“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.
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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.