TABLE OF CONTENT
1.0
TACO BELL’S FRANCHISE TYPE OF FRANCHISING .............................................. 1
1.1
Business Format Franchising ................................................................................ 1
1.2
Taco Bell as a Business Format Franchising ...................................................... 1
2.0
TACO BELL FRANCHISE’S DISCLOSURE DOCUMENTS ........................................ 4
2.0
Taco Bell’s Franchise Disclosure Document....................................................... 4
2.1
Restaurant System and Procedures .................................................................... 4
2.2
Training...................................................................................................................... 5
2.3
Restaurant Maintenance ........................................................................................ 5
2.4
Advertising and Publicity ....................................................................................... 6
2.5
Fees ............................................................................................................................ 7
2.6
Record Keeping ........................................................................................................ 7
2.7
Restaurant Inspection ............................................................................................ 8
2.8
Insurance .................................................................................................................. 8
2.9
Debts and Taxes ...................................................................................................... 9
2.10
Trademarks ........................................................................................................... 9
2.11
Expiration and Termination ............................................................................. 10
3.0
TACO BELL FRANCHISE’S FRANCHISING KEY SUCCESS FACTOR .................. 11
3.1
Unique and Innovative Social Media Campaign ............................................. 12
3.2
Healthy Conscious Food Product........................................................................ 13
3.3
Being a Subsidiary of Yum! Brands Inc ............................................................ 14
3.4
Keep Innovating its Products and Services ..................................................... 14
3.5
Attractive Pricing Strategy .................................................................................. 16
REFERENCES ......................................................................................................................... 17
APPENDICES.......................................................................................................................... 19
1.0
TACO BELL’S FRANCHISE TYPE OF FRANCHISING
1.1
Business Format Franchising
Business format franchising is the practice of licensing the rights and obligations
to replicate a distinctive retail positioning that economically serves a viable consumer
group. This type of franchising can contain products or services and also can or cannot
be location-specific business. A business format franchising also usually includes a
support system to implement and operate the business with specific equipment and
detailed operating instructions of managing the franchise. The franchisee will use the
franchisor's products, services, and trademarks, as well as the marketing plan and
operating manuals in this sort of franchising. This makes the franchises look more
similar and standardized. The common example of business format franchises is fast
food, services, restaurants, retails, automotive and many others. Meanwhile, some of
the popular business format franchises are including KFC, 7-Eleven, Blockbuster Video
and many others.
1.2
Taco Bell as a Business Format Franchising
Founded by Glen Bell in 1962, Taco Bell is an American-based chain fast food
restaurant chain. Together with KFC and Pizza Hut, Taco Bell is the subsidiary of Yum!
Brands, Inc which was one of the largest restaurant companies in the world. Some of
the franchisees of Taco Bell in America are Taco Bell of America LLC and Bell American
Group LLC.
To start a Taco Bell franchising, individuals need to get approval and license to
use the franchisor’s trademark, system name and logo which is very important
because the franchisee will have to carry on a positive image of the franchise. We can
see that every Taco Bell outlet all over the world is using the same logo, trademark,
1
signature menu and even the color scheme is similar. The iconic purple bell logo and
principal trademark will help franchisees to be identified easily by the public and create
a sense of familiarity.
A business format franchise also will allow the franchisees to receive initial
training for the management team and be granted rights to use the franchisor’s sole
business system which in this case, Taco Bell’s business system. For example, Taco
Bell has its own information system called the TACO system which connects each of
their point-of-sale systems to the marketing managers and corporate headquarters.
The access to this system will be granted to the franchisee to ensure that the
management of the franchises are standardized and accordingly.
Other than that, because franchising is also about systems and support, Taco
Bell franchisees also received support from the franchisor in terms of site selection
and site development assistance. Marketing and advertising support will also be
provided by the franchisor. This is because franchisors will also benefit from successful
franchisees. Therefore, showing their support to the franchisees is quite crucial.
According to an article from Entrepreneur Asia Pacific (2020), Taco Bell has its own
marketing stunts and they have deployed masterful marketing campaigns to win the
customers. Taco Bell Corporation’s CEO, Mark King realized the importance of
marketing strategies and he is currently responsible for the global growth strategy and
performance of Taco Bell.
