In an attempt to build on the success of its 59-cent menu, Taco Bell on Monday unveiled price cuts and a marketing strategy that will group most of the chain's Mexican food items into three price categories under $1.
Del Taco/Naugle's, which competes head to head in Southern California with Taco Bell but has only a fraction of the outlets nationwide, implemented a similar strategy last week at its California stores. But officials from both companies say the changes aren't part of an industry price war. Taco Bell has changed its menu boards so that most of the major food items will be grouped into three categories priced at 59 cents, 79 cents or 99 cents. The Irvine-based chain of 3,100 restaurants also lowered the prices of some items.
Some industry analysts said the low-price strategy should strengthen Taco Bell's position as the industry's low-price leader. At the same time, they said, Taco Bell will still be able to convince customers to "trade up" to higher-priced items.
Taco Bell and Del Taco/Naugle's are adopting the price grouping strategy to simplify their menus for customers and to play up the idea that they offer a wide variety of inexpensive items.
Taco Bell plans a heavy television advertising campaign to promote its menu changes.
"Consumers seem to have an amount in mind they want to spend," John Martin, president of Taco Bell Corp., said. "They are trying to balance their checkbooks."
Two years ago, Taco Bell cut the price of its staple hard-shell taco to 59 cents, down from 79 cents, along with several others items to make up its "value menu."
The lower prices were considered a smashing success. Sales shot up 19% between 1988 and 1989.
For the third quarter ended Sept. 30, the Pepsico Inc. subsidiary reported earnings of $48.3 million, up 19% from a year earlier, on revenue of $433 million, up 16%.
Analysts were impressed with the latest move.
"These people are excellent at marketing," said Lawrence Adelman, an analyst for Dean Witter Reynolds in New York, "It gives them an opportunity to move away, to get the focus off 59 cents. They are leaving the opportunity to trade up, and I think they haven't lost their orientation toward value."
Del Taco/Naugle's, which has 300 California outlets, will be promoting its 49-cent items in a radio advertising campaign this week with the slogan "four major menus at minor prices."