This One Miniature Move Signals an Enormous Strategy Shift

It may just look like one new restaurant, but Super Chix means that Yum! has thrown its old playbook out the window.

May 6, 2014 at 9:06PM

On March 8 2012, the launch of Doritos Locos tacos by Taco Bell of Yum! Brands (NYSE:YUM) was met with great rejoicing by the college-aged adrenaline-junkie crowd. Four months later, Taco Bell launched Cantina Bell in an effort to draw in a new hip, health-conscious crowd. Doritos Locos tacos have enjoyed massive success, as the company sold almost $1 billion worth of them in just 18 months according to the Huffington Post. Cantina Bell hasn't turned out so well.

A restaurant frequently tries to draw in an additional segment of the food culture by offering menu items that make customers rethink the restaurant's image. For Yum!, Doritos Locos tacos only reinforced Taco Bell's image, while Cantina Bell didn't come close to changing it. Nowadays Yum! is learning from its past mistakes and going with a brand new game plan.

Ladies and gentleman, meet the new Yum! Brands
In recent months Yum! has unveiled three new brands that demonstrate the company's evolving strategy.

  1. Super Chix
  2. US Taco Company
  3. Banh Shop
First off, Super Chix is a new chicken-sandwich-centric concept with its sights firmly locked on the massively popular 1,700+ location Chick-fil-A chain. Super Chix has menu items eerily similar to those of its peer, and both restaurants cook their food in peanut oil, but there's more here: Yum has placed its first Super Chix in Arlington, Texas.

Source: screen shot Google maps. Red dots represent Chik-fil-A locations.
Many of Chick-fil-A's customers are motivated by personal values as much as quality food. In 2012, founder and CEO Dan Cathy publicly spoke out against same-sex marriage, which drew criticism. However, loyal customers -- many of them Southern Baptists -- rallied around the chain in an "Appreciation Day," which created record-smashing sales.
By locating the first Super Chix in Arlington, I believe Yum! is looking to see if it can lure customers in the buckle of the Bible belt -- Chick-fil-A's stronghold. If it can go toe to toe with its peer there, it can succeed absolutely anywhere in the country. Early reports from Yelp have generally been positive.
Don't miss this
Yum! once tried to take on Chipotle Mexican Grill by creating a couple of new menu items at Taco Bell. If the company had maintained its strategy, KFC would be trying out new items to compete with Chick-fil-A. However, its strategy has changed completely. Yum! created a brand new concept to compete with Chick-fil-A. Similarly, its new attack on Chipotle will come from the US Taco Company set to open this summer in Huntington Beach, CA.

The menu for the US Taco Company looks unique, with offerings like Philly cheesesteak and lobster, but the real differentiator will be the Urban Taproom which gives patrons a craft beer selection and spiked milkshake options. The combination of alcohol and premium menu items will cause the US Taco Company's average check to be over 60% higher than that of Taco Bell, according to Nation's Restaurant News.

Finally, there's the Banh Shop -- the concept we know the least about. This restaurant will likely be a Vietnamese-inspired "better sandwich" shop. I can't help but think Yum! is targeting Panera (NASDAQ:PNRA) with this move.

Panera is losing customers, and it blames the weather for the decline. Its transactions fell 2.8% in the most recent quarter. However, this downward trend isn't new--two quarters ago, management suggested that faster throughput would result in more transactions. Panera's speed of service improved this quarter, but this didn't solve the traffic decline. Simply put, now's a good time for Yum! to take aim at Panera.

What this means looking forward
To sum up, Yum! is beginning to cater to different customers in different ways. Instead of uniting two very different customer segments under one roof, it will look to create complimentary restaurant concepts. This strategy will allow Yum! to please two crowds at the same time without cannibalizing sales from either concept. 

While Yum! has quickly said that these concepts are just experiments, the potential is enormous. Greg Creed -- Taco Bell's head honcho -- said he'd like to see 1,500 locations for US Taco Company. Could Super Chix and the Banh Shop grow to over 1,000 locations each? It's extremely early, but not extremely ridiculous.

The last couple of years haven't been great for Yum!, but I happen to believe the enormous strategy shift outlined here signals that the best is still to come.

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Jon Quast has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread. 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.

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