Taco Bell is very well known for their Mexican based food which is tacos. Tacos
are already famous themselves but Taco Bell is surely popular for their signature dish.
A business format franchising is a business where the franchisor grants the franchisees
right and obligation to sell the franchisor’s product and services. This is a very crucial
2
aspect of a business format franchise because the customers consume and use the
products and at the same time want the experience with the franchise themselves.
For example, a Taco Bell franchisee will sell foods, drinks and services according to
the franchise initial products and service. This can be seen when we visit each Taco
Bell franchise, they will sell the same products and offer the same services. However,
this will come as a challenge to the franchisees because they will have to maintain or
even better improve the standard of the products and services including their
restaurant outlet.
Last but not least, a business format franchise will help the franchisees with
the advantages of lowering their products costs if there are many other franchisees in
existence. According to a report by Scrape Hero (2021), there are 7,489 Taco Bell
locations in the United States in 2021.
Photo 1: Taco Bell store locations in the USA
3
As we can see from photo 1, many of the store locations are close to each other.
This will actually benefit the franchisees because multiple Taco Bell stores are using
the exact same products periodically and therefore, franchisors can supply tools,
material including equipment at once from the same manufacturer and direct suppliers.
Overall, this will help reduce the product costs because they have a greater purchasing
power.
2.0
TACO BELL FRANCHISE’S DISCLOSURE DOCUMENTS
2.0
Taco Bell’s Franchise Disclosure Document
A Franchise Disclosure Document (FDD) is a legal contract that the franchisor
will present to potential franchisees prior to selling a franchise. This will allow
franchisees to gain important information including matters like the fees charged and
legal relationship between the two parties.
2.1
Restaurant System and Procedures
Taco Bell company will be using fair in terms of business measures to provide
the Franchisee with advice, guidance and help in operating and managing the
restaurant. This will incorporate frequent visits by the Taco Bell’s Company
representative to the restaurant chain. Further assistance will also be included such
as regarding the matter of pre-opening activities as a reasonable requirement. An
advertising program based on what the company suggested and developed also
should be carried out as for the initial opening of the restaurant.
A Taco Bell franchisee is also required to be committed fully by using the
franchisee full time, the best possible effort and personal attention at all times to the
restaurant every day. This FDD also advises that a franchisee or manager shall live
approximately 1 hour from the restaurant. Other responsibilities stated are to keep
4
the restaurant clean, safe, and well-organized while offering courteous, first-class
service The franchisee must also diligently advertise the restaurant and make every
reasonable attempt to enhance its business.
A Taco Bell franchisee shall acknowledge any receipt and loan of a copy of the
Company’s Franchise Operation Manual while faithfully, completely and continuously
perform, fulfil, observe and follow all instruction, requirement, standard, specification,
systems and procedures contains in the manual in which the company has the right
to amend and revise the manual.
2.2
Training
All Taco Bell’s franchisees or the restaurant manager will be granted by the
company an operation training course specifically for Taco Bell Restaurant. Before the
operation begins, a representative from the franchisee who is appointed to function
as the restaurant's inaugural manager should attend for a period of time and complete
the Company's training courses with appropriate satisfaction approved by the
company. If it fails to do so, the agreement between the franchisor and franchisee will
be terminated.
Other than that, the company also provides a refresher course in the restaurant
that should be attended by the franchisee and the appointed manager. With the
training course provided, the Franchisee and manager are responsible to keep up with
the standards, procedures, strategies, and content that have been taught and shall
train their staff in the restaurant according to the course provided.
2.3
Restaurant Maintenance
Taco Bell Company also requires the Franchisee to keep the restaurant, related
equipment, signage, renovations, landscaping, and the restaurant grounds in good
5
working order, at the Franchisee's sole cost and expense, in accordance with the
System's standards, specifications, and requirements, as the same may be designated
by the Company from time to time, and as necessary or replace. The franchisee is also
required to change or replace any equipment, when necessary, with their own cost.
However, any altercation, improvements or changes in the design, equipment or decor
shall be made without a written approval from the Company.
