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After E. Coli



By TIFFANY MONTGOMERY

After a rough 2006, Taco Bell Corp. has big plans for the New Year.

A new breakfast menu. Its first big push in international markets. Accelerated domestic growth.

The E. coli crisis that consumed the company in December isn’t delaying those plans, Taco Bell spokesman Rob Poetsch said.

Others aren’t so sure.

Seventy-one people in five Eastern states became ill at the end of November and early December after eating at Taco Bells. Some 50 were hospitalized.

After the outbreak, Taco Bell switched produce suppliers in the region. Federal officials believe lettuce may have been the culprit, and the company has been working overtime to try to assure customers that its food is safe.

“These kinds of things are every restaurant chain’s worst nightmare,” said industry consultant Dennis Lombardi, executive vice president of Food Service Strategies at WD Partners in Columbus, Ohio.

The episode proved a trial by fire for Greg Creed, Taco Bell’s new president and chief concept officer. He started Dec. 1, taking over for Emil Brolick, who’s now president of brand building at Taco Bell parent Yum Brands Inc.

Five days after Creed took over, the Centers for Disease Control and Prevention posted news of the E. coli outbreak on its Web site.

For any executive, “It’s really sink or swim based on how they handle such a serious crisis,” said Jone Pearce, a professor of leadership at the Paul Merage School of Business at University of California, Irvine. “And this is a serious crisis. It’s the easiest thing in the world to go across the street to another fast- food place.”

Now Taco Bell is looking to move on. The company is one of the few fast-food chains that doesn’t serve breakfast.

According to data Creed provided at an investors conference in December, fast-food breakfast is a $34 billion yearly market.

In the Southland, breakfast accounts for 10% to 12% of fast-food meals, said Bob Sandelman, chief executive of consumer research firm Sandelman & Associates Inc. in San Clemente.

McDonald’s Corp. is by far the leader in Southern California and nationally, Sandelman said.

Taco Bell believes breakfast eventually could add $208,000 in yearly sales to its individual restaurants, which do an average $1.2 million apiece annually, executives said at the conference.

Ten restaurants in Southern California now are serving breakfast. Taco Bells in three other markets are set to test breakfast in early 2007. That could be followed by a national rollout.

One of the local restaurants serving breakfast is the Taco Bell on Jamboree Road in Newport Beach. The menu consists of four burritos,sausage and bacon, guacamole bacon, Southwest sausage, and egg, bean & cheese,and a bacon and egg Crunchwrap.

Prices range from $2.79 to 99 cents.

Taco Bell is looking for its Mexican fare to stand out from the muffin and biscuit crowd, Creed said.

That’s true in some parts of the country, but could be more difficult in Southern California, especially because Del Taco Inc., based in Lake Forest, also sells Mexican-flavored breakfast items, Sandelman said.

“Not only do you have McDonald’s and Jack in the Box, Del Taco is a factor and could make it more challenging,” he said.

Taco Bell’s breakfast plans could be impacted by the E. coli issue, Pearce of UC Irvine speculated.

“I’m sure it won’t derail their plans but these kinds of crises do take the highest level of attention,” Pearce said. “The best people who may be working on the breakfast rollout may be reassigned to handle the crisis. It could slow things down.”

From a marketing perspective, the chain may want to delay the breakfast debut until the E. coli outbreak fades from memory.

“You want there to be enough psychological distance so the new campaign is not tainted,” Pearce said.

Others think the E. coli crisis will speed up Taco Bell’s breakfast push.

“They need to pick up whatever revenue they lost because of the (outbreak),” said Ron Paul, president of restaurant consulting firm Technomic Inc. in Chicago. “I think it’s full steam ahead.”

Louisville, Ky.-based Yum Brands, which also owns Pizza Hut and KFC, has said Taco Bell will lead U.S. growth for the company.

Taco Bell has 5,743 restaurants, with plans to grow to 7,500 by 2009. About half will be Taco Bells and half will be Taco Bell and KFC combinations.

About 104 Taco Bells are slated to open in 2007.

“I think you will begin to see Taco Bell have significant growth as we go forward,” said David Novak, chairman and chief executive of Yum Brands.

Yum also will expand Taco Bell globally this year. Targeted markets in 2007 include the Middle East, India, Mexico, Canada and the Philippines, executives said.

Because of the negative publicity, Lombardi of WD Partners believes the E. coli crisis could impact Taco Bell’s domestic business more than any future global push.

He believes Taco Bell will find a way to move forward, barring any other food scares.

“People tend to have a subset of restaurants they use, and when one gets knocked out, some customers will replace it with another restaurant permanently,” he said.

Taco Bell doesn’t have an operational problem to fix because the suspect produce appears to have come from outside suppliers and wasn’t a result of a Taco Bell misstep in the kitchen, Paul said.

“Really, it’s an external event,” he said.

Seven years ago, Taco Bell was in no position to grow. Of the three Yum brands, Taco Bell was the underperformer, logging disappointing sales at restaurants open more than a year, a key measure of performance.

As chief marketing officer from 2001 to 2005, Creed, along with former president Brolick, helped turn around Taco Bell with the “Think outside the bun” campaign and by introducing premium food such as steak quesadillas and border bowls. At the same time, the executives expanded the chain’s value menu.

Taco Bell now is Yum’s most profitable brand, executives said.

Creed, who was not available to comment for this story, was appointed chief operating officer of Yum Brands a year ago, and now returns to Taco Bell as president. His familiarity with the organization will help him as he tries to handle the E. coli crisis and its aftermath, industry analysts said.

“It’s not like he’s an outsider,he knows the system,” said restaurant consultant Randy Hiatt, president of Fessel International Inc. in Costa Mesa.

Many big restaurant companies are prepared for problems, Lombardi of WD Partners said.

“Having new leadership is not necessarily an issue,” he said. “Most of the chains have crisis plans in place to help them protect consumers when something like this happens.”

If Creed handles the situation well, it could quickly bolster his credibility at Taco Bell.

“If a new person successfully handles a serious crisis, it could provide a tremendous amount of goodwill and legitimacy right away,” Pearce said. “If they botch it,that’s a risk.”

Montgomery is a freelancer writer who lives in Irvine.

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