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Can This Taco Save America?

Taco Bell sold a million Doritos Locos Tacos a day last year—and hired 15,000 new people. Daniel Gross on how the chain’s most bizarre meal yet is upending American economics.

Yum! Brands

For much of the past year, analysts have claimed that a host of political factors are inhibiting hiring—regulation, the fiscal cliff, the sequester, the debt ceiling, the reelection of a socialist.

Powerful forces, indeed.

But there’s another force at work—more powerful, more ubiquitous, and arguably more delicious: Doritos Locos Tacos. The neon-orange, meat-filled miracle taco, wrapped in a Nacho Cheese Dorito shell, was Taco Bell’s biggest hit of 2012, with 375 million sold, or roughly one million a day. It was largely responsible for the chain’s incredible growth, outpacing not just KFC and Pizza Hut, but even McDonald’s.

“It has been the biggest launch in Taco Bell history,” said Greg Creed, chief executive officer of Taco Bell, which saw same-store sales rise 8 percent in 2012. “Last year, we added 15,000 people to handle the growth.”

That’s a lot of jobs for one little taco. And it’s a sign, however troubling to nutritionists, that U.S. companies can still prosper by pitching new, innovative products to the perpetually pinched American consumer. While its competitors in the fast-food industry have been pushing for growth in developing markets, Taco Bell has been focusing on its own backyard.

Now, the chain is building on its unlikely success with a sequel to the original Doritos Locos Tacos: Cool Ranch Dorito Locos Tacos, which requires little explanation. It launched last week with the slogan, “Collect all two.”

For the record, I have tasted and enjoyed Doritos Locos Tacos, possibly due to Proustian effects. (In my Midwestern youth, Taco Bell was Mexican food. And Creed told me that Michigan, for some reason, remains a big state for the chain.) But how can it—and Taco Bell—be succeeding in a nation that is growing more sophisticated about food by the day?

Creed says the Locos Tacos strategy is meant to cater to the chain’s base, young people (men mostly) who regard cheap fast food as fuel. But the company is simultaneously trying to be “better and more relevant.” Better means giving existing power users—young dudes, essentially—more reason to come in. And the company’s website, with its videos and social-media feeds, is clearly designed to appeal to a younger demographic.

As for relevant? That means drawing in new users—women, say, or older people, or the health-conscious. For that, the strategy has been to go a little more upscale and try to capture some of the market that Chipotle and other companies have carved out—or what marketers call “going up the value chain.”

The day I interviewed Creed, the radio ads I heard for Taco Bell on my adult contemporary station (that would be music that old people like myself listen to —the best of the 1980s, 1990s, and today) in Fairfield County, weren’t for the Dorito Locos Tacos. Rather, they featured Lorena Garcia, the Venezuela-born Miami chef and restaurateur, talking about the quality of products in the new, more expensive line of Cantina Bell products she has helped develop.

The idea seems to be borrow some of the thunder of Chipotle and Baja Fresh, which have redefined quick Mexican food as healthier and having more vegetables. Thus, Taco Bell’s bowl (carb-free!), has “citrus-herb marinated chicken, flavorful black beans, guacamole made from real Hass avocados, roasted corn & pepper salsa, a creamy cilantro dressing, and freshly prepared pico de gallo, all served on a bed of premium Latin rice.” It costs about $5, compared to $8 or more for a burrito bowl from Chipotle.

“We’ve seen more women come in, and more people over 35,” Creed said.

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In the meantime, Taco Bell is relying on its alliance with Frito-Lay for growth. “We believe we can add 2,000 new restaurants in the next 10 years, because what we have is proprietary and exclusive. Nobody else can make a Cool Ranch Doritos taco. And that’s just in the U.S.,” says Creed.

And therein lies one big difference between Taco Bell and its corporate siblings. Creed is an Australian veteran of Unilever. He joined Yum Brands, parent company of Taco Bell, KFC, and Pizza Hut, in 2001 and he became CEO in early 2011.

An Australian who sells Mexican food to Americans: This is how globalization is lived today.

American fast-food concepts have proven to be enormously successful overseas, and the stocks of fast-food companies are in large measure bets on people in developing markets picking up tastes for burgers, shakes, and pizzas. McDonald’s gets about two thirds of its sales from overseas. Yum Brands is often described as a Chinese restaurant company that happens to be based in Kentucky; most of the KFCs and Pizza Huts open today are now outside the U.S., with thousands of units alone in China.

In contrast, Taco Bell is surprisingly domesticated. “We only have about 280 restaurants outside the U.S., and they are largely in Canada,” Creed said. There are none in Mexico (understandable). But south of south of the border, Taco Bell is popular (less understandable). “We have a pretty good presence in Central America,” Creed said. There are three in India—roughly one for every 400 million Indians. Why hasn’t Taco Bell gone more global? Creed says KFC and Pizza Hut were bigger to begin with, and the food they sell is more familiar to people in China and the Philippines than Taco Bell’s. “If you go to Asia, how many cows do you see?” Creed asked.

Of course, one of the problems with expanding rapidly overseas is dealing with quality issues posed by foreign supply chains. Yum Brands’s KFC has seen its sales suffer in the wake of concerns about the safety of chicken production in China. And Europe’s horsemeat scandal has led to an inadvertent innovation at Taco Bell: caballo burritos. “It’s a Europe issue,” said Creed. But since the supply chains in Europe and U.S. are separate, the frat boys in Boulder, Colorado pounding a half-dozen Cool Ranch Dorito Locos Tacos should have nothing to fear.

Food quality is just one challenge the fast-food industry faces. The business is labor intensive, the health police are growing in number and influence, and the Obama administration, having pushed a new health-care policy, is now agitating for a higher minimum wage. Creed says his company takes all the changes in stride, which is easier to do when you’re growing. “Obamacare doesn’t come into effect until 2014, and we’ve got a good handle on what we think this health-care bill will cost per restaurant,” he said.

Nor does he believe it will force the company to jettison full-time workers. “We know that the productivity of our full-time employees exceeds that of our part-time workers.” Also, Creed views issues like wages and benefits through another lens. “We’ve done some research. The top thing that customers look at is how people treat their employees. They’ll judge us not just on quality of food, but on how we treat our team members.”

In a country that is raising a new generation of food snobs, asking to be judged on labor relations rather than taste may be a smart long-term move for restaurant chains that specialize in low-brow fare. In the meantime, Taco Bell’s sales are surging on the strength of a Dorito taco. What a country.