Tex Mex Fast Food Marketing Essay

Taco Bell is a subsidiary of Yum. Brands Incorporation, one of the most important fast food restaurant companies. The history of the brand begun in 1962, when the American businessman, Glen Bell founded Taco Bell Corp. in California. Previously he gained experience in this industry, serving the needs of car drivers, as competitor for McDonalds. In only two years, opened 8 more Taco Bells, and in 1965 the first franchise was launched in Torrance (California).

After an amazing period of strong expansion, in 1978 he sold the chain of 868 restaurants to Pepsi. In 1997 as a result of a spin-off from Pepsi, the 3 famous brands (Taco Bell, KFC and Pizza Hut) founded Tricon Global Restaurants, Inc. In 2002 Tricon acquired 2 other brands, Long John Silver’s and A&W All American Food, and the same year changed its name to Yum!. [1] 

As we can see on Chart 1, the portfolio was dominated by Pizza Hut, KFC and Taco Bell, so in order to be able to concentrate on the 3 well performing brands, as part of its new strategy, YUM! decided to sell Long John Silver and A&W.

Figure 1: YUM! Restaurants by Brands (2011) [2] :

The current strategy of YUM is based in the following points [3] :

As we can observe in the following chart, Pizza Hut and KFC are brands well-introduced internationally, but the percentage of Taco Bell restaurants operating abroad are far below it.

Figure 2: Number of stores each brand has in the US and internationally (2011) [4] :

So one of the most important actions to be taken in order to achieve the company’s international expansion strategy is to focus on Taco Bell introduction in a foreign market. Our report is aimed to take the first step towards it.

Product Description

Taco Bell offers a wide range of unconventional fast food in Mexican style, adopting the menus to local tastes. The most basic product Taco Bell is offering are nachos, beef and chicken or baked potato wrapped in a tortilla. The long listed menu includes tacos, burritos, nacho, salads, side dishes, and pintos. Just recently, on June 2012, Taco Bell has introduced their new “Cantina Menu” by up scaling items in their Kentucky and California restaurants and it was created by celebrity chef Lorena Garcia. The menu featured black beans, cilantro rice, citrus, and herb marinated chicken and cilantro dressing. Apart from the new Cantina Bell Menu, Taco Bell has service on Drive-Thru Diet, Why Pay More Menu, Frutista Freeze, Limeade Sparklers, and Kid’s Meals. Taco Bell also offer meatless options, but aren’t certified as vegetarian.

Key competitors

Who is Taco Bell competitors, and how they are competing with me! At first, Taco Bell is one of the first fast food restaurants who introduced people who live in the United States to the Mexican food by offering the fast food service, and added more colour to be somewhere outside the fast-food line, lunching several new items that it designed to compete with higher-end restaurants.

In Charlotte NC, Taco Bell is testing double-stack quesadilla with including more premium ingredients through upscale Cantina Bell Menu as the “Chipotle Killer” referring to the casual Mexican fast food which Taco Bell is competing for their customers.

There are some competitors who came after Taco Bell restaurant who tried to serve Mexican food with wider variety to compete, since Taco Bell was the first and only Mexican food line in the United States at the time. One of the first competitors is Chipotle Mexican Grill, after they decided to enter the market with the same kind of food as Taco Bell in addition to that; they realize some of the threats in the SWOT analysis which is most new researches that raised awareness among the public, and educated consumers about the harmful health impacts of the fast food consumption on the fast food menu such as trans-fats, sugars, oil, and salts. In addition, Taco Bell ingredients are centrally sourced arriving via what Vickers characterizes as corporate food truck. Therefore, Chipotle as a competitor tried to take an advantage of that and come up to the same assembly line with Taco Bell with more quality fresh. They also, locally sourced and prepared by in- house ‘chefs’ as opposed to Taco Bell workers. However, they don’t have the big brand behind them where Taco Bell has.

Another competitor to Taco Bell is Moe’s South West Grill, as a Mexican fast food-the choice of meat, beans, and topping is good with wide variety, they were smart to come up with a new idea where you can make your own choice of plate by adding the ingredient that can fit your personal taste. However, they have low brand awareness and limited locations with low market shares.

