How Taco Bell Crippled KFC & Pizza Hut

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Taco Bell is an extraordinary outlier by every measure. It’s a fast food chain that boasts a deeply passionate fanbase, enjoys a reputation for reliability, speed, and accuracy, and when it comes to business – Taco Bell has grown at such a breakneck pace over the past 20 years that it outperforms giants like McDonald’s, Burger King, and KFC in per-store earnings.

The Mexican chain is so popular that it’s one of the few companies whose per-store earnings have stayed ahead of inflation. Remarkably, Taco Bell boasts some of the highest ever profit margins ever reported in not just fast food, but also in the restaurant industry. Taco Bell’s renaissance is a miracle in an era where fast food chains all follow the same cookie-cutter playbook of cost-cutting and international expansion to cover up domestic decline like KFC, McDonald’s, and Starbucks.

Business is a zero-sum game where every decision is connected, every action has a cause and effect, and the rise of one brand contributes to the fall of another. In this episode, we’ll cover the rise of Taco Bell, their strategy that’s made them so successful, and why Taco Bell is the missing puzzle piece behind the downfall of KFC and Pizza Hut and how their struggles in fried chicken and pizza have molded Taco Bell to what it is today, for better and for worse.

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0:00 Think Outside the Bun
1:36 Sponsor Break (Factor Meals)
4:08 Geopolitical Liberation
20:25 Non-Replicable Blueprint
31:24 The Goose from Mexico
41:18 Sponsor Break (Moomoo)

Taco Bell is an extraordinary outlier by  every measure – it’s a fast food chain that   boasts a deeply passionate fanbase, enjoys  a reputation for its reliability, speed,   and accuracy, and when it comes to business – Taco  Bell has grown at such a breakneck pace over the  

Past 20 years that it outperforms giants like  McDonald’s, Burger King, and KFC in per-store   earnings. Taco Bell is so popular that it’s one  of the few chains whose per-store earnings have   actually stayed ahead of inflation. Taco Bell that  boasts some of the highest ever profit margins  

Ever reported in not just fast food, but in the  broader restaurant industry. Taco Bell’s modern   renaissance is a miracle in an era where fast food  chains are all following the same cookie-cutter   playbook of cost-cutting and chasing international  expansion to cover up domestic decline – like we  

Covered in the past with KFC, Popeyes, McDonald’s,  and Starbucks. Taco Bell has uniquely remained   a chain by Americans, for Americans – the brand  has such a tiny presence overseas that Taco Bell   can’t use international expansion as a crutch  like the rest of the fast food industry has.  

Business is a zero-sum game where every decision  is connected, every action has a cause and effect,   and the rise of one brand contributes to the  fall of another. Taco Bell is part of YUM Brands,   who is the same company that owns Pizza Hut  and Kentucky Fried Chicken. In this episode,  

We’ll cover the rise of Taco Bell, the strategy  that’s made it so successful, and why Taco Bell is   the final missing puzzle piece behind the downfall  of KFC and Pizza Hut and how their struggles in  

Fried chicken and pizza have molded Taco Bell  to what it is today, for better and for worse.   This episode is sponsored by Factor, a fresh,  never-frozen meal delivery service that provides   delicious, restaurant-quality, nutritious meals  right to your door that you can enjoy anytime with  

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In the 80s-90s, Taco Bell, Pizza Hut, and  Kentucky Fried Chicken were all owned by the CPG   conglomerate PepsiCo. PepsiCo had made millions  during the 20th century selling Mountain Dew,   Pepsi, Doritos, Ruffles, and Lay’s. But in  the 60s, the runaway success of McDonald’s  

Under Ray Kroc turned fast food into the  next American gold rush and PepsiCo moved   quickly to join the chase. Pepsico bought Taco  Bell, Pizza Hut, and KFC and by the late 90s,   the momentum became so great that Pepsico spun  out its fast food division into its own separate,  

Independent company by the name of YUM Brands.  This way, Pepsico could concentrate on snacks and   soda and Taco Bell, Pizza Hut, and KFC could reach  their full potential. This deep-rooted history is   exactly even 50 years later, you’re never able  to order Coca-Cola at Taco Bell, Pizza Hut,  

And KFC – your options for drinks are still only  Pepsi, Mountain Dew, and other Pepsico brands.   YUM Brands was led by David Novak, a fiery Pepsico  executive who made it clear that the mission was  

To take down McDonald’s. The Golden Arches was  Public Enemy #1 and the goal was to chip away at   the market leader through the combined efforts of  KFC, Pizza Hut, and Taco Bell. McDonald’s was king   but it was progressively under siege as the burger  category became saturated with the entry of Burger  

