3 Reasons to Not Buy a Taco Bell Franchise

Taco Bell was started by Glen Bell way back in the 1940's. Bell had just left the marine corps in his early 20's and despite knowing nothing about the business started up a Hot Dog stand called Bell's Drive-In. He did well with his stand, sold it in 1952 and built a little burger stand calls Bell's burgers. he built it himself and made extra money when people saw him working and hired him for construction jobs.Show more

At the time McDonald's was just starting their drive through concept and Bell felt the competition rising so he switched to Taco's. It took a while to bang out the kinks but eventually Bell discovered a frying technique that allowed fast food production of the Taco. The very first Taco customer Bell served he watched personally and stood there mortified as the taco juice ran down his sleeve and dripped on the customers tie. He figured it was all over but the customer returned and bought another. By 1967 after borrowing some money from L.A Rams players to expand Taco Bell had their 100th store. In 1970 Taco Bell went public with 325 stores and In 1978 Bell sold Taco bell to PepsiCo for $130 million. Pepsi eventually combined it's fast food chains KFC, Pizza Hut and Taco Bell......... into Yum! Brands and today Taco Bell has over close to 7000 stores.

Some of you might remember the 90's commercial tagline for Taco Bell was "take a run to the border" Ironically Taco Bell has tried on two occasions to open restaurants in Mexico, the birthplace of the taco, and both closed within two years of opening. When Taco bell stopped using their Chihuahua mascot in 2000 sales dropped by 6% the largest in Taco Bell's history. That campaign was pulled due to the potential to offend some Latin American communities.

Taco Bell is trying hard to entice millennials who are known to have more discerning palates than their older counterparts, going so far as studying Millennial linguistics and catch phrases to try and connect........ Taco bell arguably does a better job at social media and connecting with this demographic and sales have been accordingly strong. Taco Bell's new Cantina locations are also testing serving up wine to customers. the Berry Frosé Twisted Freeze is a 16 oz frosé. That came as almost as large a shock as when taco bell started serving fries.

So Taco Bell overall seems to be doing better strategically from a market perspective. But is it a good investment. let's take a look.

The cost to open a Traditional Taco Bell location will range between $1.179.100 to $2.622,400. Amazingly no litigation is disclosed in their 2018 FDD which is truly rare for a company of this size. Taco bell lists no lawsuits against franchisees. Royalties are 5.5% of Gross and marketing is 4.25%.

Overall we like Taco Bell over some of the other options however there are some things buyers will need to consider. 1st is territory. You will not receive an exclusive territory as stated in their disclosure documents. We do know Taco bell has very aggressive future expansion plans. We all saw what happened to Subway, they were arguably the most successful franchise expansion in history, they are now closing stores. Their revenues per individual store also dropped precipitously year over year as competition from nearby stores became fierce. Most investors equate rapid expansion with success, remember it's often the opposite for franchisees. More stores often mean less profit for you the store owner.

Next is value pricing. Taco Bell seems to be trying to transition away from the value pricing into more of a quality concept with their Cantina models, but traditional Taco bells are stuck fighting for the bottom pricing with dollar burgers, $5 foot longs and all the rest. margins are extremely low and loyalty of buyers in this market is non existent. Buyers will need to ask if they would prefer to sell on value and quality or on price.

Next is profits. Taco bell average sales per unit are higher than Burger King, but lower than Mcdonald's given the total investment and relatively low margins Taco Bell is certainly not at the top for money going in the owners pocket. ......One of the emerging Taco brands we represent is 1/3 of the cost with unit volumes close to that of Taco bell. Call us for details.

Is Taco Bell a good investment? We do like them more than some other brands but a lot depends on location, demographic, owners skill and what will happen in the future. If you need help researching a franchise purchase or seeing what else is available call the experts at Franchise City. Like and subscribe for more and we love to hear your opinions on where Taco Bell might be going in the future. Thanks for watching.

https://www.tacobell.com
https://en.wikipedia.org/wiki/Taco_Bell