Del Taco

Sep 12, 2022 | Insights, Restaurant Research

Del Taco Executive Summary

Del Taco is the 2nd largest Mexican QSR, positioned around a wide variety of better-quality food (use of fresh ingredients represents a competitive distinction) offered for reasonable prices. The menu of this regional chain (62% of system units are located in California) consists of fresh items prepared daily in-house with a wide variety of offerings (+34% more menu items than segment average) including tacos, burritos, quesadillas, rollers, nachos, crunchtadas, loaded fries, taco salads as well as burgers & fries. Its “Fresh as Del” positioning is based upon: freshly made pico de gallo; freshly grilled marinated carne asada; freshly grated cheddar cheese; fresh house-made guac; slow-cooked beans made from scratch; and freshly grilled marinated chicken. Its Queso Blanco is made with real cheese, real milk, jalapeños & heavy cream. Notably, its afternoon snack & late-night dayparts comprise a substantial 44% of sales mix (24-hour service model in most restaurants) along with 24% at lunch, 20% for dinner & 12% at breakfast (work in progress). Value/price represents a key equity as necessitated by the brand’s core lower-income target market and the chain launched its 20 Under $2 value menu during 1Q22 to contrast with competitors who are moving away from value because of increasing food costs. This value platform is profitable because it drives incremental, add-on sales. Long-term sales drivers include: value leadership; menu innovation; brand engagement; and digital transformation. Also, the brand hopes to jump start breakfast sales with innovation that appeals as morning routines continue to normalize. Sales bumps from the new remodel program should further help drive going forward comps. Having said all this, it is notable that Del Taco is the smallest chain in the $1B+ QSR sandwich segment with just $925MM in systemwide sales (which we round-up) and system comps have underperformed the $1B+ QSR sandwich segment since 2018. Further, current economic weakness and massive inflationary pressures are disproportionately severe on the brand’s core lower-income demo. In conclusion, while Del Taco enjoys strong concept fundamentals, the chain is tested by a harsh California business environment aggravated by the brand’s orientation towards a vulnerable, less affluent demo.

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