Case Study #4–Taco Bell

In 1983, the Taco Bell subsidiary of PepsiCo had fewer than 1,500 restaurants and $500 million in total

sales. The company had stalled, with little or no growth over the previous five years.

To reengineer, Taco Bell did these things:

The customers were asked what they wanted. The company assumed they wanted bigger and better

restaurants. The customers said all they wanted was “good food, served fast and hot, in a clean

environment, at a price they could afford.”

A decision was made to reduce the costs of everything about the business except the cost of the food

and its packaging.

A vision of the company as a leader in the restaurant business and not just the Mexican food business

was articulated.

The management process was completely and dramatically reengineered–three layers were

eliminated, including the entire “district manager” supervisory level. Every job in the system was

redefined. Restaurant managers were given greater latitude to run their own businesses, and ultimately

became “Restaurant General Managers.

Taco Bell reengineered the way its buildings were designed. Before 1983, the typical Taco Bell was 70

percent kitchen and 30 percent customer area. Since 1983, that ratio has reversed–new Taco Bells are

30 percent kitchen and 70 percent customer area.

Taco Bell reengineered its marketing to become value-driven.

Taco Bell developed ways to pre-cook the food centrally so that restaurants could concentrate on

retailing rather than manufacturing.

Taco Bell introduced new management information systems using the latest technology to keep track

of sales minute by minute.

The company introduced a new performance measurement called “the total share of stomach.” Instead

of measuring success as market share of the fast-food market, Taco Bell set the goal of becomeing the

value leader for all foods for all meal occasiond. That created a broader vision and stimulated the

development of new innovations.

As a result of these reengineering programs:

Taco Bell has grown from 1,500 restaurants in 1983 to 3,600 in 1993.

Turnover has increased from $500 million in 1983 to $3 billion 10 years later–an increase of 22 percent

per year.

Profit has grown at a rate of 31 percent per year over the same period

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Glen Bell was 23 when he left the Marine Corps. in 1946. World War II was over, and the economy was switching to peacetime pursuits. In five years, business would be booming and fast food along with it.

Glen came home to the sleepy agricultural town of San Bernardino, certain that families would be in the market for the recreational activities that disappeared during the war. He first thought of a miniature golf course, but after facing his financial situation, he went to work on something more the size of his pocketbook, a hot dog stand. Bell's Drive-In was the name of that first stand, and Glen learned the business as he went. His next unit would only be large enough for one person to operate and strictly takeout.

In 1952, he sold the first stand, and began to build a perfected version. The menu would be hamburgers and hot dogs. As he began building his second, the McDonald brothers started their first unit, in a strange stroke of coincidence, also in San Bernardino. Glen became increasingly interested in the idea of alternative menu items. He was an avid Mexican food take-out customer, and as such, was well aware of

the hang-ups in ordering tacos to go from a full-service restaurant. "If you wanted a dozen," he recalls, "you were in for a wait. They stuffed them first, quickly fried them and stuck them together with a toothpick. I thought they were delicious, but something had to be done about the method of preparation."

"My plan for experimenting with tacos," he says, "was to obtain a location in a Mexican neighborhood. That way, if tacos were successful, potential competitors would write it off to the location and assume that the idea wouldn't sell anywhere else."

So Glen searched out a good location in the right part of town on a busy main street. He began by selling various hot dogs, including a chili dog. He formulated the chili dog's sauce himself and it would later become our taco sauce. At the same time, he researched tacos. The shells had to be prepared quickly and efficiently. They had to be fried first and stuffed later. He had seen a crude version of a deep-fry basket for tortillas made from stainless steel.

"It was very experimental, but I went ahead and had someone make one for me. We hadn't thought about using wire yet, so we came up with a heavy stainless version which stayed very hot and fried one at a time." The idea for the first commercially fried shells would be picked up by the manufacturers of packaged shells now widely available in markets."

Glen experimented until he was satisfied with the taco ingredients and proportions. The next issue was how to introduce them. "There wasn't room for new items, or to diversify the menus in the little stands we built then, so I decided to sell 19-cent tacos from a little window off to the side," he says. "I'll never forget the first taco customer because naturally, I was really concerned about his reaction. He was dressed in a suit, and as he bit into the taco the juice ran down his sleeve and dripped on his tie. I thought, 'We've lost this one,' but he came back, amazingly enough, and said, 'That was good, I'll take another one!'"

Bank financing for the fledgling fast food industry was still out of the question. So with tacos selling well, and Glen ready to open a second stand in Barstow, it was no coincidence that he added shakes to the menu. A local ice cream manufacturer offered financing in exchange for carrying their product.

