Yum! Brands (NYSE:YUM) Taco Bell plans to expand its city-based "Cantina" concept, opening 300 to 350 more locations of the higher-end eatery by 2022.
These locations, which serve alcohol and don't have a drive-thru, offer an open kitchen and a more upscale menu than a traditional Taco Bell. Yum! plans to focus on big cities with the Cantina concept, with at least 50 being opened in Manhattan, according to a Yum! press release.
Not backing off
While some restaurant chains have recently stepped back from efforts to woo Millennials, Taco Bell appears to be doubling down. When the company first introduced the Cantina concept about two years ago, it specifically cited that the new stores would support "the Millennial trend of seeking more urban environments to live, work and play," according to a press release.
Instead of backing off from that as other companies have demonstrated that Millennial customers are tricky to reach, Yum! recently reiterated its commitment to expanding the Cantina brand to Food & Wine.
"One of the cool things happening in America right now is the revitalization of urban areas, and we're seeing Millennials moving into downtown areas," Taco Bell COO Mike Grams told the magazine. "...expanding the urban footprint, in particular, makes sense."
What is Taco Bell doing?
The Cantina stores will further court younger customers by fully integrating digital technology. That includes offering electronic menu boards, as well as mobile order and pay. In addition, the new locations won't look like Taco Bells. Instead, they will reflect the architecture of the neighborhood they operate in.
The big change for the brand, aside from being an overall higher-end experience, is dropping the drive-thru. That's somewhat uncharted ground for the chain because, according to Food & Wine, between 55 and 70% of Taco's Bell's revenue comes from drive-thru orders.
Of course, in an urban environment geared toward pedestrians, drive-thru makes less sense. In theory mobile order and pay should fill the same role as long as the company optimizes the pickup/walk-in experience. In addition adding alcohol sales should add to increased spending-per-customer for people who dine in, but it's hard to predict whether the initial success the company has had testing this model will carry through over hundreds of stores.
What does this mean for Taco Bell?
It's a big bet on a concept that so far has only been tested in a handful of stores, but it's actually on a small part of the chain's efforts to grow sales. In May Taco Bell laid out an aggressive plan to increase sales from $10 billion annually today to $15 billion by 2022.
This new concept allows Taco Bell to enter new markets with a brand that might appeal to the people who live there. It's a risk though because it's a relatively unproven concept in a space where a lot of competitors have failed.
Still, because the chain has given itself until 2022 to roll out the Cantina locations it can go slowly and tweak the concept as needed. This isn't a guaranteed hit, but it is a smart bet by Taco Bell that should work, perhaps with some changes.