King, Wendy’s, and tens of other regional chains.  KFC, Pizza Hut, and Taco Bell were all positioned   to win emerging, adjacent, less-competitive  categories- but that didn’t stop David from   publicly measuring the performance of each brand  against McDonald’s. Like in families with multiple   kids and portfolio companies with multiple  subsidiaries, there’s usually favoritism where one  

Brand gets more support and investment than the  others. But in the case of Taco Bell, it wasn’t a   case of neglect as there were pretty much the same  number of Taco Bells stores in the United States  

By the late 90s as there were Pizza Huts and  KFCs. Through the 70s to the 90s, Taco Bell was   the leading chain in Mexican food, but compared  to burgers, fries, pizzas, and fried chicken,   tacos and burritos were unfamiliar, exotic,  foreign foods to most Americans at the time. Taco  

Bell faced the challenge of having to introduce  a cuisine while inventing simplified fusion items   that would appeal to the American palate like  telling consumers to think of fajita wraps as   Mexican steak sandwiches. The challenges extended  beyond product. Taco Bell struggled in marketing,  

Unsure of how much it should embrace its cultural  origins, whether to compete on quality or novelty,   if the best experience was to dine-in or takeout,  and if their target customer was families, adults,   or children. The chain burned through  various messaging over the years like  

The “Fresh Food Place”, “Run for the Border”,  music jingles, and even a Spanish-speaking   Chihuahua. As a result, Taco Bell was the  clear underperformer and lagged behind KFC   and Pizza Hut in YUM Brand’s portfolio. Business and politics are intertwined. In the  

1980s, while Taco Bell was trying to figure out  how to win over more Americans, across the sea,   a man by the name of Deng Xiaoping had taken  power in China. Deng Xiaoping did what his   predecessor refused to do, which was to embrace  globalization and open up China to the world,  

To foreign investment, and to American  businesses for the first time in decades.   To David at YUM Brands, the opening of China was  more than just an emerging market – this was a   once-in-a-lifetime opportunity to beat McDonald’s  and become the American fast food chain in the  

World’s biggest country. The chance for YUM  Brands to be the first mover in China and the   neighboring four dragons of Asia in Singapore,  South Korea, Taiwan, and Hong Kong was simply   too great to pass up. The long-term potential in  Asia, whether measured by GDP or by population,  

Would eclipse anything anyone could achieve  in the US. This was precisely when and why YUM   Brands shifted their focus over to international  expansion and China over domestic consumers.   Just like the race to beat the Nazis to the atom  bomb, YUM Brands at David’s direction launched  

Into an all-out arms race to beat McDonald’s  in China. But David could only bring his best   hitters and proven brands overseas in KFC and  Pizza Hut. Mexican food was not an easy sell   to most Americans and trying to get the Chinese  behind tacos would be even harder. The first KFC  

In China opened in China in 1987, 3 years ahead of  McDonald’s. By the 2000’s, there were 700 KFC and   Pizza Hut stores in China compared to McDonald’s  460, and then by the mid-2010s, there were 4,000  

To McDonald’s 1,300. But this is an episode about  Taco Bell – why are we talking about China, KFC,   McDonald’s, globalization, Mao, and KFC? It’s because of this top-down, decade-long arms   race, where David was laser-focused on being  the first to win China, that Taco Bell could  

Thrive. Most of the company focus and investment  went to supporting the war overseas with KFC and   Pizza Hut. And there was little chance that  Taco Bell would join in on the Eastern front.   Beyond the obvious differences in cuisine, Taco  Bell was unique as a fast food chain where most  

Customers come in at lunch with the aim of getting  something light on the wallet and in the stomach.   Most orders for KFC and Pizza Hut in contrast take  place at dinner, where the order sizes are bigger,  

And thus, the profits are higher. And the entire  point of expanding into China and Asia was to   maximize profit. Since Taco Bell was left out  of the arms race, this lowered expectations   and pressure on the Mexican fast food chain to  produce massive profits or rapidly scale – even  

In the US. This gave Taco Bell’s leaders that  room to breathe, to execute, to strategize,   to create winning products, and to find the  right marketing that would propel the company   into long-term success for the next 2 decades  in the United States. Taco Bell by no means was  

A disaster, but the inconsistency in sales going  into the late 90s demonstrated that the chain was   nowhere close to its mass-market potential. In 2000, David put in a new leader who had proven   an ability to deliver long-term success by the  name of Emil Brolick. As an executive at Wendy’s,  

Emil had done the improbable – he had been  personally mentored by the founder of Wendy’s   and had taken market share away from McDonald’s  through the 80s and 90s by focusing relentlessly   on operations and introduced differentiated  products like chili, square patties,  

Fresh-never-frozen-beef, and a value menu. If  there was anyone who could turn around Taco Bell,   it would be Emil. Emil ran Taco Bell for 6 years  and during his tenure, food & drink sales at Taco   Bell grew from a shaky 5 billion dollars in 2000  to 6.6 million dollars by 2006. Emil mandated  