2.4
Advertising and Publicity
The Taco Bell company had developed and administered advertising and sales
promotion programmed specifically designed where all Taco Bell restaurants will
benefit from this program, which is meant to promote and enhance their success. The
franchisee shall actively participate in such programs according to the company terms
and conditions constructed by the company.
A separate ‘Marketing Funds’ will be established by the company where the
fees from the franchisees will be deposited into the funds. This marketing funds will
be used to improve and promote the Taco Bell brand's public recognition and image,
including purchasing advertising and developing, supporting, and disseminating
various marketing and media campaigns.
Any incident that is concerning to the franchise image that is most likely to gain
publicity through the news media shall be reported immediately by the franchisee to
the company for the advantage of the brand. This is also to acknowledge the
franchisee that the company is allowed to make any public or private statements on
behalf of the brand. It is also necessary for the franchisee to consult with the company
in advance before creating any publicity activity for the brand.
6
2.5
Fees
The Taco Bell Company should be paid during the period by franchisees. Within
six months of the restaurant's debut, franchisees should spend $5,000 on advertising
and promotion of the business. Upon receipt of paid invoices or other proofs of
spending, the business will reimburse the Franchisee for up to $5000 in grand opening
expenditures. Within 9 months of the restaurant's opening date, any paid invoices and
evidence of spending must be provided to the corporation.
2.6
Record Keeping
The Taco Bell corporation is required to provide franchisees with a Taco Bell
Restaurant record keeping system and paperwork, which the franchisees are obligated
to use without change. The Franchisees are required to complete the system and form
in regular basis to submit it to the company which is should be reported weekly, on
or before the fifth business day after each week in each accounting period (Weekly
Restaurant Reports), on or before the fifth business day after expiration of each
accounting (Period Restaurant Reports) and on or before 90 days following the end of
each calendar year of the end of the Franchisee’s fiscal year (Annual Restaurant
Reports).
An annual restaurant report includes all three reports mentioned including the
balance sheet statement and profit and loss statement for such year complete with
any additional financial information that the company may need and request. An
independent certified public accountant must examine the balance sheet and profit
and loss statement and provide a written opinion in accordance with Statements on
Standards of Accounting and Review Services. Failure to do so, the company has the
rights to make an independent audit with the franchisees will pay any costs occurring.
7
2.7
Restaurant Inspection
The Company will have the right to send representatives into the Restaurant
premises at any time and without notice to inspect the condition of the premises and
the Restaurant's operation for compliance with the standards, specifications,
requirements, and instructions set forth in this Agreement and Manual, as well as for
any other legitimate reason related to the Restaurant's business.
2.8
Insurance
Before the start of Restaurant operations, the Franchisee shall obtain and keep
in full validity and effect during the period of this Agreement, at the Franchisee's
exclusive cost and expense, an insurance policy or policies covering the Franchisee
and the Company against any damage, responsibility, or event originating from or in
connection with the condition, operation, use, or occupancy of the Restaurant. The
Company will also act as the additional insured in all policies with exemption to workers’
compensation. The policies should be written by any insurance company with approval
to the Taco Bell Company.
The policies should include the following types and amounts:
KIND OF INSURANCE
MINIMUM LIMITS OF LIABILITY
Workers’ Compensation
Statutory
Employers’ Liability
$2,000,000 per occurrence
Commercial General Liability
$2,000,000 per occurrence
8
$5,000,000 annual aggregate per occurrence
Products Liability
included in Commercial General Liability, separate
annual aggregate of $5,000,000
The Franchisee must have all-risk property insurance (fire) coverage for the
Restaurant buildings and other improvements, equipment, furnishings, fixtures, signs,
and any expansions. The policy must be written on the replacement cost of the
property and include at least six months of business interruption coverage. Such a
policy or policies must be written by an insurance company that has received an A- or
equivalent grade from Best's.
2.9
Debts and Taxes
In terms of the franchisee debts and taxes, all obligations incurred directly or
indirectly in connection with the Restaurant and its operation, including, with no limit,
all taxes and assessments assessed against the Restaurant land, building and other
improvements, equipment, fixtures, signs, furnishings, and other property, shall be
paid promptly when due by the Franchisee. This also includes all liens and
encumbrances of any kind and nature created or placed on or against any of said
property, and all accounts and other liabilities of any kind and nature incurred by or
on behalf of the Franchisee in the course of the Restaurant business.
