Cap'n Crunch Enlisted to Boost Taco Bell's Breakfast Sales

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Taco Bell is testing Cap'n Crunch-coated doughnut holes for its nascent morning menu.

Cap'n Crunch is owned by oatmeal giant Quaker Oats, which in turn is a property of soft drink and salty snack behemoth PepsiCo (PEP). Taco Bell is owned by Yum Brands (YUM). Yum and PepsiCo have a special bond, and not just because Yum Brands' Taco Bell, KFC, and Pizza Hut are some of the few restaurant chains to offer Pepsi instead of Coke beverages. PepsiCo used to own all three concepts before spinning them off as Yum.

Good to the Last Crunch

Taco Bell's new breakfast item is being tested at units in Bakersfield, California. It's a variation of Cinnabon Delights, the cream-filled doughnut holes that the chain began offering as part of the breakfast menu that it rolled out nationwide last year.

The new doughnut holes that were introduced in the test market late last month are coated with Cap'n Crunch's Crunch Berries cereal, filled with the same milky-cream center as the original Cinnabon Delights. If it takes off, Taco Bell will naturally roll out the new item nationwide.

It's been a little more than 11 months since Taco Bell decided to throw its sombrero into the highly contested breakfast ring. It didn't merely phone things in with bacon burritos or sausage tacos, however. Taco Bell got creative, making waves with the Waffle Taco, Cinnabon Delights and the A.M. Crunchwrap that wraps hashbrowns, scrambled eggs, cheese and your choice of meat into a grill-pressed flour tortilla.

Taco Bell's distinctive menu should have resulted in a dramatic spike in comparable-store sales. The leading Mexican fast-food chain's sales have improved over the past year -- climbing 2 percent, 3 percent and 6 percent, respectively, over the first three quarters of the breakfast menu's availability -- but certainly not enough to account for the new breakfast market it just entered. The new Cap'n Crunch Delights may not change that, but if they prove popular, the growth will obviously be incremental.

Brand on the Run

Taco Bell and PepsiCo teamed up in 2012 to roll out Doritos Locos Tacos. Yes, PepsiCo owns Doritos as part of its Frito-Lay subsidiary.

Doritos Locos Tacos has been Taco Bell's biggest new product in years. The chain announced that 825 million of the Doritos-flavor-dusted tacos had been sold as of May of last year. The figure has likely topped a billion by now.

Taco Bell has also partnered with PepsiCo's flagship beverage line to put out Mountain Dew-flavored freezes. The only mystery here is why its sister brands at Yum haven't followed suit. Planet Hollywood made Cap'n Crunch-coated chicken fingers popular, so it's a surprise that KFC hasn't followed suit. We may not be ready for a Cap'n Crunch pizza crust at Pizza Hut, but stranger things have happened. For now, we have Taco Bell once again taking a household brand and incorporating it into its menu. The tactic paid off nicely with Doritos Locos Tacos, and there's a lot riding on it succeeding again.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check outour free report.
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