Taco Bell have chosen to stand out on this competitive fast food American/Mexican restaurants line through the Cantina for the Taco Bell brand, which turns 50 this year; the brand is still inviting Americans to enter its “Live Mas to Win Mas” Facebook as a social promotion. So concerned is hedge-fund investor David Einhorn about Taco Bell’s long-term threat to Chipotle that he recently announced he has shorted Chipotle’s stock, raising eyebrows, swaying some investors and sparking a debate. Chipotle is hardly standing still. As Halloween approaches, the brand is holding its popular annual “Boorito” fundraiser again, in which Chipotle customers on October 31 in a costume will be treated to a $2 menu item – with Chipotle donating up to $1 million to its Cultivate pro-sustainability foundation as this graph below will explain it clearly.

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For example, in a new survey of food preferences, despite the debut of its Cantina menu, Taco Bell placed dead last in every category except “value,” according to Market Force.

Taco Bell will always want to be known as the “value” leader, and place higher quality/taste through the Cantina menu.

As a global fast food restaurant, Taco Bell knows who its competitors are, it knows how many fast food restaurants are in the United States, and how many of those competitors serve tacos on the fast food line. The Yum brand is the world number 1 fast food company which sponsored the Taco Bell line of product. Even though, those Mexican restaurants are similar. But have serious differences such as; Chipotle’s music is funkier on the other hand; Moe’s is more welcoming by the servers as you walk in the door. Most of all varies numbers of loyal customers to each of those fast restaurants especially that our economy going through financial crisis that effected consumers spending and how much money they spent on cloths, food, etc.

Chipotle, Moe’s Mexican fast food restaurants competitors has striven hard enough to seek consumer satisfactions and freshness themselves to the public to attain to the length where the Taco bell reach out on the fast food industry.

Based on the competitor

International development

Although Taco Bell expanded in an impressive scale since its foundation, during the first period of its history started business only in the USA and Canada. In the second phase appeared in Puerto Rico (1985) and Hawaii (in both countries Taco Bell is present also now) and also tried to establish itself in Europe (1983-UK, and 1993-Poland) but in both countries Taco Bell closed the restaurants in a short period of time.

The third stage of internationalization became in the last decade, and it was very important because the brand appeared not only in Asia (2003-China, 2004-Philippines, 2010-India and South Korea) but also returned, this time successfully – to Europe (2006-Iceland, 2008 – Spain, 2009 – Cyprus, 2010 – new entry in UK, Greece). The brand is also present in the Middle East (Saudi Arabia and United Arab Emirates) and in South America (Chile, Columbia, Ecuador and Panama). Although in foreign countries the product of Taco Bell is considered as traditional Mexican food, in Mexico the company is not present. Taco Bell had 2 attempts to establish itself in the country, but without success.

Key internationalization decision criteria

Based on the above explained we have identified the following key internationalization decision criteria:

80′ and 90′: Taco Bell entered nearby countries and in Europe, in years 2000 targeted countries were in Asia, Europe, Middle East and South America.

to be present in countries with the more habitants in every continent,

also targets small countries where GDP/capita is higher than region average

easier market because of similar language (e.g. UK) or culture (Spain and South-America)

It is important to consider that as the 80 % of Yum! restaurants operate as franchise [5] in most cases the key decision criteria is if there is a possible franchise operators in a specific country. According to Yum! franchise webpage, there are several criteria about optimal site for its restaurants but they define the location (building area, parking, seating, lot size, traffic) or situation (traffic, preferred sites/site qualities) and there are only one criteria according to the city where the restaurant is to be (population: 20.000 Immediate TA). [6] 

Based on the company presentation and competitor analysis above detailed, we summarize in Table 1 the strengths and weaknesses of Taco Bell, and the opportunities to explore, threatens to avoid.

STRENGTHS

pioneer in introducing people who live in the United States to the Mexican food

strong US background

good worldwide presence

co-brand names (KFC and Pizza Hut) are famous and well-known in most countries

competitive prices

wide range of products offered

adopts menus to local tastes

WEAKNESSES

brand Taco Bell is not well-known internationally

doesn’t offer a wide variety of deserts

doesn’t concentrates on emphasizing healthy ingredients

OPPORTUNITIES

as a result of globalization and cultural standardization customers accept and are more likely to try exotic tastes

Because of lack of time people tends to eat something fast but quality.