That products should be portable, easy to eat  on-the-go as a fast lunch or casual dinner and   fully ditched the fork-and-knives plated entrees  of the past. Under Emil, Taco Bell launched   now-iconic products like chicken quesadillas,  grilled stuft burritos, Cheesy Gordita Crunch,  

Mountain Dew Baja Blast, the 7-layer nachos,  the Crunchwrap Supreme, and a value menu.   Emil’s biggest accomplishment was centering  Taco Bell on value – to be the chain that would   give you the most amount of food for the least  amount of money. But it wasn’t just about selling  

Everything for as cheap as possible – there was  an intentional balance between value and cost.   When Emil saw that customers weren’t buying  as many drinks as before in the early 2000s,   the easy answer would have been to lower the  price of beverages at Taco Bell. Instead,  

The Taco Bell team went back to its former  parent Pepsico and created an exclusive   soda flavor in Mountain Dew Baja Blast to  give customers a reason to buy the drinks   at Taco Bell. For the first time in decades,  Taco Bell under Emil had one single, unified,  

Consistent message in its marketing. The chain  challenged Americans to “think outside the bun”,   to consider Taco Bell as an alternative  to boring sandwiches and burgers,   and to appreciate the variety it had to offer. [in  the interim whilt eh products were going into the  

Market Emil hyper-focused on optimizing  speed and accuracy as Taco Bell’s]   At this point, Yum Brands was still deep in the  arms race to beat McDonald’s in China. David   was pleased with the consistent positive growth  that Taco Bell had demonstrated under Emil but  

Still believed that the brand was too immature for  overseas expansion. While sales had gone up in the   6 years of Emil’s leadership, the number of Taco  Bell restaurants in the United States had gone   down in the same period. While the number of KFC  and Pizza Hut stores in the US had also declined,  

Their losses in domestic earnings were largely  offset by the profits from overseas expansion.   If Taco Bell could even not scale domestically,  there was little point in talking about going   outside of the US. Even with newfound success,  Taco Bell remained low on the list of company  

Priorities. In the early 2000s, KFC and Pizza Hut  had unexpectedly regressed in domestic earnings   and investors were spooked. David was forced  to pull back from the arms race overseas and   address the regression of KFC and Pizza Hut at  home over Taco Bell. It was in this period when  

David would fire Cheryl Bachelder from KFC, who  would go on to find redemption at Popeyes. Once   again, Taco Bell benefited from staying out  of the spotlight. As YUM Brands honed in on   its other brands, Taco Bell got the space to  continue its steady, quiet execution.  

David still recognized Emil’s accomplishments and  in 2006, promoted him to the portfolio-level so   that he could also help out Pizza Hut and KFC.  In Emil’s place, David appointed Greg Creed, the   marketing leader who had spearheaded the “Think  Outside the Bun” campaign. Greg would then run  

Taco Bell for the next 9 years as the  President & CEO of Taco Bell. While Emil was   a product-oriented leader who believed in success  through R&D and operational excellence, Greg was   an old-school marketer who took Taco Bell to  record heights by leveraging branding, pricing,  

Packaging, market intuition, and consumer insights  in ways that Emil could not. Metaphorically,   Emil laid the foundation and Greg built the  house. Under Greg, Taco Bell grew from $6B in   food & drink sales worldwide from 2007 to $9B by  the time of his departure in 2015. In this period,  

Taco Bell released hit products like Grilled  Taquitos, the Volcano Taco, Black Jack Taco,   the Beefy Crunch Burrito, the Doritos  Locos Tacos, the Caramel Apple Empanada,   the Quesarito, and officially entered breakfast  with the AM Crunchwrap and Waffle Tacos. But   just talking about the new products doesn’t quite  capture the impact of Greg’s contributions.  

Greg remained laser-focused on positioning  Taco Bell as the leader in value in regards   to portion-to-price and quality-to-price ratio.  Whenever Taco Bell would promote a full-priced   core item like the Crunchwrap or the Cheesy  Gordita Crunch, the chain would either release or  

Promote a cheaper, secondary item like the 99 cent  Cheesy Bean Burrito to reinforce that customers   had options – and they could get value at the  high-end or at the low-end at Taco Bell. “We   don’t discount core menu items at Taco Bell. We  don’t sell drinks for $1. We don’t take a Crunchy  

Taco or a Crunchwrap or a burrito and discount it.  If we want value, we create products at that price   point. One of the reasons Taco Bell has such good  margins and sales is because if we need a $1 price  

Point, we go create products at $1 and put them on  the dollar menu. If you look around, most of our   competitors discount their core menu items. You  can buy 2 Big Macs for a certain price or you can  

Get a Coke for $1 or fries for $2. I think it’s  a mistake. I really do. At Taco Bell, we don’t   discount because the downside is that one day, you  have to pay the piper and you have to take that  

