Taco Bell and Cost Leadership

In this article, I’ll discuss Taco Bell’s cost leadership, and investigate some policy decisions and situational factors that allow them to maintain their competitive advantage over other firms in the Fast Food segment.

One factor that Taco Bell has taken advantage of behind the scenes is the effect of economies of scale. For the restaurant industry in general, economies of scale are limited in that food typically needs to be assembled and cooked onsite. Taco Bell is no exception to this rule, however, Taco Bell severely limits what they cook onsite. Even their ground beef, shredded and grilled chicken, and steak protein options are all pre-cooked and warmed onsite. The beans, likewise are cooked and dried offsite, and rehydrated and warmed onsite. Taco Bell’s onsite cooking is mainly limited to grilling quesadillas and grilled burrito-style items, and deep frying certain items and components, such as nacho fries, cinnamon twists, and the flaky deep-fried shells for Taco Salads and Chalupas.

By using economies of scale to mass produce as many components as possible as cheaply as possible, Taco Bell is able to limit the amount of employee time that is dedicated to the task of cooking at its restaurants. To increase this effect, assembly is made as efficient as possible. The only recent sacrifice that Taco Bell has made is that in order to change the perception of their guacamole, they stopped dispensing it from an apparatus resembling a caulking gun in 2012. They do, however, continue to employ this device for sour cream.

While none of these policy decisions are impossible to replicate on their own, Taco Bell’s unique menu among the North American fast food landscape allows it to uniquely benefit from these techniques. Major competitor McDonalds are in fact moving in the opposite direction, focusing on a differentiation strategy of using more expensive fresh beef for their quarter pounder.

And even restaurants attempting to imitate Taco Bell’s technique advantages and menu would find difficulty competing with Taco Bell during their growth period, as Taco Bell’s cost advantage is multiplied by their sheer size as a firm.

Taco Bell is often categorized as cheap food, but a lot of factors come into play that allow them to sell their food cheaply.