THREATHENS

Economic downturn can effect on the dropping of purchasing power. The low standard of living make people can’t afford eating out

healthy cuisine is increasingly important for customers, and fast foods are considered unhealthy

New competitors as the new entry in the market can become a threat as people likes to find something similar but in different price.

Table 1: SWOT analysis

Market Opportunity Analysis

Key market success factors for Taco Bell to succeed in a new market:

no restrictions for franchising or foreign direct investments

market size:

large and concentrated number of people who knows and are familiar with Tex-Mex food or if not, they like and accept new tastes and other cultures foods

large and concentrated number of people who accepts and are familiar with fast food restaurants

purchasing capacity, stable or increasing GDP

presence of other fast food restaurants, but not high number of competitors that offer the same line of product (Tex-Mex or Mexican food)

country that is part of a larger region where Taco Bell is not present yet

adequate target customer and market knowledge.

As most of fast food restaurants are operated by franchisees, one of the most important factors while choosing a new market is if there are any restrictions about franchising. Although the first restaurant in a new country naturally could be operated by the company YUM! but if there are several restrictions for franchising, the expansion opportunities in that country are quite limited.

Second important factor is cultural openness, e.g. potential consumers must be familiar and like the food offered by Taco Bell (or other culture’s food) because if they don’t accept different tastes, incomes will be seriously lower as expected. Also important if people in the target country like fast food restaurants, or have a slower life style, and prefer eating at home or in classical restaurants.

Third important factor is if people can or not afford eating out. In countries where a large number of people became unemployed because of the crisis, or GDP growth is negative, one of the first things that people consider as money wasting is eating out.

Although it is not a success key factor, but we consider also important while choosing the target country, to study geographical presence of Taco Bell in the world and choose a country which could be a base for a further expansion via countries where Taco Bell is not present yet.

Last but not least, it is very important while choosing the target country is having deep knowledge about the future customer and market, as unsuccessful international expansion decisions are generally based on strategies without knowing what target consumers will think about our company, product, price and promotion.

Potential target countries

Based on the previously identified key success factors, we have chosen as possible target countries Latvia, Malaysia and Hungary. The research of ease of doing business says that Latvia is in 25th place, Malaysia in 12th and Hungary in 54th place of 185 countries in total.

As can be seen in the comparison table (Table 2 in appendices), in none of these countries exist restrictions for franchising or food industry. In Malaysia there is an additional factor to consider, as restaurants have to ensure that the food and the supply are certificated Halal to suit the majority of Malaysian preference. So if the decision would be Malaysia, the product should be slightly amended and the suppliers should also be Halal which is going to be hard because of the ingredients of the product are basically Mexican-style. If we choose to be not Halal, the market is still there and we can still make a new entry, but we are going to lose the customers because of the muslim’s majority value.

In all countries people like fast food restaurants and accepts other culture’s foods (but as indicated, in Malaysia it is necessary certify Halal ingredients and supply).

In all of the three countries we can find people who can afford eating out in large cities, concentrating people with higher level of income, and a large number of tourists, who can afford fast food restaurants, and they (especially tourists from the USA) are familiar with the brand and Tex-Mex food.

Regarding competition, in all countries exist fast food restaurants, but the number of those that offers food similar to Taco Bell products, is relatively low. In Malaysia there are no locals offering Tex-Mex or Mexican foods, but there are other fast food restaurants that may be competitors for example KFC and McDonalds. In Hungary fast food restaurants are popular, and there are some presence of Tex-Mex and Mexican foods, and other nations (Chinese, Turkish, Indian, etc.) fast food cuisine. In Latvia, similar to Hungary, there are different fast food chains, and restaurants offering Tex-Mex.

As we can see in Taco Bell Worldwide Presence Map (Figure 3 in appendices), Taco Bell is represented in North and South America, in South Asia, in the Middle East, and in West and South Europe. Regions what are not covered are Africa, Central, East and North Europe, Russia and ex-soviet countries, Australia and Oceania. Our three selected possible target countries should be departure points for a further international expansion: from Hungary all east and central European countries can be reached easily, from Malaysia we could reach Australia and Oceania, and Latvia would be an excellent choice because it is an ex-soviet country, but culturally and logistically good connected to North European countries.