Price up. I feel supremely confident that Taco  Bell is and will remain a value leader because we   approach value not through a discounting of core  products, but by actually creating products out   of our 7 ingredients at that price point. And we  can take them away and we can bring something else  

In. We don’t touch the core that the customers  love or the margins in our core business.”   Greg’s not wrong – we’ve covered other fast  food chains in past episodes where their   leaders engaged in this excessive discounting  like at McDonald’s, KFC, and even Burger King,  

Who discounted the Whopper so frequently  that the product lost all meaning by the   mid-2010s. For each of these brands, These tactics  always improved sales in the short-term as these   deals were simply too good to pass up. But even  as customers would flock in for these discounts  

And the top line would improve, this approach in  reality was very much the self-sabotage that Greg   alluded to earlier. The core discounting over  time ended up diluting pricing power – the same   pricing power that the chain had worked so hard  to build over many decades. Customers would come  

In only for discounts, consciously never pay full  price, and by extension, devalue the product and   brand. In contrast at Taco Bell, customers would  still come in looking for cheap deals, but their   options were always limited to the specific items  that the chain had created like a 79 cent Cheese  

Roll-Up or a 99 cent Bean Burrito – which were  all still profitable for the franchisee and the   company at that exact price point. Greg’s blend of  product and pricing ensured that Taco Bell and its   franchisees were always maintaining positive  margins even on items that sold for less than  

A dollar. Greg also experimented with packaging  and pricing throughout his tenure by rearranging   existing products into boxes and packs to give  customers the deals they were looking for without   destroying established unit economics. By the mid-2000s, Americans had grown to   enjoy Mexican cuisine and Taco Bell faced greater  competition from fast-casual chains like Chipotle  

And Baja Fresh. But while the competition sold  higher-quality burritos and bowls for $8-10,   Taco Bell was still the clear leader in value  where a single menu item rarely, if ever, goes   over the $5 price point. While Mexican cuisine  had been a hindrance to Taco Bell’s growth in the  

Early years, it was now an asset in this period  of intense consumer change. By the late 2000s,   Americans had become health-conscious and the  fast food industry was blamed as the primary   source for the poor American diet. Nutritionists –  and even the US government at the time mistakenly  

Shilled that fat was the problem and not carbs.  Americans shunned the fatty fried chicken of KFC,   the greasy pizzas of Pizza Hut, and the oily  fries of McDonald’s. But since Taco Bell’s   foods by design are limited to a single dollop  of sour cream or a light sprinkle of cheese,  

Their products were already substantially less  fatty relative to most fast food. Americans could   enjoy indulging in the carb-heavy foods of Taco  Bell without as much guilt and Greg didn’t need   to waste time and money putting lipstick on a  pig like other chains had to do like McDonald’s  

With salads, egg whites, and grilled chicken. While the Great Recession from 2008 to 2010 was   a period of hardship for just about every  business, the economic downturn actually   cemented Taco Bell into a fast food leader in  the US. Customers wanted deals more than ever,  

They were doing more home cooking and less  takeout, and the chain that gave the most   food for the least amount of money would win – and  that was Taco Bell. At this point, Taco Bell had   been honing in on value for 7 years straight  throughout its menu in marketing, pricing,  

And packaging. Taco Bell launched “Why Pay More”,  where customers could order a variety of products   at and below the $1.00 price point that surpassed  what any other fast food chain had to offer. “Why   Pay More is resonating with customers in today’s  economic environment. Where else can you find  

A menu with $0.79, $0.89, $0.99 price points and  the great selection we have? Our $0.98 cent Cheesy   Double Beef Burrito has 38% more food and 30% more  beef than McDonald’s 99 cent Double Cheeseburger,   so our customers realize it truly is great value.  The Taco Bell brand is about value. People are  

Constantly amazed at how much food you get and  how little you have to pay and how many items   you get for the amount of money. We can take 1,  2, 3, or even 9-10 items, bundle them differently,   talk about them differently and get a  whole lot of credit versus just taking  

Our pricing down willy-nilly on a number of  items. In this environment, there’s no one   that can really top what we have to offer.” While food and drink sales in the United States   Pizza Hut and KFC declined year-after-year  through the Great Recession, Taco Bell instead  

Was on a clear upwards tear. As more and  more Pizza Huts and KFC stores closed down,   Taco Bell was hitting its stride – opening up  more stores year after year in spite of the   downturn. These results were not one-year  wonders as even on a per-location basis,  

The average Taco Bell store was earning more than  the average KFC or Pizza Hut. KFC and Pizza Hut   were effectively in domestic free-fall by every  measure, whether by locations, average store   earnings, or by overall food and drink sales. In  past years, Taco Bell had been the quiet, studious  

