Franchise News

Del Taco Keeps Beating the COVID Odds

West Coast operators encountered another significant hurdle when California Gov. Gavin Newsom closed in-restaurant dining in mid-July.

But for Southern California-based Del Taco, not so much. The mandate didn’t interrupt operations for the Mexican-American chain; all 294 company-operated stores have kept their dining rooms closed since the beginning of the pandemic. Much of the nearly 300 franchises have taken a similar approach.

Thanks to drive-thru, takeout, and an expanded delivery channel, systemwide sales are slightly positive so far in Q3, with the franchise base maintaining positive same-store sales and company-run units down only 2 percent despite 90 percent of corporate stores being in California and Las Vegas. No employees have been laid off during the pandemic either.

Ninety percent of Del Taco’s business is coming either through delivery or drive-thru.

“I think that speaks to where the consumer is today with the pandemic and the convenience that is provided with [quick-service restaurants] and our ability to kind of transact quickly when you're out and about through a drive-thru in a limited contact manner,” said CEO John Cappasola during the brand’s Q2 earnings call. “I think that's an important factor that we offer, and you know the fact that even going into COVID, the limited-service restaurants were such a more regular everyday use for consumers. I think that and dependability was created over time.”

To improve the experience of the drive-thru and delivery channels, Del Taco is launching a “throughput playbook” that provides tactics on how to enable growth of car counts during peak periods.

Cappasola explains the playbook includes options like the use of cones to extend drive-thru queue lines or placing an employee outside to get orders into the kitchen quicker. For delivery, the brand is setting up defined delivery stations in kitchens and adding more information to the stickers used to seal orders to enhance accuracy. Del Taco also finished the first phase of menu simplification, which included the deletion of more than a dozen items to increase efficiency in the kitchen.

“I definitely feel like we're well-positioned on all of those consumer factors, and then you add in value and what we bring to the table when people are a bit pinched or expecting to be a bit pinched you know with their wallets,” he continued. “I think we can absolutely continue to see momentum given these dynamics in our business.”

To maintain momentum through the end of 2020, Del Taco is focusing its efforts on digital channels and menu innovation.

Del Taco’s app has grown to more than 1.1 million users, which is a 28 percent increase from the end of 2019. The growth was driven by Del’s Daily Smile Summer, a program in which customers can receive offers and surprise deals from other partners available only through the app. For example, last week, users received an offer for a free Samsung smartphone on what Del Taco calls “Free Phone Friday.”

Further investment in digital and technology will include testing a loyalty platform and new service modes like curbside pickup.

As for delivery, Del Taco is partnering with all four major third-party delivery providers. Delivery is available in all company-run stores and in more than 90 percent of franchises. The channel mixed roughly 7 percent in Q2.

Del Taco is enhancing its menu through the roll out of guacamole and crispy chicken. Fresh guacamole will be available across the menu as a side or product modification, as well as within new items designed to highlight it. Guacamole was featured as part of the recent launch of the Epic Burrito lineup.

“Early returns from this new ingredient feature extremely high guest satisfaction scores, along with increased Epic Burrito product mix, which underscores our ability to deliver value and convenience even at the premium end of our barbell menu,” Cappasola said.

And next week, Cappasola claimed Del Taco will be the first national Mexican quick-service restaurant to introduce a crispy chicken offering, which will be launched via the $1 Crispy Chicken Taco—the first new addition to the Del’s Dollar Deals Menu that debuted in January—and the $5 Epic Burrito with guacamole.

Same-store sales dropped 10.1 percent in Q2, including a 12.6 percent decline at company-run stores and a 7.2 percent slide at franchises. The chain went from down 23.4 percent in the four weeks ending April 21 to a decrease of 6.9 percent in the four weeks ending May 19 and a 0.3 percent slip in the four weeks ending June 16. Revenue decreased 13.9 percent to $104.6 million.

“We’ve stabilized our business and believe our franchisees are healthy,” said CEO John Cappasola during the company’s Q2 earnings call. “Our brand positioning of fresh flavorful food, great value and convenience is exactly what the consumer is looking for these days, and we can provide these relevant attributes to a limited and no-contact channels without the reliance of our dining rooms."

“Although sales volatility may persist, our underlying trend is undeniably strengthening and absent a major setback from the pandemic, we believe that the worst of it may be behind us in terms of same store sales and restaurant contribution margin performance,” he added.
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publicrelations@deltaco.com

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