Is Taco Bell Taking On the Chicken Chains?

By Markets Fool.com

Calling Yum! Brands'(NYSE: YUM) Taco Bell menu "Mexican food" stretches the definition, to put it mildly.

Continue Reading Below

For example, on its breakfast menu, the chain offers hash browns and Cinnabon Delights (a doughnut hole-like treat based on the popular cinnamon roll). The same is true for the rest of the day, where items strain the edges of authenticity while at least having some connection to Mexican food.

Taco Bell, which has often marketed itself as an alternative to burger chains, may offer "Mexican Pizza," but that's basically a flat variation on a taco or a burrito. However, so far, the company has mostly avoided abandoning its core identity and adding burgers, hot dogs, or other fare with no relation to Mexican tradition.

That's admirable, but it's apparently about to change because the opportunity in one area -- fried chicken -- has become too big to pass up.

Taco Bell has been aggressive in adding new menu items. Image source: Mike Mozart via Flickr.

What is Taco Bell doing?

Continue Reading Below

Taco Bell plans to take its "Naked Crispy Chicken Shell Chalupa" national in 2017, Brand Eating reported earlier this month. That product borrows from sister chain Kentucky Fried Chicken's Double Down, a sandwich that used fried chicken instead of bread. In the Mexican chain's case, the fried chicken is formed into a taco shell.

That item at least borrows the form of a taco. Taco Bell's other chicken entry reportedly under testing, "Crispy Chicken Chips," seem to be basically triangular chicken nuggets. The only nod to what Americans think of as Mexican food is that it will reportedly be served with a nacho cheese dipping sauce.

Taco Bell has not confirmed a launch for the nugget-like product, but did not exactly deny it in a quote reported by Eater.com."We're excited to bring Naked Chicken Chalupa to restaurants nationally next year," the company said in a statement. "Chicken as the shell is a concept our fans love, so why stop there?"

Why is Taco Bell doing this?

Fried chicken has been very hot in the fast-food and fast-casual space. Shake Shack (NYSE: SHAK), for example, has a clear hit with its Chick'n Shack sandwich, a rare addition to its core menu. CEO Randy Garutti even cited the chicken sandwich as one of the reasons the company had a good quarter in his remarks in its Q2 earnings report.

"For the second quarter, we increased revenue over 2015 by 37.2%," he said. "Innovating around our core menu continues to be a key driver of our success with the addition of our Chick'n Shack, launched in January."

Shake Shack is not alone in pushing chicken. Chick-fil-A has a chicken-dominated menu and that led it to the highest sales-per-restaurant of any chain, according to a QSR Magazine report in 2015.

Of course, it also helps that chicken generally costs less than pork or beef for restaurants to buy at the moment, but the menu items don't cost less. A chicken sandwich and a burger cost the same for consumers, but the chicken product has a higher margin for the restaurant.

Will this work?

The Naked Chicken Chalupa seems like the type of product that has worked for Taco Bell in the past. It's a semi-ridiculous item that should get media attention and appeal to the company's user base, which has embraced its past innovations.

Crispy Chicken Chips, however, have a better chance to be a game changer for the chain.

A chicken nugget-like product on the menu could make Taco Bell an easier choice for families. That could win the company business over its burger-chain rivals. Little kids may not eat tacos or burritos (or even burgers), but most of them eat chicken nuggets.

Having a pedestrian, not-even-vaguely Mexican item on its menu may break from past practices at Taco Bell, but it opens the chain up to more visits. It's not as clever as a fried chicken taco shell, but it's still a smart move.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Daniel Kline has no position in any stocks mentioned. He wishes he had tried the KFC Double Down. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.