The last point to consider while choosing a country is to have deeps knowledge and understanding of local culture, tastes, and customer preferences. Although this point is vital for foreign expansion, sometimes happen that the internationalization strategy focuses on hard (e.g. GDP growth, market size, number of competitors) factors and doesn’t focus on soft (e.g cultural) factors.

Based on Hofstede’s comparison between countries authors made a comparison between United States and other 3 targeted countries. Unfortunately they do not have data about Latvia, that is why authors took Estonia and Sweden.

PDI – Power Distance

IDV – Individualism versus Collectivism

MAS – Masculinity versus Femininity

UAI – Uncertainty Avoidance

LTO – Long Term Orientation

Power distance – this is evidenced by the focus on equal rights in all aspects of American society and government. Hungarian and Swedish style: Being independent, hierarchy for convenience only, equal rights, superiors accessible, coaching leader, management facilitates and empowers. Malaysian people accept a hierarchical order in which everybody has a place and which needs no further justification. Estonians do not readily obey and respect people in authoritarian positions based merely on their rank and status as power-holders.

Individualism versus Collectivism – The United States, Hungary, Estonia, Sweden is an individualistic culture, people look after themselves and their immediate families, there is a solid conviction about the personal responsibility and everybody’s own achievement and contribution in order to be self-fulfilled. Malaysia is a collectivistic society, this is manifest in a close long-term commitment to the group.

Masculinity versus Femininity – the United States, Hungary and Malaysia is considered a “masculine” society – highly success oriented. Estonia and Sweden is a feminine country, it means that society is driven by a certain amount of modesty and fairness.

Uncertainty Avoidance – American society is “uncertainty accepting”, there is a larger degree of acceptance for new ideas, innovative products and a willingness to try something new or different. Hungary, Sweden and Malaysia has a preference for avoiding uncertainty. Estonia has a high preference for avoiding uncertainty, Estonians are more prone to rely on rules, detailed and clear guidelines and work descriptions.

Long Term Orientation – the United States is a short-term oriented culture, it is a culture focused on traditions and fulfilling social obligations. Hungary is a long term orientation culture. Sweden is a short term orientation culture. No score available for Malaysia and Estonia.

United States culture is closer to Europeans culture than Malaysian.

Basic characteristics of target country

Based on the key success factors talked above, and the comparative analysis made, the target country will be Latvia.

Latvia is located in Northern Europe, on the Baltic Sea. Latvia’s area is 64.589 km2 from which 1.57% (1.014 km2) consists of water. Latvia’s border is 1836 km long (1382 km land and 454 km is water). Land borders are with Estonia, Russia, Belarusia and Lithuania, water borders with Sweden, Lithuania and Estonia. The official language is Latvian, and currency is Lats ($1.85 USD). In year 2014 Latvia wants to establish Euro.

In the beginning of 2012, Latvia has 2 041 763 inhabitants and density is 32/km2, capital city is Riga with 650 478 inhabitants, and density is 2 140/km2. [7] Density in Latvia is one of the smallest in Europe In the beginning of 2012 in cities lived 68% of inhabitants and in countryside just 32%.

In Latvia is 76 towns, and in 2 the inhabitants is more than 100 000, and in 19 town lives at least 10 000 inhabitants.

Climate in Latvia is temperate, it is influenced of the Baltic Sea and Atlantic Ocean. There is explicit change of 4 seasons (-35oC – +30oC). Sky often is cloudy.

Natural resources – 29 660 km2 (45%) of all Latvia’s land is forest, and 1.014 km2 (1.57%) is water. In Latvia are 12 00 rivers and 2256 lakes. [8] 

Latvia has one of the fastest internet upload and download speed in the world.

World Economic Forum in their report on The Global Competitiveness Latvia is ranked in 55th place.

Economic Environment

Latvia has market – oriented economy. In the research of World Bank “Doing Business 2013” is told that Latvia is in 25th place of easiness of doing business from 185 countries and in 8th place in Europe.