2.10 Trademarks
The Franchisee acknowledges that the Company has the sole and exclusive
right to use the Trademarks in correlation with the products and services to which
they are or may be implemented by the Company, and represents, warrants, and
9
consented that the Franchisee will not use the Trademarks in any way during the Term
of this Agreement, or after the expiration or other termination of this Agreement.
The license to use the Trademarks granted to the Franchisee under this
Agreement is non-exclusive, and the Company has the right, in its sole and absolute
discretion, to grant further licenses in, to, and under the Trademarks in addition to
those previously granted. This includes both inside and outside of the restaurant
business area.
The Franchisee may not use the Trademarks in any statement or material, or
do or fail to do anything else that the Company believes to be in poor taste or
inconsistent with the Company's image, or that tends to ridicule the Company, the
System, the System's goods or services, or the Trademarks.
The company also has the right to give notice to the franchise from time to
time regarding any deletions and changes in the trademark which shall be proceed in
good faith and reasonable basis.
Any trademark infringement allegations or charges brought against the firm or
the franchisee must be reported to the company, and vice versa. The franchisee may
not take any action in this subject without first receiving written consent from the firm.
Last but not least, the Franchisee shall only use and utilize the Trademarks in the
methods explicitly allowed by the Company from time to time during the period of the
agreement.
2.11 Expiration and Termination
If the Franchisee files a bankruptcy petition, an arrangement for the benefit of
creditors, or a petition for reorganization, or if the Franchisee makes any assignment
for the benefit of creditors, or if a receiver or trustee is appointed for the Restaurant,
10
this Agreement will automatically terminate without notice. The company will have the
full rights to terminate the agreement immediately in the vent of breach or default
under specific subsection, if the franchisee loses its right to possession of the premises,
If the Taco Bell company uncovers that the franchisee committed a major
misrepresentation or ignored a substantial truth in the information provided by the
franchisee in connection with the award of this Taco Bell franchise, the franchisee will
be terminated. Last but not least, if the franchise or any shareholder is convicted of a
felony or a crime involving moral turpitude, the agreement will be automatically
dissolved.
If the Agreement expires or is terminated sooner for any reason, the Franchisee
must immediately cease using the System and Trademarks immediately. Next, if the
Franchisee owns or leases the Restaurant premises from a third party, remove the
Trademarks from all structures, signs, fittings, and furnishings, as well as any
proprietary small wares and equipment, including the manufacturing lines, in the
manner indicated by the Company. Last but not least, when the agreement expires or
terminates sooner, the franchisee should not to use any trademark, trade name,
service mark, logo, slogan, emblem, symbol, design, or other distinguishing
characteristic connected with or similar to those associated with the Company in the
future.
3.0
TACO BELL FRANCHISE’S FRANCHISING KEY SUCCESS FACTOR
Over the last decade, we can clearly see how much the franchising industry has
grown and become very popular among entrepreneurs. Even from the place that we
currently live in, we can see many franchises operating serving people products and
services. Many entrepreneurs have taken the advantage of franchising because this
11
allows them to expand their business without the risk of debt or any cost of equity.
Moreover, it will be more beneficial for the franchisor if the brand itself becomes
successful.
3.1
Unique and Innovative Social Media Campaign
In the case of Taco Bell, the most popular key success factor that they have
mastered is the fact that Taco Bell has a unique and innovative social media campaign.
Taco Bell is said to be winning at social media marketing and this can be seen as it is
because Taco Bell had taken advantage of the internet and social media platform to
market their products there. When we visit any of their social media platforms such
as Twitter and Instagram, Taco Bell is very successful on the platform that they are
almost equivalent to other social media personalities that are witty and have a sense
of humour that is very popular among the youth nowadays. This had proven that Taco
Bell managed to define their target market which is clearly the youth as they become
more appealing to the targeted demographic with a more human-centred marketing
attitude.
