This was no ordinary night for business and no run-of-the-mill menu item launch, as Lake Forest-based Del Taco Restaurants Inc. (Nasdaq: TACO) last week offered a sneak peek of its Blueberry and Peach Lemonade Poppers and Mini Shake Poppers, along with its Honey Chipotle BBQ Crispy Chicken Tacos and Fries.
It was the first major in-person event since the onset of the pandemic for the sixth-largest restaurant chain based in Orange County, and comes as Del Taco seeks to build on momentum it built in several aspects of its business last year, despite the myriad challenges of 2020.
Brand Building
Del Taco, with a recent market cap of $370 million, is aiming to play up the fun factor with menu innovation while also touting value across its chain of about 600 restaurants in 16 states.
This year it has its sights set on opening 15 new locations as it builds on a digital framework already a few years into the making, and begins the rollout of a revamped restaurant design.
“Building the brand is always top of mind and one of our top priorities,” said CEO and President John D. Cappasola Jr. “For us, the unique differentiator is that value-oriented differentiator. That’s a big piece of building the brand. The other thing that will be important for us is how we’re thinking about the voice.”
To that end, the company with recently hired agency of record Skiver Advertising Inc. of Costa Mesa, has utilized an over-the-top rocker character named Crys P in advertising to help sell its crispy chicken franchise.
Ultimately, messaging around value, quality and efficiency have historically been Del Taco’s bread and butter, with the company calling itself QSR-plus—an elevated point of differentiation within the quick-serve restaurant segment.
“We want to find a balance. Value is good for us, always has been very good for us and we’re able to offer value with really cool flavors,” said Chief Marketing Officer Tim Hackbardt, who rejoined the company last year.
“On the top end, we have things like our Epic burritos and we’ve put into the messaging whenever we use fresh guacamole.”
Del Taco’s been meticulous with what Cappasola has repeatedly referred to as the ‘barbell menu.’
That is, using value-priced offerings as the menu foundation, which would be Del’s Dollar Deals Menu launched last year, all the way up to mid-tier and premium items like the aforementioned Epic burrito loaded with premium ingredients and a $5 starting price.
“When you look at our brand position, we like to say we’re value-oriented, QSR-plus,” Cappasola said. “It’s our unique brand dichotomy.”
Keeping the Customer
Digital provides the backbone to all of that.
The company began developing a digital strategy a couple years ago, launching an app at the end of 2018 as part of a companywide digital transformation.
Contracts with third-party delivery businesses were also struck so that by the time March 2020 rolled around, the chain was well positioned to weather COVID and grow.
In fact, delivery grew roughly three to four times during the pandemic.
Drive-thru, which had already been 70% of sales pre-pandemic, grew to more than 80%.
Sales for the company totaled about $491 million last year, a 4% decline from 2019, largely as a result of the pandemic and related temporary restaurant closures and the elimination of indoor dining in many markets.
Del Taco reported a 2.9% decline in same-store sales for 2020, among company-operated stores, according to its annual report.
Wall Street has rewarded the company for its 2020 efforts; shares are above pre-pandemic levels.
The future is now about refinement.
“Obviously, with the pandemic, guests just started using the technology out of necessity to access restaurant brands,” Cappasola said. “It was a rapid adoption that occurred out of necessity so, with that, we recognized the curve was going to move quickly and that’s when we decided there were two things we wanted to invest in that would be smart ways of how we were going to pivot out of this pandemic.”
That pair of initiatives boiled down to technology and restaurant growth.
A customer retention management platform will launch in the fall after work done last year by corporate and franchisees to bring restaurant technology up to a baseline consistency, in preparation for what’s expected to be a boon for Del Taco’s loyalty program and other areas of personalization.
“It’s a really cool new platform for us,” CMO Hackbardt said.
“It’s a whole new mobile app, a whole new mobile app experience. It’ll be loyalty and we’ll be baking in some neat things into loyalty. That’s coming up and that’s a big deal for us, because it’s all very interconnected.”
The company is also testing in California a curbside pickup program called Park and Get It.
“There’s two elements here,” Cappasola said. “We’re tackling digital from an access standpoint and how is technology integrated to do that seamlessly. Two, is the how do you put a system in place and the data in place to be able to serve [guests] well, to give them incentives and greater loyalty programs.”
New Look
Tech will help at the restaurant level, particularly as Del Taco, like many of its peers, places greater emphasis on the drive-thru, a factor that’s been important in QSR, and the mobile channel, a factor accelerated last year.
The company in 2020, unveiled its Fresh Flex prototype, aimed at offering a modular new restaurant design that could allow for anywhere from a traditional location complete with dining room, to a drive-thru-focused location half that size or smaller.
The first restaurant to tout the new design is set to open this summer in Orlando.
Del Taco was not alone in revealing a new look in 2020 that addressed the growth in mobile ordering and third-party delivery.
Irvine-based Taco Bell Corp. last week said it planned to place a greater emphasis on its Go Mobile design as it looks to hit 10,000 locations this decade. Chipotle Mexican Grill Inc. of Newport Beach began experimenting with its version of a ghost kitchen last year with the first opened in New York, and Costa Mesa-based El Pollo Loco Inc. has already begun remodeling a handful of restaurants with its new L.A. Mex design.
“We were working on a new prototype design to be launched in 2020 that we pumped the breaks on a little bit as the pandemic hit, and we evolved it throughout the pandemic, really making sure the technology integration was a key piece to that protype and how we were thinking about service modes,” Cappasola said.
“Things changed quite a bit during COVID and so we wanted to make sure we were appropriately putting int that optionality so we could do different things with the prototype.”
Dedicated mobile orders and delivery pickup stations are built into the new designs. The kitchen, which Cappasola called the engine in every restaurant, is the one constant from prototype to prototype that’s been made scalable with Fresh Flex. The design splits restaurants on a vertical plane now when possible, allowing for the kitchen to run the entire length of a drive-thru. This lets more cars queue up and also opens up the kitchen for walk-in guests to see food being cooked and ingredients in coolers with transparent doors.
It’s a new approach to the real estate aspect of the business, allowing leeway in how Del Taco serves customers, whatever way consumer tastes may change over time.
“Whatever this new normal is going to look like, convenience is always going to be here to stay,” Cappasola said. “Generally, once a consumer gets greater access, they don’t go backwards.
“Usually, they’re looking to perpetuate that, and it evolves.”