Barstow was a ways away and Glen was busy in San Bernardino. So he promised young Ed Hackbarth that he would eventually lease the stand to him if he would move out to Barstow and run it. Ed took over the stand, and later was to build his own as the founder of Del Taco.

With tacos selling so well, it was time to put in a stand completely dedicated to them. Financing was still a roadblock, so Glen took a partner in order to be sure he was in a position to follow through with more stands when the idea took off. Between 1954 and 1955, he built three Taco Tia stands in San Bernardino, Redlands and Riverside.

John Gallardi was commissary manager for the El Tacos. Later Glen talked him into starting out on his own. Martha Bell, Glen's wife, provided a name for the new enterprise, "Der Weinerschnitzel," and helped John develop the menu. "There was rivalry in a way between John and I after the Weinerschnitzels took off," recalls Glen, "but it was the most positive kind. Every time I thought about slowing down and enjoying what I had, I'd look at his place, and the other competition, and I just couldn't let them overtake me."

So when Glen's partner was not in favor of expanding Taco Tia into Los Angeles, Glen sold him his interest in the restaurants. "It was 1956, I was 28 and we had three restaurants that were making $50,000 a year each. But I was willing to give them up to grow. It bothered me that we would slow down and others would move in. I had a great idea and I wanted to be the one to take advantage of it."

Glen bought two lots, but a recession had hit and Glen feared that construction costs would stretch his finances dangerously thin. At that time he recalls, "The L.A. Rams trained in Redlands where we had a Taco Tia. They liked the food. They'd order a dozen tacos and stand out at the counter and eat them. We really became kind of a hangout for them, and as it turned out, my very first franchise was the Taco Tia two of them bought in Los Angeles. They were football heroes, and their enthusiasm was exciting."

"So, when I was on my own again and strapped, I didn't really want more partners, although I liked the guys, but the recession worried me. So, I formed a partnership with four of them." The restaurants called El Tacos turned out to be gold mines.

"We put in a commissary geared to run 100 units, and in 1958, in spite of a lot of newly acquired overhead, we did well. Our first Long Beach location had been open only nine months, the second six, and the last only a month or two. Each partner was drawing a salary and we had new commissary and office staff. There shouldn't have been any profit, but in that nine-month period, we came out with

$3,000. At the first meeting of partners I was really high," recalls Glen. "But it's tough to share a dream. We were off to a great start, but I've always been independent and was ready to launch out on my own."

"I sold the El Tacos to my partners and built the first Taco Bell in Downey in 1962. Bank backing wouldn't become possible until we went public in 1966, so I often borrowed money on a private basis. We opened eight small Taco Bell units in the Long Beach, Paramount, and L.A. areas. They were very basic, but they're still operating today. Competitors cropped up from time to time. Winchell's became associated with Taco Fiesta at one point, and they built four or five restaurants."

Kermit Becky, a former L.A. policeman, bought the first Taco Bell franchise in 1964. His luck was to inspire many future sales. The restaurant, located in what appeared to be an inconspicuous industrial location at the intersection of Carson and Western in the South Bay area, did tremendous volumes from the beginning. Prospective owners clamored for restaurants when they learned from Becky himself that it was not uncommon for him to clear $10,000 in one month.

It was clearly a new era for Glen Bell. No longer was it a case of providing the energy, determination and belief in an idea until it took off. Now, it was a matter of running a large company. "Once we got up to 100 restaurants, it changed for me. I hated the day when we had to start numbering the units. The business issues became financial, we had really won the war as far as I was concerned. The stock market began to smile on fast food, and we were on the road to success."

"I had started Taco Bell in 1962 with 40 shares, each worth $100. It was entirely held by the family. In 1969, in order to go public, we had to split that stock 30,000 to 1. It just shows that we had no idea how big things would get."

In 1975, Glen tendered his resignation as Chairman of the Board. Three years later, he sold Taco Bell's 868 units, to PepsiCo, Inc. The deal was some six months in the making and ended with Glen Bell as a major PepsiCo shareholder and millions richer.

In 1977 the first international unit opens in Guam, and in 1984 Taco Bell replaces its original mission-style restaurants. Drive-thru windows are also installed.

in 1988 Taco Bell launched the value initiative, lowering the price of new items and introduced Free Drink Refills. It also began the three-tier pricing strategy which remained the core of the value offering through 1994.

In 1991 Taco Bell establishes the Express business to achieve its vision of providing Taco Bell food "wherever and whenever people are hungry." Taco Bell's compact carts, kiosks and in-line units begin appearing in airports, gas stations, retail stores, cinemas, stadiums, schools, etc.

