Franchise News

Del Taco to debut revamped menu

Del Taco will introduce a revamped menu Wednesday with new, bolder-flavored items and more variety at value prices.

The effort is the second phase of an ongoing rebranding at the Lake Forest, Calif.-based quick-service chain. The brand relaunch began in late 2011 with a remodeling program to refresh existing locations in the 550-unit chain, many of which hadn't been touched in two decades.

The first priority was upgrading facilities and beefing up operations to improve the customer experience, said Del Taco chief executive Paul Murphy. Now, with about half of Del Taco's units sporting the contemporary design, the chain is ready to start touting its scratch-made food and ingredient quality, which may have previously been unrecognized, Murphy said.

"It's hard to believe when they say something's fresh when you drive up to an old, tired-looking building," he said. "But what has amazed me is the freshness and quality of ingredients that goes into the dishes we make, especially for the QSR space."

Beans are slow-cooked from scratch, marinated chicken is grilled fresh and cheese is freshly grated from 40-pound blocks of Cheddar. "We think that's something we need to be a lot more overt about calling out to the guests," Murphy said. "Not only are you getting great price value, but also wonderful quality at a great value."

The Del Taco menu includes burgers, fries and milkshakes alongside Mexican dishes like burritos and tacos, and the revamped menu will include two new platforms: a Buck & Under menu and a New Tastes lineup.

The Buck & Under menu will offer value options at a range of price points. New offerings include 11 items starting as low as 50 cents for a Mini Cheese Quesadilla or a Value Bean-and-Cheese Burrito. Seventy-five cent items include a Bacon Quesadilla and a Crunchy Chipotle Beef Taco. Topping the Buck & Under price range are $1 items like a Half-Pound Bean-and-Cheese Burrito, a Double Beef Classic Taco and Real Strawberry Lemonade.

Del Taco executive vice president and chief brand officer John Cappasola said the chain has long offered items for 50 cents and more, but the new menu offers more variety. "We've added more to it and taken the stance that if you look at our competition, they're playing at $1," he said. "But we know we can deliver at a buck and under with some really great variety. It's right in the wheelhouse of what our core user is looking for right now."

The second new menu platform is dubbed the New Tastes section and features three new products ranging from $1.29 to $1.59. The Bacon Ranch Grilled Chicken Taco includes grilled chicken, ranch sauce and bacon. A Chili Cheese Fry Burrito is stuffed with chili, French fries and cheese sauce. And a Fiery Six-Layer Burrito includes tortillas layered with nacho cheese, taco meat, Cheddar, sour cream and jalapenos.

New Tastes items will rotate, and those that win favor among consumers may be added to the core menu.

"Our mentality is that it's all about the customer," Cappasola said. "If the customers are enjoying and loving these items, they'll stay. We're not going to tease them out and pull them back.

"One of the great things about being a smaller chain is that we can be fast and nimble," he added. "We can listen to customers."

A new marketing campaign with the tagline UnFreshingBelievable, which underscores the "fresh-for-less" positioning, will promote the new menu offers.

"The genesis of the campaign comes from customers who found it virtually "unbelievable" upon hearing about Del Taco's fresh ingredients at such low prices. They also found it very motivating and said it was a story worth telling," Cappasola said.

Del Taco is among a number of quick-service chains that have been reworking their value menus in recent months. Some, like McDonald's, have experienced resistance from franchisees frustrated by shrinking margins on deeply discounted products.

Murphy said Del Taco is in alignment with franchisees. The company owns 298 units, while 253 are franchised. "Having a large number of company stores, we are concerned about margins just as much as franchisees," he said.

Cappasola said the menus have shown strong results without margin erosion in test markets. "It took us a while to get to the right formula, but it's holding up in test," he said. "With the right level of data and results, franchisees get excited."

Murphy said systemwide sales at Del Taco were trending positive in the first quarter, indicating that remodeling was having an impact, though he declined to give specifics. The company recorded systemwide sales of $608 million in 2012.

One of Del Taco's primary competitors, Taco Bell, has drawn attention with its Doritos Locos Tacos and fast-casual-inspired Cantina Bell menu over the past year.

Murphy said Del Taco remains focused "on what we do and what our brand brings to the marketplace."

Earlier this month, the chain's parent Del Taco Holdings Inc. completed a $215 million debt refinance transaction featuring new senior credit facilities that include a $175 million term loan and a $40 million revolving line of credit.

The deal significantly lowered interest rates and improved the capital structure, allowing for greater investment in the brand and growth into new markets, Murphy said.

Del Taco Holdings, formerly known as Sagittarius Brands Inc., sold its subsidiary Captain D's to Sun Capital Partners Inc. as part of a recapitalization in 2010. At the time, Del Taco also refinanced debt and received an unspecified cash equity infusion from Goldman Sachs Mezzanine Partners, along with existing investors Charlesbank Capital Partners LLC and Leonard Green & Partners LP.
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