Chips are down but Taco Bell unwraps plan to expand in Asia

Bloomberg

Taco Bell’s five-year effort to sell its Mexican-American food in India has been a slog. For one thing, “quesadilla” roughly translates in Hindi to “how much?” Sales never took off. Initially people in the U.K. and Japan didn’t cotton to the taste, and many locations there were closed.

Now, facing a saturated market for its pizza and chicken overseas, Yum Brands Inc. is nonetheless under renewed pressure to get the world to finally embrace its Mexican food. The chain has been performing well in the U.S. while Yum’s KFC and Pizza Hut stores in China are facing a slowing economy and changing consumer tastes.

Faster Taco Bell expansion overseas may give Yum the boost it needs. In April Taco Bell returned to Japan, opening a single store in Tokyo, which is part of a plan announced in 2014 to open 1,300 Taco Bell locations around the world by the end of 2023. It won’t necessarily be easy, say some market researchers.

“There’s a big familiarity gap with Mexican food abroad,” said Bob Goldin, executive vice president at researcher Technomic. “Sixteen to 18-year-olds in Europe and Asia have different interests than 69-cent tacos.”

Yum spokesman Jonathan Blum said the strategy to grow Taco Bell globally has the potential to turn it into “our third global iconic brand.” Yum will discuss long-term plans at its investor meeting in December, he said. In the U.S., Taco Bell has been on a tear. On Tuesday, Yum said in its third-quarter earnings that same-store sales rose 4 percent for Taco Bell, the best performance of the company’s different divisions. Sales by that measure jumped 6 percent in the prior three quarters, helped by new units and breakfast foods like A.M. Crunchwraps and steak-and-egg burritos.

The results were so good that analysts said Yum should consider spinning off the chain into a public company.

“Investors who want to buy shares in a separate Taco Bell — which obtains nearly all of its profits from the U.S. — should be able to do so without being exposed to China-related risks,” Mark Kalinowski, an analyst at Nomura, said in research note Wednesday.

Taco Bell, which opened in 1962 in Downey, California, is mostly a U.S. brand. Of its 6,300 locations, just 274 restaurants are outside the U.S., including in Guatemala, Spain, Canada and Colombia. By the end of 2014, KFC had around 4,900 units in China and 1,165 in Japan.

Michael Schaefer, head of consumer foodservice at Euromonitor, said he’s optimistic about Taco Bell’s overseas plans. The company is selling the idea of “America” rather than Mexican food, he said, and embracing the concept of California and youth to appeal to younger Asian consumers. One key is to adapt its menus to local taste buds, he said. In India, Taco Bell added spicier products and more vegetarian options, including crunchy potato tacos. Most Indians don’t eat beef for religious reasons, forcing Taco Bell to focus on chicken.

“Taco Bell has much more room than people think to go abroad,” Schaefer said. “There’s lots of room for them in Asia and India so now they need to focus on establishing their brand.”

Technomic’s Goldin isn’t so sure, suggesting the company will need patience.

“When McDonald’s went to Europe, hamburgers were already part of their culture so it was easy to sell,” Goldin said. “For Mexican food, there is a complete lack of familiarity due to a lack of Mexican heritage in those countries.”