Kid in the corner overshadowed by its more famous  siblings in Pizza Hut and KFC. By the early 2010s,   Taco Bell was the crown jewel of the YUM Brands  portfolio. The strong results of Taco Bell during   the Great Recession gave David the confidence  to start pushing the Mexican chain overseas,  

But the limiting factor still was Mexican cuisine.  In 2008 onwards, Taco Bell resumed international   expansion but slowly as the scope was limited to  culturally compatible countries like Guatemala,   Mexico, Dubai, Costa Rica, and Spain. The Americans beat the Nazis to the atom bomb,  

But found themselves years later in a race against  the Soviets. The same thing happened in fast   food, where YUM Brands at this point in the early  2010s had surpassed McDonald’s in China – but   found themselves in another race against the  Golden Arches in other emerging markets like  

India. The success of Taco Bell in the United  States through the Great Recession and beyond gave   David the cover to continue slamming the gas  pedal on KFC and Pizza Hut overseas despite   their poor domestic performance. Investors were  less concerned about the domestic decline of KFC  

And Pizza Hut as Taco Bell’s strong performance  made up for their collective regression. As long   as Taco Bell maintained its incredible growth,  David could intentionally press the advantage   overseas for KFC and Pizza Hut without facing  investor scrutiny or customer backlash back  

Home. Think about it this way – if YUM Brands  just had the two brands of Pizza Hut and KFC,   it would have been a lot harder to get away using  international expansion as a way to cover up poor  

Domestic results. But because there was Taco Bell,  a third brand that was doing so well in the US,   David could make this trade-off. He could  concede market share in fried chicken and   pizza at home in favor of winning the  arguably more valuable international  

Arms race for American fast food. “The other thing that is really exciting   about our international business is that our  restaurants work a lot better because we do   not have as much competition. That is a big  advantage. In the United States, you have 30  

Major chains out there fighting it out every day.  When we go abroad in most countries, there is   McDonald’s and maybe a Burger King in some places  and it’s just not as competitive. One of the big  

Advantages we have at Taco Bell is we have a 70%  market share of a food category with no national   competitor. We are more convinced than ever that  Taco Bell is a Mexican-inspired powerhouse brand   that owns value. And particularly, we want to  drive home the fact that Taco Bell is our big  

U.S growth engine, accounting for over 60%  of our U.S profits combined and a net grower   of new units with lots of potential.” But the work was not done at Taco Bell. The   constraint with the value is that if you want  to add another $100,000 – $300,000 in sales  

Per store per year, you have to broaden appeal  beyond your existing core audience. Greg had a   deep understanding of the Taco Bell consumer  and split them into two camps – one was the   passionate power users who visited regularly and  followed promotions religiously and the other was  

The casual users who occasionally ate at Taco  Bell. But between the casuals and the zealots,   Greg refused to sacrifice one for the other in  the pursuit of greater sales. Taco Bell in the   early 2010s changed its central message from  the confrontational “Think Outside the Bun”  

To a more inspirational “Live MAS” in order  to communicate that Taco Bell was more than a   place for cheap tacos and burritos and a unique  culinary experience for all. To keep the core   customer base happy, Greg maintained a steady  flow of cost-efficient snacks, desserts, and  

Promotions so regulars would always find something  exciting that didn’t stretch their budget at every   visit. To win casuals, Greg opened up the menu  with newer premium offerings in an attempt to   broaden appeal with Cantina power bowls and higher  quality ingredients of black beans, corn salsas,  

And cilantro rice. The goal was not to match fast  casual, but to show Americans that they could get   a comparable product for half of what they were  currently paying at Chipotle or Baja Fresh.   The launch of the hit Doritos Locos Tacos in  2012 increased food & drink sales worldwide by  

$500M in a single year – a product that, like Baja  Blast 10 years ago, was only possible due to the   deep history between Taco Bell and Pepsico.  Then 2 years after the Doritos Locos Tacos,   Taco Bell launched breakfast in 2014. Greg knew  that the average American would be hesitant about  

Taco Bell for breakfast, so the chain deliberately  partnered with recognizable, iconic brands like   Tropicana, Cinnabon, and Seattle’s best to inject  institutional credibility and familiarity into   its new breakfast offerings. Thanks to the  expansion into morning sales on top of the  

Strong existing late night business, Taco Bell  surpassed over $8B in sales in 2014 without any   of the crutches of international expansion. Greg’s accomplishments with Taco Bell made him a   star at the company. In 2015, David retired  and Greg was the natural choice to succeed  

Him as the CEO of YUM Brands. By the time  of his retirement, David had successfully   won the arms race from the measure of speed in  blanketing China, India, and in other parts of   the world with as many KFCs and Pizza Huts as  possible. But ruling and conquering are not  

The same thing – and as the new CEO of YUM  Brands, Greg had inherited a mess. In 2014,   KFC and Pizza Hut in China – the same country that  David had bet the farm on two decades ago, were   struggling due to a series of highly-public food  safety scandals. This resulted in a significant  