In 1992 Taco Bell responds to the needs of the ravaged, riot-torn Los Angeles by building and re-opening one unit in only 14 hours. "Now that's fast!"

In 1995 PepsiCo Restaurant International (PRI) is the global management unit for the Taco Bell, KFC, and Pizza Hut international business.

In October of 1997 Tricon Global Restaurants is founded. Also that year, Taco Bell introduced its new multi-spot advertising campaign featuring the popular talking Chihuahua, and TacoBell.com was born.

In 1998 Taco Bell, widely recognized for introducing the exciting tastes of Tacos, Burritos, Fajitas, and Wraps, introduces yet another distinctly different product into mainstream America, The Gordita.

In April of 1999 Taco Bell received The Grande EFFIE, one of the most prestigious awards in the advertising industry. Later that year, Chalupas and Grande Meals are added to Taco Bell's zesty menu.

In May of 2000, Taco Bell celebrates its three-year association with America's Promise — The Alliance for Youth, which has resulted in a nearly $6 million donation to the Boys & Girls Clubs of America (B&GCA), and the opening of 51 new TEENSupreme Centers at Boys & Girls Clubs nationwide. Later that year DIGIMON joins forces for an exclusive Kids Meal Deal, and Taco Bell introduces the Cheesy Gordita Crunch.

Taco Bell runs a full-page advertisement in the New York Times announcing the purchase of the Liberty Bell to "reduce the country's debt" and renaming it "the Taco Bell Liberty Bell." April Fool's!

In March 2001, Taco Bell makes an out-of-this world offer: Everyone in the U.S. will receive a free taco if the Mir space station hits a floating Taco Target placed in the South Pacific ocean.

Taco Bell introduces its freshly prepared Border Bowls in June 2002.

In May of 2002, Tricon Global Restaurants Inc. changes its name to Yum! Brands, Inc., after acquiring Long John Silver's and A&W All-American Food Restaurants.

In October 2002, Taco Bell offers free tacos to everyone in U.S. if a World Series home run ball hits a Taco Target in the San Francisco Bay.

In 2003, Taco Bell's "Taco Poll" correctly predicts Arnold Schwarzenegger as the winner of California Gubernatorial recall election.

In September 2004, Taco Bell invites consumers to "Share Your Sauce Wisdom," printing clever phrases on hot sauce packets.

Taco Bell and Yum! Brands partner with the Coalition of Immokalee Workers (CIW) in March 2005 to improve the working conditions and wages of Florida tomato pickers.

Taco Bell Thinks "Outside The Bun" and Inside the Batter's Box, becoming the "Official Quick Service Restaurant" of Major League Baseball in June 2004.

Taco Bell introduces Mountain Dew Baja Blast in August 2004, a tropical lime-flavored soft drink available exclusively at Taco Bell restaurants nationwide.

In 2005, Taco Bell launches the highly portable Crunchwrap Supreme®, bringing classic tastes made modern to millions of Dashboard Diners. The limited time offer becomes the company's most successful product introduction, and becomes a permanent menu addition in January 2006.

Time keeps ticking with Taco Bell! Please visit our Press Releases section of this site if you would like to learn more and get the very latest news regarding our company.

Taco Bell: Reengineering

John Martin took over a failing Taco Bell in 1983 -- a company that was "going backwards

fast," entrenched in a command and control hierarchy that supposed to understand what

customers wanted, but did not ask directly. The company undertook major, and ongoing

reengineering efforts, focusing on what customers really wanted -- greatly simplifying their

processes. This was achieved by automating, changing the organizational structure and

management system, reducing kitchen space, and increasing customer space. These

changes have had a huge impact on the company -- Taco Bell went from a failing regional

Mexican -American fast food chain with $500 million in sales in 1982, to a $3 billion national

company 10 years later, with a goal to expand further to $20 million. While the environment

was not a factor in Taco Bell's reengineering, it has benefited through the reengineering

process. For example the TACO program (Total Automation of Company Operations)

provides sophisticated MIS technology for all employees, saving thousands of hours of

paperwork -- and thus paper -- as well as promoting self-sufficiency and reducing time spent

on administration. The K-Minus program, or kitchenless- restaurant, established a system

where the large majority of food preparation occurs at central commissaries rather than in

the restaurant, pushing 15 hours of work a day out of the restaurant, improving quality

control and employee morale, reducing employee accidents and injuries, and resulting in

substantial savings on utilities. The K-Minus program saves Taco Bell about $7 million a

year.

Source: Michael Hammer and James Champy, Reengineering the Corporation, 1993