Taco Bell to Open Upscale 'Cantina' Restaurants

Taco Bell is trying to go upscale, with plans to serve tapas-style appetizers and alcoholic drinks at new "Cantina" restaurants aimed at better competing in urban markets with fast-casual chains like Chipotle Mexican Grill Inc.

The new Taco Bell Cantina restaurants, the first of which will open this month in Chicago's trendy Wicker Park neighborhood and in San Francisco, won't have drive-throughs, and the kitchens will have an open design featuring food in open baskets so customers can see the ingredients, the unit of Yum Brands Inc. said on Tuesday. Technology also will be featured in the new restaurants, which will include digital menu boards, television monitors and a mobile ordering and payment app.

The modernized restaurants "reflect the Millennial trend of seeking more urban environments to live, work and play," Taco Bell said.

Chasing upmarket cachet is a leap for Taco Bell, which is known in part as a prime spot for late-night junk-food runs. Its most famous product in recent years was the wildly successful Doritos Locos Tacos—made with Doritos shells—which come in nacho cheese, cool ranch, and "fiery" flavors.

Still, this isn't the first time Taco Bell has tried to edge into Chipotle's territory. Three years ago, Taco Bell introduced a "Cantina Bell" line of burritos and salad bowls made with fresh avocados and cilantro dressing developed by celebrity chef Lorena Garcia, which contributed to a 13% same-store sales gain at Taco Bell in the quarter in which they were launched.

At the time, hedge-fund manager David Einhorn told investors that the success of the new Taco Bell items came at Chipotle's expense, a notion that Chipotle strongly denied and that Taco Bell said it couldn't confirm.

Taco Bell didn't say how many Cantina restaurants it will open but that expansion plans for more urban markets are being evaluated and that Taco Bell is planning to build or remodel around 600 restaurants per year. Taco Bell, which has more than 6,200 locations globally, is on track to add another 2,000 restaurants by 2022. The Cantina restaurants are the only ones that will serve alcohol, the company said.

The new Cantina restaurants will still feature Taco Bell's traditional menu, as well as the "tapas-style" menu of shareable appetizers like rolled tacos. The San Francisco location will serve beer and wine, while the Chicago one will serve that and other alcoholic beverages including sangria.

Taco Bell has been a bright spot for Yum Brands, which has been struggling with declining sales in its huge China division. In the quarter ended June 13, Taco Bell posted the strongest results of any Yum division, with same-store sales growth of 6% and overall sales growth of 9%. Chipotle's same-store sales grew 4.3% in its latest quarter, though total sales rose 14%.

Fast food chains all have been trying to figure out how to win over younger customers who in recent years have flocked to fast-casual chains like Chipotle, in search of fresher food. Chains including Taco Bell have pledged to remove artificial ingredients from their food. McDonald's Corp. recently said it would stop selling chicken in the U.S. from birds raised with certain antibiotics.

Write to Julie Jargon at [e-mail]

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September 15, 2015 12:05 ET (16:05 GMT)

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