Other than that, different from other businesses that usually use bots that
imitate and replace human personalities to connect with people, Taco Bell had made
the effort to actually connect with customers in real time with real people. This has
improved their image, customer’s experience and at the same time marketing their
products. With more real interaction and engagement with the consumers, Taco Bell
has proven benefited from this effort because their numbers of social media following
increases.
12
Last but not least, Taco Bell is using the social media influencers that are usually
not related or by any means linked to the franchise as their marketing effort. When
Taco Bell interacts with many social media influencers, the influencers with their large
number of followers will turn their attention to the franchise and benefit them through
what it seems almost like free of charge marketing strategies.
3.2
Healthy Conscious Food Product
Taco Bell is very popular among individuals as they have been marketing
themselves as the best fast-food chains for healthy food. Indeed, Taco Bell had
received much media coverage regarding their healthier food line and the fact that
Taco Bell’s customers can customize their menu options to be much healthier had
created an image of Taco Bell being different from other fast-food chains. From Taco
Bell’s website, we are also informed that they are also offering certified menu items
from American Vegetarian Association (AVA) whose main focus is to help vegetarian
individuals to make accurate food choices while being confident with their food
because AVA will provide certification to restaurants.
According to an article from Mashed (2020), Taco Bell has spent many years to
improve the health profile of their menu and the results was that Taco Bell had made
a few healthy changes to their menus such as reducing 15 percent of their sodium
content, getting rid of the high fructose corn syrups and removing artificial colours as
long as flavours. This has attracted attention from many people because people think
that buying and eating Taco Bell’s products are better because of the positive image
of the franchise as being a healthy fast-food chain. This is simply what differentiate
Taco Bell with other fast-food chains and contributed to their key success factors.
13
3.3
Being a Subsidiary of Yum! Brands Inc
Except in China, Yum! Brands INC operates fast food chain restaurants such as
KFC, Pizza Hut, The Habit Burger Grill and Taco Bell. Yum! Brands is listed as among
the top, popular and fastest-growing restaurant businesses in the world alongside
McDonald's Corporation and Starbucks. Being under the parent company of Yum!
Brands Inc will benefit Taco Bell because Yum! Brands is very experienced in managing
other fast-food restaurant chains such as KFC and Pizza Hut as both of these
restaurant chains are widely popular and successful. Not only that Taco Bell is a fastgrowing restaurant chain, Taco Bell success also will contribute to Yum! Brand’s
success. In my opinion, this will likely make Yum! Brands to show full support to Taco
Bell to maximize profits. Moreover, as the parent company that had managed many
successful restaurant chains, Yum! Brands should be able to handle Taco Bell’s
franchise system better with the experience and knowledge they gain from managing
KFC and Pizza Hut.
3.4
Keep Innovating its Products and Services
In the past years, Taco Bell had been known as the franchise that is becoming
the world’s most innovative franchise. This can be seen by how Taco Bell adapts
themselves according to the current world era by taking advantage of the advanced
technologies and modern era without forgetting about the things that are popular and
are getting a lot of attention from the mainstream. One of the examples is that Taco
Bell is making an effort to cooperate with other brands by coming up with creative
menus. For example, Taco Bell partnered up with Frito-Lay, which is a company with
the main products of chips with popular products such as Doritos, Cheetos and Lay’s
14
chips. Together, these two brands came up with the menu ‘Doritos Locos Tacos’ that
was officially sold in their store back in 2012.
Other than that, Taco Bell also made sure to jump into the new go mobile
concept with their Taco Bell Go Mobile that is precisely designed to help and ease
customers with mobile ordering and pick-up. Taco Bell realized that they need to keep
up and adapt to meet their customers’ vastly changing demands. This innovation will
also help them to cope with the current world crisis which is the Covid-19 outbreak as
many dine-in options are not quite safe for the consumers just yet.
According to the National Restaurant Association (2020) in an interview with
the manager of Global Nutrition and Sustainability for Taco Bell USA, even during the
pandemic, Taco Bell is said to keep innovating even though they had no choice but to
comply with the advice from local governments and the centres for Disease Control
and Prevention. With their Go Mobile restaurant design set to start this year, Taco Bell
had made the effort to improve their relationship with their customer through their
Taco Bell Beta Rewards program that gives rewards points for online orders from
customers. Taco Bell also chose to take the decision of simplifying and evolving the
menu as their way to cope with the Covid-19 by taking into consideration the needs
to increase their service speed.
