization. This allows Taco Bell to serve its customers quickly.
Second, it makes the process less capital-intensive. Restaurants don’t need to purchase or maintain expensive cooking equipment. Finally, the elimination of the giant grills and ovens limits the amount of physical space needed for the kitchen. This means Taco Bell can reduce the size of the restaurant (and save money). These savings can be passed along to the consumer in the form of an affordable taco (only $1.19). (tacobell.com)
In summary, Taco Bell capitalized on its prominent position in the Yum! family to make additional demands of its suppliers – allowing Taco Bell to outsource its meat cooking. This simple operational change has colored Taco Bell’s overall operational strategy through inventory management, worker utilization, labor cost, and PP&E cost strategies. In turn, this operational strategy drove success in Taco Bell’s business model through providing customers with fast and cheap food.
Bibliography
Coomes, Steve. (2013). Taco Bell. Nation’s Restaurant News, Vol.47(8).
Cortez, John. (1993). Taco Bell cooks up ‘superbrand’. Advertising Age, Vol.64(22), p.44.
Greenfeld, Karl. (2011). Taco Bell and the Golden Age of Drive-Thru. Bloomberg Business. http://www.bloomberg.com/bw/magazine/content/11_20/b4228064581642.htm
Howard, Theresa. (1999). Taco Bell state $75m on buoying dinner. Brandweek, Vol.40(8), p.4.
Hueter, Jackie and Swart, William. (1998). An Integrated Labor-Management System for Taco Bell. Interfaces 28(1):75-91. http:// dx.doi.org/10.1287/inte.28.1.75
Schaben, Susan. (2000). Slumping Taco Bell lays out strategy for comeback. Orange County Business Journal, Vol.23(42), p.1
Taco Bell. (2014). Annual report 2014. Retrieved from http://www.yum.com/annualreport/
Taco Bell. Retrieved from tacobell.com
Trapp, Martin. (2014). Realizing Business Model Innovation. Nurnberg, Germany: Springer Gabler.
I had no idea that Taco Bell does all of its food preparation off-site, that’s really interesting! In a lot of ways that makes them much more like a chain like Subway, which I believe also only does the “assembly and delivery” components rather than doing a lot of on-site prep. Are other major fast food chains also moving to this asset light model, or is this an opportunity that works better for Mexican food than for burgers?
I also agree that a large part of Taco Bell’s customer value proposition is on speed and price, but I think a significant portion of their business model is also based on customer loyalty around specific products that can’t be found anywhere else (like cheesy gordita crunches, crunchwrap supremes, etc). Does Taco Bell have a unique operating model for developing menu items that will keep people coming back? For example, would be really interested to know how they came up with the Doritos Locos taco!
This is an awesome article. I eat at Taco Bell more than I would like to admit, and I have never noticed that they don’t have to cook their meat (I wonder if this is intentional or am I just oblivious?). The big question I have after reading this article is: what are the risks associated with this strategy? It seems like a strategy that other fast-food chains would like to employ (and would have the bargaining power with suppliers to demand if necessary), but have not done. I was wondering if it has anything to do with the “type” of meat they are serving (vs a McDonalds) and the overall lack of variability in their system (I mean a cheesy double beef burrito isn’t that much different than a volcano burrito). With less lead time required to cook the meat, I also wonder if this allowed Taco Bell to adopt more of a just-in-time management system where the meat doesn’t need to even be heated up until there is demand for it–potentially minimizing spoilage–a major cost for anybody in the food business.
This is great, I wasn’t aware of the extent that Taco Bell had taken prep and cooking time down. A couple of questions that I have after reading this center around the definition of its business model and potential threats moving forward to its business / operating model. First, is the value proposition really limited to feeding people quickly? The marketing that Taco Bell uses generally emphasizes food on the go, but I think there’s another sub-culture for younger consumers around the brand that goes beyond just food quickly. I wonder how employees are aligned to that sub-culture and marketing in the operating model. Second, fast casual has been taking share from fast food (e.g., Chipotle instead of Taco Bell). Even McDonalds is testing ‘Shake Shack-like’ burgers in California given consumer trends. Can Taco Bell really maintain its position and operating model in the face of a changing consumer?
Thank you for sharing this information! We’ve seen in a few occasions in TOM how insourcing or incorporating suppliers can be a useful way to maximize efficiency. With Taco Bell you provided us with an example of how outsourcing a key step can have dramatically positive effects on the delivery of value to the customer. I think part of Taco Bell’s success is due to the intimate understanding of what there customer prioritizes—in this case short wait time over food quality. By listening to their customer, Taco Bell had the right strategy to begin with and looked for ways to shape the operating model as a consequence.
Anecdotally, it seems that Taco Bell has also built a strong innovation process since they release some innovative products including Doritos Locos Tacos and their more recent breakfast menu. They test these items with their customers in a similar way to the IDEO prototyping phase by releasing them for limited time or in limited geographies and then they scale up if they are successful.
I completely agree on your assessment of theirs alignment between their operational model and their business model.
Great read. I too wasn’t aware of Taco Bell’s in-kitchen practices. It’s pretty interesting the company would outsource food preparation. You touched on it, but I think the key for Taco Bell was minimizing the initial investment for a new store. Per Yum Brand’s latest annual report, ~80% of restaurants are owned by third-party franchisees. I believe Taco Bell pursued the “Kitchen Minus” program In order to lower initial investments costs, which, in turn, helped the company convince franchisees to invest in Taco Bell and open new stores. Given franchisees pay a royalty based off of sales, Taco Bell was incentivized to maximize revenue throughout their entire system. The more stores, the higher the entire company’s revenue. Thus, while the company may be sacrificing some margin by outsourcing cooking to third party suppliers (I believe they are paying a premium and could likely do more cost-effectively in-house given their scale), they are able to maximize sales and corporate profits by focusing on store count growth.
Sources:
1) https://medium.com/@timfrietas/lessons-in-product-management-from-taco-bell-part-1-3ae53e8313f8#.q509fgfbs
2) Yum Brand’s 2014 Annual Report