Taco Bell’s cyclospora-driven sales declines have moderated ‘materially’

In the beginning of the third quarter in early July, Taco Bell was in its strongest position ever, according to Chris Turner, CEO of parent company Yum Brands. Indeed, the chain, which represents 43% of the company’s operating profit, generated a 7% same-store sales increase in Q2, as well as a 9% system sales increase, and a record 47% digital sales mix.

Then a nationwide cyclospora outbreak hit, implicating lettuce supplied to the chain by Taylor Farms as a likely source. By July 15, traffic fell over 18%. Two days later, it was down nearly 31% compared to the day-of-week average from Jan. 1 through July 6 and according to Placer.ai data.

During Yum’s second quarter earnings call Thursday morning, CFO Ranjith Roy said store-level margins in the third quarter will range between 19% and 21% from the sales impact. In the second quarter, Taco Bell achieved restaurant-level margins of 26.2%.

Additionally, Taco Bell’s U.S. same-store sales in the third quarter to date (through July 27) are -2%. Notably, the chain hasn’t experienced a negative quarter since the pandemic quarter of 2020.

That said, the maximum impact to the brand seems to be in the rearview mirror, even as cyclospora cases continue to proliferate across the country.

“Sales declines have moderated materially, and we are seeing steady improvement in day-over-day sales trends,” Roy said. “If you take the average sales for the last four days, we are halfway back to sales levels of the prior year, so we take some comfort in the early momentum.”

Turner added that consumer blame has shifted away from Taco Bell, which has also helped recovery efforts.

“Consumers have understood better the nature of the issue and that it is not a Taco Bell-specific issue,” he said. “The team’s swift and transparent action reinforced trust in the brand.”

Otherwise, recovery has been bolstered by investments in promotions, such as the $1 Enchilada and the $1 Mexican Pizza campaigns in the past week. Turner said the $1 Mexican Pizza drop generated the chain’s highest level of traffic, transactions, and loyalty acquisitions of any Tuesday drop on the app ever.

Taco Bell also posted a “thank you letter” to its customers for their continued loyalty during the outbreak and it has since become the highest engaged post of the year on Instagram and TikTok, and one of the brand’s highest engaged posts of all time.

“Our measures of online sentiment have returned to pre-issue levels of positivity. There's been no change in our measures to brand love. In fact, in some of those measures, there's even an increase in positivity and brand love,” Turner added. “The best proof point is that customers are coming back on a steady basis.

“Our team is focused on bringing fans back and we’re seeing those fans respond well.”

That work will continue throughout the duration of the year, with “cultural moments,” menu innovation, and value offerings planned for Q3 and Q4.

“There is no brand better equipped to drive a recovery in this temporary sales impact than Taco Bell,” Turner said.