Since year 2004 Latvia is a member of European Union (EU). That made an impact on Latvia’s economic situation. GDP since 2004 grew tremendously. In 2008 Latvia’s economy collapsed due too global economic crisis (-18%). Now it has one of the fastest growing economy in EU. Since economic crisis lowest point in year 2009 in 3rd quartile GDP growth is 12.4%.

In 2011 average salary was similar, approximately $828 USD in public sector and in private sector. The biggest average salaries in Latvia in general was in finance and insurance industry, and from all Latvia the highest average salaries are in planning region of Riga.

Economic active people are 1006.7. In general 166.2 thousand people are looking for job, and 375.4 thousand people are not active. In study year 2011/12 in colleges and universities were 97041 students in total.

Average labor cost in year 2011, including wages and benefits, was 852876 thousand USD. In year 2007, year before economic crisis, average salary was lower, but in year 2008 it increased and then decreased in 2009 and 2010. In year 2011 it increased. Unemployment every year since 2008 is increasing, in 2010 it reached the lowest point of 20.5%. In end of May unemployed was 121 994 (12.3%) people it decreased in last 12 month.

70% of total Latvian GDP is structured by service industries. Trade is making 16.69% of total GDP and manufacturing industry 14.1%. The main sectors in GDP are also transportation and building industries.

Import in Latvia is bigger than export. Exports of goods and services (% of GDP) are growing every year from 42 in 2007 to 59 in 2011, and import in 2007 was 62 % of GDP than it decreased to 45 % in 2009 and increased again to 63 % in 2011. Latvia’s main trading partners are Europe Union countries. Main exporting products are wood and wooden goods, also food and agriculture.

As Latvia is a member of EU, the customs regime is maintained of EU Customs Code. Importing goods in the Republic of Latvia from other EU Member States, entrepreneurs do not have to declare and pay VAT on the state border. Supply of EU goods from one Member State to another is not regarded as an import or export, but it is defined as free circulation of goods. Importing goods to Latvia one needs to pay shipping cost, insurance and VAT, which for Latvia is 21%. Duty rates applied usually from 0% – 17% (duty and taxes are calculated on the value of imported goods).

Before the global economic crisis the inflation was 10.1 %, than it increased till 15.4 %. In year 2009 it decreased and in year 2010 reached deflation -1.1 %. And now inflation is 1.6%. Latvian Lats is one of the strongest currencies of the world – 1 LVL: 1.45 EUR; 1.86 USD; 1.18 GBP; 59.74 RUB. Latvia will introduce European national currency Euro in 2014.

From this date we can see that Latvian market is truly growing. There is a perspective of company’s growth. World Bank in its research rank Latvia as 25th country among 185 of ease of doing business. Latvia has increasing GDP, so from this point of view Latvia is a good country to establish Taco Bell. With increasing GDP, increases also purchasing capacity. So people can afford to eat outside the house in restaurants.

Political and Legal Environment, Government

Latvia is a parliamentary democracy republic. Latvian parliament is Saeima that consist of 100 members which are elected from Latvian nation for 4 years. The president is elected from Saeima also for 4 years, he is representative one with limited power. President appoints the prime minister who chooses people 13 other people (Cabinet of Ministers), they govern the country. Ministers can accept one or other law, but then they need to direct it to Saeima for approval.

Latvia’s most important document for law is Constitution of the Republic of Latvia and Constitutional Court is answerable for it. Latvia have three – level court (regional courts, district courts and Supreme court). The most important law for doing business is Commercial Law, it tells what is small and medium enterprises, large companies, explains different agreements and liabilities. A foreign company, who wants to do business in Latvia under its own name, and not establishing affiliated company, may register a branch. Branch is an independent part of a parent company.

Competition law – Labour law – it discusses agreements with employees, minimum salaries and other payments, working time and vocations. There are laws, what can make difficulties for restaurants work, such as it is hard to fulfil all the demands for excised goods and Food Veterinary Service.

According to Aon (Insurance brokers) Risk Countries of World 2011, Latvia is a medium risk country. Research authors draw attention to currency risk and payment default. The main risk in Latvia is politics, parties and individuals, their inability to come to an agreement and their willingness to borrow money for solving any problem, may acquire economic risks.

