Taco Bell's Doritos-Flavored Shells: Loco or Muy Ingenioso?

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DoritosThe new iPad wasn't the only big thing to be unveiled last week: Taco Bell had a big launch, too -- a new taco shell that's made with Doritos nacho chips. Taco Bell is hoping consumers will scarf down "Doritos Locos Tacos" and drive a turnaround in its lackluster sales.

The plan isn't as loco as it seems at first blush. After all, it's worked for Reese's Peanut Butter Cups, Jelly Belly's new Snapple line and -- not coincidentally -- Doritos' taco-flavored chips.

Taco Bell is banking on the strength of Frito-Lay's popular Doritos brand and favorable results in preliminary market tests of its Doritos Locos Tacos. According to an Associated Press report, one of every three purchases at field-testing locations in Bakersfield and Fresno, Calif., and Toledo, Ohio, included a Doritos Locos Tacos, which is twice the level of most Taco Bell test products.

"People are excited about this taco shell and I think it'll be a pretty good success for them," Peter Saleh, an analyst with the Telsey Advisory Group, noting that the two companies share a lot of crossover in customers.

Taco Bell's move is reminiscent of a step Frito-Lay took in the 1990s, when both companies were owned by PepsiCo (PEP). Doritos added Taco Bell's Taco Supreme beef flavoring to its taco chips and plastered the Taco Bell logo on the outside of the bags.

Frito-Lay eventually discontinued its Doritos taco-flavored line, but in 2010, it brought them back for a limited time due to consumer demand. It restored the taco-flavored chips to permanent fixture status on store shelves last year, citing consumer response. (Taco Bell is also gearing up to offer a version of Doritos Cool Ranch taco shells this fall, according to the Associated Press report.)

Doritos Taco

Taco Sales Could Use Some Pep

The Yum Brands' (YUM) fast-food Mexican chain could certainly use a little more spice in its sales. Last year, Taco Bell saw its sales growth stall following a false-advertising lawsuit that alleged Taco Bell's seasoned beef didn't contain enough of the animal substance to be labeled "beef."

Ultimately, the lawsuit was withdrawn, but the bad publicity contributed to a 2% decline in same-store sales last year, according to Nation's Restaurant News report.

And making that sales performance even more distasteful was the fact that its rivals like McDonalds, Burger King, Jack-in-Box, and others in the quick-serve market posted strong results last year, Saleh notes.

Flash in the Pan, or Permanent Menu Item?

Although consumers apparently were eager to give the Doritos Locos Tacos a try, the trick for Taco Bell is ensuring they purchase them again and again and again.

Doritos tacos may ultimately play out as a novelty if lovers of Nacho Doritos give it a whirl only to be disappointed that the taste doesn't contain the same big bite of nacho taste as the chips.

But consumers will likely flock to Doritos Locos Tacos initially, helping to drive up Taco Bell's same-store sales in the first quarter. The real test, however, will come later in the year, when potential repeat buyers will have had a chance to weigh in again.

Motley Fool contributor Dawn Kawamoto does not own stock in any of the companies mentioned. She does, however, frequent fast-food restaurants and is waiting for the day when frequent eater miles will be awarded. Motley Fool newsletter services have recommended buying shares of PepsiCo and Yum! Brands, as well as creating a diagonal call position in PepsiCo.

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