The first Manhattan location of Taco Bell Cantina opened in November. / Taco Bell The first Manhattan location of Taco Bell Cantina opened in November. / Taco Bell

Taco Bell’s Strategy to Win in Urban Markets Involves Delivery, Kiosks and Alcohol

Throughout its company history, Taco Bell has dominated with a development strategy that focused on sprawling suburban locations equipped with drive thrus wrapped around the side. That is beginning to change.

The gigantic American Mexican quick service chain has been testing a handful of small-format restaurant concepts, branded as Taco Bell Cantina and Urban In-Line restaurants, in various urban centers for the past three years. The Urban In-Line format is essentially a regular Taco Bell, modernized and shrunk to fit on a street corner. The Cantina format is similar but also features twists on the traditional menu, including alcoholic drinks and shared platters of food.

Both concepts are tailored for densely populated locations where the rent is overwhelming, the foot traffic is high, and there’s no space to fit a traditional Taco Bell unit.

“We had a large percentage of the population particularly in urban markets where frankly we just couldn’t serve Taco Bell,” Mike Grams, Taco Bell’s general manager of North America and global chief operating officer, explained. “We did drive thrus well, we were good at it, and we didn’t focus a ton on the urban markets.”

Now, armed with the Cantina and Urban In-Line concepts, the company is looking to capitalize on those high-density markets that it traditionally kept away from.

A Modern Taco Bell Experience

The Cantina concept is clearly marketed towards a millennial customer. Manhattan’s first Cantina location, a company-owned store that opened in November, features communal bar seating, a wall mural designed by local artist Greg Lamarch, and the option for diners to choose the restaurant music using their smartphones.

Orders are facilitated wherever the customer wants: registers, self-serve kiosks, online ordering, delivery, or through Taco Bell’s app. The food assembly area isn’t tucked in the back, but rather situated in front of a bar where diners can sit and watch their spicy double chalupas come together. The liquor lineup — several beer options and wine mixed into Mountain Dew and berry-flavored slushies — is a crowd pleaser.

The interior of Manhattan’s first Taco Bell Cantina. Taco Bell

“The world needs a ‘Taco Bell, but with alcohol’ the same way it needed a Mexican Pizza. Take that whichever way you like,” one early Google reviewer wrote of the new location. “I enjoyed my Berry Frose Twisted Freeze!”

Similar to how Shake Shack and Milk Bar look for local partnerships when they enter new markets, Taco Bell paired up with New York’s Blue Point Brewing Company for an exclusive beer, the Big City Bell Pilsner, which will be available at Manhattan’s three Cantina locations open by the end of the year.

“With all these channels opened up, you give access to everyone,” Grams said, listing off all of the order touchpoints integrated in the new Cantinas. “I think that’s really the goal. It’s really a cool, dynamic experience that we’ve just never been able to do.”

An Attractive Model for Franchisees

The new Manhattan location is company-owned, but franchise owners have already signed on to start to build out more Cantina and Urban In-Line concepts in New York City. Franchise owners across the northeast region, which represents the biggest urban opportunities for the brand, have been exceptionally supportive of the new model, Grams noted.

“The returns on these [small-format restaurants] are pretty good and it enables franchisees to get into a location and reach a customer that maybe they wouldn’t have been able to get to previously,” said Matt McGinley, a restaurant analyst for Evercore ISI.

The build out for a traditional Taco Bell location can cost franchise owners anywhere from $1.1 million to $2.6 million, according to Taco Bell’s 2018 franchisee agreement documents. The build out for Taco Bell’s smaller in-line units can cost a fraction of that, from $244,900 to $623,600.

Factor in alcohol sales and the high amount of foot traffic that come with the urban locations, and it can turn out to be a very profitable venture for franchisees.

“Without quoting specific numbers, we’re really excited by the business model or we wouldn’t be building more of them,” Grams said.

Cantina’s Growth Trajectory

Grams estimated that, prior to launching the Cantina and Urban In-Line concepts in New York City, there were only about 14 regular Taco Bell restaurants in the area. That is going to change dramatically in the next four to five years.

Outside of the Manhattan expansion, three Cantina and three Urban In-Line locations have opened in New York City’s outer boroughs over the past year. The developments mark the beginning of a tidal wave of these restaurants that Taco Bell has planned for the area.

The company announced plans earlier this year to open an additional 300 Cantinas or Urban In-Line restaurants by 2022. Of that group, 125 will be located in New York City and its surrounding boroughs. Up until this point, Taco Bell has launched 19 Cantinas and 16 Urban In-Line locations across the country.

Taco Bell currently includes around 7,000 locations worldwide, the vast majority of which are located in the U.S. The planned 300 Cantina and Urban In-Line locations are part of an overall goal to open 1,000 new Taco Bells in the U.S. by 2022.

“You put that logo up and good things happen,” Grams said. “The brand awareness is at an all-time high everywhere so when that logo goes up, it draws attention and it’s pretty cool.”

Taco Bell’s growth story is one that the company’s executive leadership is especially proud of.

“We’re adding approximately half a billion dollars in system sales annually,” Julie Felss Masino, the president of Taco Bell North America, said at Yum Brands’ biannual investor day in early December. “That’s like adding a Shake Shack — not a store, the entire corporation — every single year.”

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