Taco Bell Drops The Drive-Thru For Its Urban Evolution

In recent years, Taco Bell has been an innovation leader in the fast-food world. You may not consider all of the chain's edible experiments to have been positives, but items like the Naked Chicken Chalupa, Nacho fries, and (most important) Doritos Locos Taco have been major sales drivers for the Yum! Brands (NYSE:YUM) unit.

Wacky food, however, is not the only area where the company has been experimenting -- it has been reinventing its restaurant designs, too. In the past year, the company has opened a total of 16 "urban inline" stores -- smaller locations that lack drive-thru windows -- and Cantinas -- eateries that serve an entirely different, more upscale, menu, and in some cases, alcohol.

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Now, adding detail to plans first revealed in fall 2017, Taco Bell says it will undertake a major expansion using those new store models. The blueprint includes adding 125 locations in metro New York -- a market that Yum! described as underserved by Taco Bell -- over the next five years. It's part of a broader goal of opening 1,000 new U.S, restaurants -- including 300 of those two new concepts -- by 2022.

A Growing Brand

Taco Bell has already opened 90 new U.S. locations so far in 2018, and it has plans to add 100 more by the end of the year. The chain also has 500 international locations and intends to grow that number to 1,000 by the end of 2022.

The company seems most excited by its new concepts, as they allow it to expand into highly walkable locales where its older store designs would have been a poor match. "Whether it's in the heart of New York City, or steps from the boardwalk in Newport Beach, these restaurants are designed to fit their local community, with open-kitchen concepts, local artwork, shareable tapas-style menus, free WiFi for customers, outlets for charging devices and modern restaurant designs that invite customers to stay and socialize over their meal," the company said in a press release.

These smaller-format stores vary in size, with the most compact coming in at 1,200 square feet. The chain also plans to install self-ordering kiosks in all of its stores by the end of 2019 and expand its delivery partnership with GrubHub to about 4,500 locations by the end of this year.

Thinking Outside The Bun -- And The Car

For many years, Taco Bell management was married to the idea that all of its locations should have drive-thru windows. That makes sense, given that 55% and 70% of its sales traditionally have been made to drive-thru customers, according to Food & Wine magazine.

But people in big cities aren't in their cars as often suburban customers. They are more likely to order food for delivery or to arrive at a restaurant on foot. For a chain like Taco Bell, which has already saturated many of its traditional markets, adapting with formats that let it reach new audiences can only be seen as smart path to growth.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.