KFC is back in China, and Taco Bell's got a new waffle breakfast menu item, but Yum! Brands (NYSE:YUM) keeps experimenting with new ideas that might have investors wondering whether it's suffering from an identity crisis.
The fast-food chain took pains to get its chicken joint going again overseas. Having suffered a 13% meltdown in same-store sales in China in 2013, it just reported that its KFC division enjoyed an 11% surge in comps in the first quarter, and as part of its plan to expand its menu into breakfast, Yum! introduced its Waffle Taco to great fanfare. Yet it hasn't escaped notice that consumers in the U.S. are largely eschewing fast food in favor of the fresh ingredients and more relaxed atmosphere afforded by leading fast-casual chains.
Within the past month, Yum! has unveiled two new dining concepts that cater to those new, refined tastes: Super Chix, a fast-casual chicken restaurant featuring a marinated, hand-breaded piece of chicken fried in refined peanut oil and served on a bun, and Banh Shop, a Vietnamese-inspired sub shop selling banh mi sandwiches (banh mi is a type of bread). Both are said to be aimed at an international market and not intended for domestic consumption, even though both will be tested in Texas. Now a third new fast-casual chain, U.S. Taco Co. and Urban Taproom is set to debut in Huntington Beach, California, and its target audience is very much the American consumer.
The Day of the Dead-themed taco-and-craft beer mashup is scheduled to open this summer with an eclectic menu that Nation's Restaurant News describes as featuring Southern-style fried chicken and gravy wrapped in a soft flour tortilla. Other items include lobster, a take on Philly-style cheesesteaks, and papas fritas (french fries) on the side
Unlike Chipotle Mexican Grill -- whose customers are obviously the target market, even if this new concept is trying to differentiate itself by being edgier -- U.S. Tacos won't have any burritos, beans, rice, or tortilla chips. Call it the un-Chipotle, because while it will feature fresh, natural ingredients like its rival, customers won't be building their own meal, even if the open kitchen design allows them to see their food being cooked to order.
Certainly by building upon the taco theme, Yum! finds this new concept chain right in its wheelhouse, and because it's targeting the fast-growing fast-casual niche, there appears a better-than-average chance it could be a success. Since it's a stand-alone concept, it's not like the "KFC Eleven" idea it opened last year that offered healthier fare such as rice bowls, salads, and grilled chicken instead of fried chicken in a bucket, but still wrapped it in the KFC brand.
Yet the me-too nature of U.S. Taco carries some risk as well, because it's not a Taco Bell spinoff, but rather a new restaurant start-up. There's no crutch to lean on that branding brings with it, and it will have to run almost as soon as it can walk and differentiate itself from all the other Chipotle wannabes. While that means it might fall into the high-failure-rate category new restaurants too often succumb to, it does have the advantage of being run by industry veterans.
Either way, Yum! Brands' dabbling in the fast-casual market suggests it realizes its core fast-food chains are in trouble, and that it may lend itself to an identity crisis as it tries to serve two distinct industry categories, with neither of them getting sufficient attention.
Fast-casual restaurants are growing, but nowhere near the rate of these three big trends
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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.