Not forgetting about their role and responsibility towards the well-being of the
planet, Taco Bell keeps innovating to meet their commitment to make all global
consumer-facing packaging reusable, compostable and recyclable by the year 2025.
They are also looking forward to adding plant-based protein on their menu soon.
15
3.5
Attractive Pricing Strategy
Compared to other fast-food restaurant chains, Taco Bell offers a lower price
to consumers that is almost too good to be true because of the number of different
choices that the franchise offers to their customers. According to a news article by
The New York Times back in 1990, the article highlighted how Taco Bell had found
the price of success with cheap and affordable food compared to other food chains
with the price as low as 59-cents tacos. The article also highlighted that Taco Bell’s
pricing strategy has worked extremely well as the franchise still generated a high store
sales percentage which was 10 to 15 percent annually that was even higher than the
average industry which is about 2 to 4 percent annually. This proves that Taco Bell is
excellent in their pricing strategy from the very beginning of their operation as a
franchise.
The main contributor to this success is that Taco Bell, like every other franchise,
buys supplies in bulk to save their money and correspondingly help lower the price.
Other than that, Taco Bell is not using 100 percent real beef in their food products but
instead only 88 percent of their beef is real. Beef is expensive and by using other
substitutes for beef that is plant based, it is much cost saving. Last but not least, most
of Taco Bell's products are just basically not based on meat products. Meat can be
very expensive resulting in many other fast-food restaurants whose products are
mainly based on meat will cost higher than Taco Bell’s products and the price offered
to the consumer will also be higher.
16
REFERENCES
Ginsberg, M. (2021, January 19). How Taco Bell Became 2020’s Top Franchise .
Entrepreneur. https://www.entrepreneur.com/article/363039
Innovating During a Pandemic: Taco Bell Doubles Down on Core Commitments . (2020).
National
Restaurant
Association.
https://www.restaurant.org/articles/news/taco-bell-doubles-down-on-its-corecommitments
Kaufmann, P. J., & Eroglu, S. (1999). Standardization and adaptation in business
format
franchising.
Journal
of
Business
Venturing,
14(1),
69–85.
https://doi.org/10.1016/s0883-9026(97)00097-9
Lee, A. (2020, May 20). 4 Ways Taco Bell Became the Millennial’s Favourite Taco .
Word-of-Mouth
and
Referral
Marketing
Blog.
https://www.referralcandy.com/blog/taco-bell-word-of-mouth-marketing/
Schwartz, R. (2020, December 10). This is surprisingly one of the healthiest fast-food
chains. Mashed.Com. https://www.mashed.com/199914/this-is-surprisinglyone-of-the-healthiest-fast-food-chains/
ScrapeHero. (2021, June 6). Number of Taco Bell locations in United States .
https://www.scrapehero.com/location-reports/Taco%20Bell-USA/
Taco Bell is taking a page from Chipotle’s playbook with its new mobile ordering drivethrust.
(2020,
August
21).
Business
Insider
Nederland.
https://www.businessinsider.nl/taco-bell-launches-go-mobile-restaurant-withtwo-drive-thrus-2020-8?international=true&r=US
17
Times, T. N. Y. (1990, December 17). Taco Bell Finds Price of Success (59¦). The New
York Times. https://www.nytimes.com/1990/12/17/business/taco-bell-findsprice-of-success-59.html
Tran, J. (2018, April 19). Why Taco Bell is Winning on Social Media: Let’s Taco ‘Bout
Their Strategy. Medium. https://medium.com/rta902/why-taco-bell-is-winningon-social-media-lets-taco-bout-their-strategy-a2708ca8a617
18
APPENDICES
Appendix 1: Taco Bell Company’s Franchise Disclosure Document
19
Appendix 2: Taco Bell’s Go Mobile Restaurant Plan
Appendix 3: Taco Bell’s Franchise Agreement Recitals
20
Appendix 2: Taco Bell’s Guaranty
21