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Chipotle Mexican Grill, Inc. (CMG), PepsiCo, Inc. (PEP): Taco Bell Corp.’s Refocused Brand Should Deliver Mas Returns

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Yum! Brands, Inc. (NYSE:YUM) is one of the world’s largest fast food restaurant chains, with over 39,000 restaurants worldwide. Yum! earns the majority of its revenues through its three signature brands KFC, Pizza Hut, and Taco Bell Corp..

After a rough stretch that saw controversies in both its growing China market and the U.S. over food quality, Yum! appears to be righting the ship. A refocusing of its brand strategy in Taco Bell Corp. should lead to shareholder returns. Here’s how Taco Bell is helping shareholders Live Mas.

Branding: it matters!

A year ago, after questions about food quality and the “pink slime” fiasco, Taco Bell Corp. was ready to change some minds. Take into effect that parent company Yum! was facing quality concerns in its super growth Chinese market, and the whole company wanted to change minds. But, despite some fanfare from high profile investor David Einhorn, the ill-fated Taco Bell Corp. “Cantina Bell” was the wrong approach.

Chipotle Mexican Grill, Inc. (NYSE:CMG)

Cantina Bell, through its celebrity spokesperson Chef Lorena Garcia, aimed to convince customers that Taco Bell was going to compete with Chipotle Mexican Grill, Inc. (NYSE:CMG) on quality. That’s like saying Oasis was going to compete with the Beatles on melody. As Chipotle Mexican Grill, Inc. (NYSE:CMG) Founder Steve Ells put it best, consumers don’t seek “quality” grilled chicken from restaurants that don’t have: “knives, grills, or a cutting board.”

Besides being a bit of a joke, the Cantina Bell concept was dangerous because it signaled that Taco Bell was losing its focus. You don’t build a brand for decades that’s based off of cheap, quick, Mexican food and change it overnight; which is precisely why Taco Bell’s expansion of its Doritos Locos taco (via the cool ranch version) is such a good sign.

Doritos Locos is Spanish for profits

Taco Bell Corp. has learned that it doesn’t need to choose between the past or its future. By shoring up concerns about food quality while debuting new products that fit its brand, Taco Bell is choosing the best of both.

The results have been impressive and immediate. Taco Bell sold over 300 million of the original Doritos Locos taco in eight short months last year.

In addition to being right in the wheelhouse of Taco Bell’s brand the Doritos Locos line could have operational benefits for Yum!’s shareholders. PepsiCo, Inc. (NYSE:PEP) is the parent company of Doritos and has a longstanding relationship with Yum! as its beverage supplier.

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