Loss of consumer confidence and investor scrutiny  as the same market that YUM Brands had been   using to offset losses at home was now no longer  posting that same radical growth as before. China   was simply too big and too complex for one single  Kentucky-based company to effectively and remotely  

Manage three different fast food brands from.  Under intense public pressure, Greg spun out the   China business into its own separate company so  that he and his team e could solely focus on KFC,   Taco Bell, and Pizza Hut in everywhere else. There was hope that Greg could turn around Pizza  

Hut and KFC in the US like he had done for Taco  Bell. But every action has a cost and there are   tradeoffs to every decision. David’s decision to  go into the arms race against McDonald’s in China  

Back in the 90s resulted in a direct loss of Pizza  Hut and KFC’s domestic competitive advantage. Both   brands coasted off their legacy and hoped  that sales would last at home. In contrast,   Greg had been ruthless in honing in on Taco  Bell’s identity as CEO – he gutted anything that  

Didn’t fit and ensured the pipelines were filled  with products or promotions that would reinforce   the chain’s heritage and value play. These were  muscles that Taco Bell had built for many years   and Pizza Hut and KFC had not since the 70s-80s.  While Taco Bell honed in on young millennial males  

With a clear strategy in marketing and messaging,  Pizza Hut and KFC had nothing of the sort – they   were no longer as cheap and fast as their rivals  and they had long lost the quality and personality   to compete with independent restaurants. Both  of these lagging brands had become so bloated  

And so broad that they were no longer really  good at anything or targeted at anyone.   At first, Pizza Hut and KFC attempted  to restore quality with menu revamps,   celebrity endorsements, and heavy advertising  throughout the 2010s – but when innovation failed,  

Both brands ultimately resorted to copying Taco  Bell’s proven value playbook. But without the   right vision and application of value, Pizza Hut  and KFC have only made things worse as both brands   ended up in a race to the bottom throwing out  as much pizza, pasta, chicken, or drink for as  

Cheap as possible. And the only way that both  brands have kept their prices so low without   bankrupting franchisees to cut corners and cut  costs, hence the ever-worsening quality of food   served at both Pizza Hut and KFC in the United  States. To this day, there are fewer and fewer  

KFC and Pizza Hut stores in the US – and Taco Bell  remains the only brand not to regress in scale at   home. And while hundreds of domestic Pizza  Hut and KFC stores shut down every year,   YUM Brands still tries to offset those losses by  opening thousands of new stores overseas.  

As Greg moved into his new role as YUM Brands,  he appointed his protege, a man by the name   of Brian Niccol as the new CEO of Taco Bell.  Brian would run Taco Bell from 2015 to 2018,  

Where the chain would enjoy record growth from $9B  in worldwide food and drink sales to nearly $11B.   Brian carried on his mentor’s work, launching the  Naked Chicken Chalupa, the Quesalupa, a lineup   of fancy sit-down Taco Bell Cantina stores that  served beer and alcohol alongside core menu items,  

And Nacho Fries. Under Brian, Taco Bell made  even greater leaps into the millennial market as   the first fast food company to roll out a mobile  app, to actively encourage customization, and to   release an official clothing line. By the time of  Brian’s exit in 2018, Taco Bell had scaled under  

His watch to over 6,500 stores in the US while  the number of KFC and Pizza Hut continued to fall.   Restaurant-level operating margin, which is a  measure of profitability for an average Taco Bell   store, reached as high as 24%. To increase sales  and profits while also scaling domestically is  

A tremendous feat for any chain in the mid-2010s  – and this accomplishment caught the eye of Taco   Bell’s longtime rival Chipotle. Chipotle, who had  been suffering through a string of high-profile   scandals related to food safety, was in search of  new leadership and moved quickly to poach Brian  

From Taco Bell. Brian to this day remains CEO of  Chipotle and interestingly not brought the same   product innovation and marketing prowess that he  accomplished at Taco Bell. If anything, Brian has   gone against his roots in aggressively limiting  customization at Chipotle, doubling down on  

Store profitability even at the expense of worker  retention, restricting menu expansion, and pushing   a mobile-first experience to maximize sales. Just one year after Brian’s exit from Taco Bell,   Greg retired from YUM Brands in 2019. Rather  than appointing a marketer or a product-oriented  

Leader, YUM Brands instead chose a numbers guy in  David Gibbs as the new company CEO. David Gibbs   had climbed up the ladder at YUM Brands for the  past 30 years and was CFO before being promoted   to CEO. Predictably, the company has become  more numbers-driven, more predictable, and  

Less creative under David Gibbs and Taco  Bell has not been immune to these changes.   The leaders that David Gibbs has appointed  to run Taco Bell have been uninspiring and   out-of-left-field to say the least. There  was Mark King – the former sales executive  

