Why Taco Bell's subscription plan 'makes a lot of sense' in fast food wars

·4-min read

A subscription service...for tacos?   

It could happen. This week, Taco Bell (YUM) announced plans to test a 30-day, Netflix-like subscription service in a 17-location pilot in Arizona, until late November.

Dubbed the 'Taco Lover’s Pass,' the plan's price varies between $5 and $10 (depending on the user’s location), and will be offered exclusively on its app. Once purchased, it will unlock a hidden menu, allowing customers to redeem one taco per a day for 30 days.

So can a seemingly over-the-top idea work in a world where consumers are constantly being asked to pay a cover charge for content streaming?

"It makes a lot of sense," BTIG Restaurants Analyst Peter Saleh told Yahoo Finance. He explained how the service drives traffic to the app, captures customer data, leads to more frequency purchases and builds loyalty for the brand. 

Taco Bell tests new subscription service
Taco Bell tests new subscription service

"Overall, I think if you're buying this pass, whether it's $5 or $10, I think you're gonna feel somewhat obligated to go there more often," Saleh explained.

"And we do know that loyalty guests come back two to three times more frequently than non-loyal guests and spend 25% to 30% more," he added. 

Fast food loyalty programs have exploded in recent years with Saleh noting that "almost every concept" now uses one. It's a way to incentivize repeat visits in a world where there's no shortage of options, and where restaurants have had to fight for foot traffic in the pandemic era, with in-store dining limited and more consumers working from home.

Burger King (QSR) rolled out its app-based loyalty program nationwide earlier this month, joining competitors like Starbucks (SBUX) and McDonald’s (MCD) who have aggressively embraced the digital revolution in a landscape transformed by COVID-19. 

"It's an effort to differentiate yourself and find a different way to bring in new customers, while also keeping the customers that you have coming back more frequently," Saleh told Yahoo Finance. 

"There's a real fight for customer traffic out there, and you've got to find ways to be creative and different than your peers. I think this is one way for Taco Bell and Yum! Brands to do it," the analyst added. 

Fast food giants embrace celebrity partnerships

NEW YORK, NEW YORK - SEPTEMBER 13: Lil Nas X attends The 2021 Met Gala Celebrating In America: A Lexicon Of Fashion at Metropolitan Museum of Art on September 13, 2021 in New York City
NEW YORK, NEW YORK - SEPTEMBER 13: Lil Nas X attends The 2021 Met Gala Celebrating In America: A Lexicon Of Fashion at Metropolitan Museum of Art on September 13, 2021 in New York City

Another emblem of the fast food experience is big name partnerships. Last month, Taco Bell announced that Grammy-award winning artist Lil Nas X would become the restaurant chain's chief impact officer — the latest in a series of collaborations between restaurant chains and A-list stars. 

McDonald's was the first to commit to celebrity deals. The fast food giant's celebrity signature order campaign has been wildly successful thanks to partnerships with rapper Travis Scott, Korean pop band BTS, and now The Saweetie Meal, featuring the hip-hop artist's favorite menu items and "Saweetie ‘N Sour" sauce.

Meanwhile, Burger King announced its commitment to deliver "real food," banning 120 artificial ingredients. To promote the new campaign, the burger chain introduced "Keep It Real" meals. Created by celebrities, the meals use celebrities' real names instead of their better known stage names. Partnerships include Nelly, Brazilian singer Anitta and TikTok sensation Lil Huddy. 

"I see this as follow the leader," Saleh said.

"McDonald's has been doing this for [awhile] and it's worked really well, so you're seeing others pile in. Nobody wants to be left behind. It's tough to find something that resonates and works to drive traffic...I think this will be a trend until they find something else that works," he continued. 

Still, Saleh cautioned that "eventually you run out of celebrities to utilize," explaining that menu and food innovation are still key to growth. 

"But at this point in time, with restaurants limited on labor, they have to limit the amount of innovation and find different ways to bring customers in and use their marketing tools in a different way," the analyst said. 

Alexandra is a producer & entertainment Correspondent at Yahoo Finance. Follow her on Twitter @alliecanal8193

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