Latvia is a member of EU trade organization. The trade policy of EU refers also to Latvia. EU is the biggest trade leader in the world with 20% of worlds import and export. Foreign direct investments are growing every year. Main countries that invested in Latvia are Sweden, Netherlands and Estonia. More investments are in fields of real estate and finance.

Latvia has a council which is responsible for property rights and one for intellectual property right protection. Not only these councils is responsible, but all government. Property rights index is 50, the index measures the degree to which a country laws protect property rights. Intellectual property rights is protected with “Copyright Law” (2000) and “Patent Law” (2007).

Latvia is a member of the United Nations, European Union, Council of Europe, NATO, Organization for Security and Co-operation in Europe, International Monetary Fund and World Trade Organization, and is part of the Schengen Area. Latvia is also a member of the Council of the Baltic Sea States and Nordic Investment Bank, and is together with Estonia and Lithuania involved in trilateral Baltic States cooperation and Nordic-Baltic cooperation. [9] 

Corruption is in high level in Latvia. A lot of people involved in corruption are convicted. The time period for investigate the case is relatively long, it is due to quantity of information needs to be collected, and sometimes also of quantity of witnesses. Economic freedom score is 65.2, making Latvia’s economy the 56th freest in the 2012. It is above the world’s average.

There are no restrictions from government side to open new companies by franchising or foreign direct investments, although there are some specific laws and services that are making problems. Freedom in Latvia is above the world’s average. There are no special laws or rules what is restricting action of public catering service.

Cultural Environment

In previous years count of peoples who are leaving Latvia is increasing, year 2011 it established more than 30 000. Along with that Latvia’s culture is increasing. Latvian culture is influenced from German, Sweden and Russian cultures due to occupations. Latvian is official language. 58 % of Latvians speak Latvian language and 37 % in Russian. English language can speak 20 % of Latvia’s inhabitants. In Latvia are three religions in dominant position – Lutheran, Roman Catholic and Russian Orthodox. Lutheran parishes count decreases every year, Russian. Orthodox stayed at the same level, in last year it increased for 3 parishes. Data about Roman Catholic in first years is not available, in last 2 years it was 250 parishes.

In Latvia is explicit prosperous and poor inhabitant class. Few inhabitants is in middle class, usually they are leaving Latvia. The prior fields for Latvia’s inhabitants are prices and inflation, employment, economic situation and health.

In Hofstede site in available the cultural description about the country

Yum! was in Latvia from 1993 to 1996 with “Kentucky Fried Chicken” and “Pizza Hut”. Those years were not brilliant for fast food industries in Latvia, as people did not know what it is and the purchasing power was quit low, now the situation is far way better. Now people love more and more fast food, and the purchasing power is bigger.

People in Latvia are familiar with fast food and Mexican food. McDonalds in Latvia is already 12 years and have 11 restaurants, Hesburger -working 8 years with more than 15 restaurants. There are also a lot of Turkish kebab places and their number is still increasing. As for Mexican style food can be mentioned restaurant Tequila Boom (2003) and restaurant chain Tex-Mex. It is working from year 2001 with 2 restaurants in Riga and 4 in other cities. Their menu is similar to Taco Bell’s menu.

General education in Latvia is 12 years (9 years compulsory primary education, 3 years high school education). 2 – 6 years higher education, 1 -2 master studies and 3 – 4 years master studies. Last 5 years number of students who got the professional education is about 9000 per year.

There will not be a problem of Taco Bell to join Latvian market. People are familiar with fast food and Mexican style food, where they don’t need to spend all day long for waiting the food. But for success Taco Bell should choose the place closer to city centre and, where all day and night life is taking place.

Product/Service

Taco Bell specializes in serving Mexican food such as burritos, tacos, nachos, chalupas, gordita, salads and some other specialities that distinguish Taco Bell (Taco Bell, 2012). These already existing items will be present in taco Bell’s menu that will be introduced in the Latvian market. New items will also be added to the menu. The booming desert trend in the fast-food market has made the introduction of a sweet meal to the menu very appealing. Since deserts have high demand in the market, ice cream and apple pie will be added to the menu. Ice cream and apple pie were chosen specifically, because these desserts are already present in Taco Bell’s competitors’ menu, and people enjoy them. Therefore, by adopting these new products that already exist in the fast food market and are well liked, we are taking