Who claimed credit for turning around Adidas  sales in North America when in actuality that   success was due more to Kanye West and UltraBoost.  Despite spending 40 years in sportswear and golf,   Mark King was somehow seen as the right candidate  to run the Mexican fast food leader that sells  

Tacos and burritos to millennials. Mark’s first  moves were to cut Mexican pizza and other fan   favorite menu items like the Double Decker,  Grilled Stuft Burritos, and potatoes just to   cut costs and optimize store profits – but none of  these reductions meaningfully increased long-term  

Profitability for the Mexican chain. The customer  backlash to these changes was loud and furious,   but these moves were actually much deeper than  the standard clueless cost-cutting of corporate   America. This is where all that time that we  spent earlier understanding the dynamic at  

YUM Brands between KFC, Pizza Hut, and Taco Bell  over the past 3 decades will all make sense.   Taco Bell is now the safe asset in the portfolio  – it’s no longer just the crown jewel, but the   workhorse that YUM Brands is betting everything  on. At this point, the domestic decline of KFC  

And Pizza Hut is apparent by any conventional  measure – and the various turnaround initiatives   that each of these brands have attempted over  the past decade have all failed. Pizza Hut   historically contributed a full quarter of  YUM Brand’s profits and just a decade later,  

The pizza chain accounts for just 16% – and that  number has steadily dropped every year. This is   bad, but it’s even more alarming when we consider  the reality that this decline is still happening   despite the relentless international expansion  where Pizza Hut continues to open up hundreds of  

Stores overseas every year. We can see the same  diminishing returns when we look at the average   Pizza Hut store earnings in 2000, then 2013, and  now 2022 – where the average Pizza Hut earns less  

Than it did 10 years ago and makes the least out  of any major fast food chain. This makes Pizza Hut   a growing liability for YUM Brands especially  since opening new stores overseas is the only   thing keeping the pizza chain afloat. And at  this point, there are no more arms races and no  

More emerging markets where Pizza Hut can project  meaningful future growth from. KFC is in a better   spot, but not by much. KFC’s contribution to  YUM Brands profits has stagnated in the past   decade – despite opening thousands of new stores  overseas every year. There are 30% fewer KFCs in  

The United States today than there were in the  90s and at this current pace, there will be 50%   less in the next 20 years. The average KFC makes  less today than it did 8 years ago and the dropoff  

Is actually worse when we factor inflation. Taco Bell is the only brand that’s going forward   while everyone else is going backwards. It’s the  only chain that’s holding its own in the US and   can be counted on to grow. Without a passionate  homegrown marketing or product leader to lead  

Taco Bell – the second “best” option at CEO is  someone like Mark King who won’t mess things up,   who won’t rock the boat, who won’t have any wild  ideas – someone who is just happy to have the job,  

To optimize for the bottom line, to keep things  safe and predictable, and will do what they’re   told. Taco Bell in the past under Emil, Greg, and  even Brian was in a constant state of evolution of   trying to find the next core item that would pull  in casuals and fans like Nacho Fries, Crunchwraps,  

Doritos Locos Tacos, and Baja Blast. These days,  Taco Bell is all about static optimization. It’s   no longer about invention, originality, insight  and intuition but instead about data, ROI,   and maximizing profits on existing items. Taco  Bell is now all science where every decision,  

Pricing change, promotion, and even product  removal is a financial calculation to maximize   profits or to collect the consumer data that  will inform a future financial calculation.   And as unappealing as it is to us as customers,  the reality is that the company has almost no  

Margin for error. YUM Brand’s relevance at home,  its optics with investors, its public valuation,   and future growth prospects now all hinge on  Taco Bell – the only brand heading upwards   while everyone else is sliding back. The public backlash over the removal of the  

Mexican pizza showed Taco Bell’s leaders  that if they removed popular core items   and then returned them as limited offerings,  they could generate hype and by extension,   rack in greater sales and guaranteed profits in a  shorter period of time. “What we learned is that  

People really love individual items. So now for  us, what other magical items have we removed that   we can relaunch in a big way to capture people’s  interest or imagination? It was a learning for us   on how we can create this amazing buzz and then  translate that to transactions in our business.  

We use digital not only to drive transactions,  but to really engage our customers, so we ask   them to vote on what products to bring back.”  And it’s not just Mark alone on a soapbox. This   borderline obsession with numbers and data is part  of a new culture being pushed down from the very  

Top by David Gibbs. “There’s lots of reasons to be  excited about what Taco Bell is doing in 2024 with   all the impact that tech can have and the insights  we’re going to glean from data. In the long run,  

I think the companies that make the best use of  the data generated from their digital loyalty   programs will be the ones who find this to be a  competitive advantage. That’s why we’re investing   in the easy insights component underneath  this. When we’ve done analysis at Taco Bell,  

Every time we shift sales to digital, we see  an increase in frequency and check size. If   we were to go from somebody just using our app  casually to being a member of our loyalty program,   we can control for other factors around the  normal usage. We get richer data and an even  

Better connection. This is why for our new menu  items, the only way to order is if you’re on the   app and a member of our loyalty program.” This is a huge contrast from Greg in the past,   who as an old-school marketer, publicly  rallied against this type of numbers  

Optimization thinking. “You can have all the  data in the world, but if you either don’t have   a hypothesis or you don’t have any insight, then  it is absolutely useless. And because everyone’s   pretty much got access to the same data,  it comes back to who has the best instinct  

Of what that data is telling them. That is what I  fundamentally believe in.” While Greg religiously   refused investor demands to sell Baja Blast and  other popular Taco Bell items in grocery stores   under the belief that such a move would dilute  the brand and weaken store sales, Taco Bell’s  

New leaders have no qualms about turning a buck –  selling bottles and packs of its signature sauces,   seasoning mixes, taco shells, and beans at  supermarkets everywhere. Still, the problem   for Taco Bell is not squeezing dollars at home –  as Americans continue to flock in for exceptional  

Value and power users continue to passionately  post about their satisfaction with the “new”   products which are ultimately the same products  and ingredients, just packaged, portioned,   or priced in slightly different ways than before.  Instead, the obstacle is international expansion.  

Taco Bell’s value proposition has not successfully  carried over to Europe or Asia, where the Chinese   and Europeans have collectively found the  food to be too small and inadequate as the   expectations for American fast food is a proper  sit-down, culinary meal and experience – not a  

Grab on-the-go cheap eat. This can be reflected  in the dramatically slow scale overseas for Taco   Bell – and this only further strengthens the  need to squeeze every dollar it can out of   Americans until the international markets  one day warm up to Mexican cuisine.  

This is why Taco Bell has changed so much – it’s  why customers are suddenly needing to pay $6,   7 or more for a core item like a chicken  quesadilla, why there’s suddenly this manufactured   scarcity where popular items get removed but then  reintroduced months later, why orders are being  

Funneled into the mobile app, why the menu and  ingredients both undergo regular consolidations,   and why YUM Brands is so obsessed with hiring  executives with zero restaurant or hospitality   experience from lifestyle, athleisure, sportswear  companies like Adidas and Nike to run Taco Bell.  

The price hikes, subtle cost-cutting, artificial  scarcity, and lack of investment in genuinely,   new groundbreaking products at Taco Bell are  all intentional decisions. Taco Bell’s purpose   these days is to maximize profits in the US  and use these stronger sales to subsidize and  

Offset the poor sales of KFC and Pizza Hut in  the US. In an alternate universe where KFC and   Pizza Hut in the US were performing up to the same  standards, there would be no need for Taco Bell to  

Engage in these tactics. And in a different  reality where Yum brands only owned KFC and   Pizza Hut and didn’t have Taco Bell, the company’s  constant cheerleading of international expansion   and winning the arms race against McDonald’s in  China, India, and other parts of the world would  

Likely be a lot less effective. Investors  would likely be far more critical looking   at the poor performance of Pizza Hut and KFC in  the US. With all the data we’ve covered so far,   it’s not difficult to imagine how much worse  some of the U.S. numbers would be without  

Taco Bell. The constant failures by YUM Brands in  strategy, execution, and personnel to turn around   KFC and Pizza Hut over the past 10+ years would  deservedly be under far greater scrutiny. In short   without Taco Bell, YUM Brands would likely  not enjoy the same lofty public valuation  

That it has today. YUM Brand’s current  narrative as a diversified, high-growth,   leading fast food operator across multiple  categories all around the world entirely rests   on Taco Bell. Taco Bell is the golden goose that’s  carrying the American market and by extension,   enabling the company to continue and lazily  position international expansion as its  

Moat and growth story, even nearly 50 years  after the opening of China in the 1980s.   Everything, in business and in life, is  connected – every action has a consequence   and every decision has a tradeoff. It is unfair  to fault the current CEO of YUM Brands for being  

So conservative, so numbers-oriented, and so  profit-driven with Taco Bell when we take into   context the situation that he’s inherited from  decisions made decades ago by his predecessors.   Taco Bell is the golden goose and the company  can’t afford to mess things up given that KFC  

And Pizza Hut are both barely pulling their  weight. The importance of Taco Bell is even   greater if you factor in the war in Ukraine which  forced YUM Brands to exit Russia and cut out one   of the largest remaining emerging markets in  the world from its international ambitions.  

The opening of China in the 1980s and the arms  race to beat McDonald’s in Asia was a decision   with enormous ramifications that the company is  still experiencing today, over 40 years later. YUM   Brands is already losing the war on 2 different  fronts in fried chicken and pizza in the US and  

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