---
title: "Why Taco Bell got so expensive"
url: https://modern-mba.com/case/taco-bell
sector: "Food & beverage"
sector_url: https://modern-mba.com/sector/food-and-beverage
aired: 2024-02-10
published: 2026-08-25
updated: 2026-08-28
reading_time_minutes: 11
charts: 10
video: https://www.youtube.com/watch?v=WKh85_81US0
author: "Yishan Lin"
author_url: https://www.linkedin.com/in/yishanlin/
publisher: Modern MBA
license: "© Modern MBA, all rights reserved. Quote and cite with credit and a link; republishing needs written permission."
---

# Why Taco Bell got so expensive

Taco Bell runs the highest store-level operating margin in American fast food, earns more per store than McDonald's, and is one of the few chains whose per-store earnings have outrun inflation — with 7,232 stores at home against 986 overseas, so none of it is borrowed from abroad. It is also the chain that cut the Mexican Pizza, brought it back as an event, and now puts its new items behind an app. This case study traces both facts to one cause: a twenty-year arms race against McDonald's in China that hollowed out KFC and Pizza Hut and left Taco Bell carrying YUM Brands alone.

## Key figures

- **24%** — Store-level operating margin, the highest in fast food
- **986** — International Taco Bells against 7,232 in the U.S.
- **$1.86M** — Per-store earnings in 2023 dollars, up from $1.20M

## The argument

Taco Bell got good because it was left out. PepsiCo spun its restaurants into YUM Brands in 1997 under a chief executive whose stated enemy was McDonald's and whose battlefield was China — and only KFC and Pizza Hut could be shipped east. Being the wrong brand for the war turned out to be the best thing that ever happened to it: with no obligation to scale fast, Emil Brolick and Greg Creed got fifteen uninterrupted years to fix the product in a single market.

What they built was a value business that never discounted its core. Creed's rule was that Taco Bell does not cut the price of a Crunchwrap; it invents a 99-cent item to sit beside one. That kept pricing power intact while McDonald's, KFC, and Burger King spent a decade training customers never to pay full price for a signature product. Worldwide sales went from $5.0 billion in 1998 to $10.7 billion by 2018.

And that is exactly why it got expensive. YUM won in China and lost at home: KFC runs 3,886 American stores against 5,200 in 1999, and Pizza Hut's share of company profit has fallen from 23% to 16%. Taco Bell is the only brand still growing in America, which means every lever now points at the American customer — price rises, favorites reissued as limited events, orders funneled into the app. None of that is a Taco Bell decision. It is the bill for a decision made about China in the 1980s.

## Charts

### Industry-leading profits

Store-level operating margin by restaurant chain in 2022. Taco Bell ties Chipotle at the top of the industry, and both siblings sit at or below zero.

|  | Percentages |
| --- | --- |
| Taco Bell | 24% |
| Chipotle | 24% |
| Papa John's | 17% |
| Shake Shack | 17% |
| Del Taco | 17% |
| McDonald's | 16% |
| Texas Roadhouse | 16% |
| Domino's | 15% |
| KFC | 13% |
| Denny's | 10% |
| Popeyes | 8% |
| Pizza Hut | −2% |
| Burger King | −6% |

Source: Modern MBA, “Why Taco Bell got so expensive”, aired February 2024. Chart: https://modern-mba.com/case/taco-bell#chart-1 · Sources: https://modern-mba.com/case/taco-bell#sources

### No crutches

Store counts at home against everywhere else, 2022. Every major chain leans on an overseas estate several times its domestic one. Taco Bell cannot.

|  | United States | International |
| --- | --- | --- |
| McDonald's | 13,444 | 26,831 |
| KFC | 3,886 | 23,874 |
| Domino's | 6,686 | 13,194 |
| Burger King | 6,778 | 13,011 |
| Pizza Hut | 6,472 | 12,562 |
| Taco Bell | 7,232 | 986 |

Source: Modern MBA, “Why Taco Bell got so expensive”, aired February 2024. Chart: https://modern-mba.com/case/taco-bell#chart-2 · Sources: https://modern-mba.com/case/taco-bell#sources

### Unequal contribution

Worldwide food and drink sales in the first years after the spin-off. Taco Bell ran a store count comparable to its siblings and made roughly half the sales.

|  | 1997 | 1999 |
| --- | --- | --- |
| KFC | $8.4B | $9.6B |
| Pizza Hut | $7.2B | $7.6B |
| Taco Bell | $4.8B | $5.2B |

Source: Modern MBA, “Why Taco Bell got so expensive”, aired February 2024. Chart: https://modern-mba.com/case/taco-bell#chart-3 · Sources: https://modern-mba.com/case/taco-bell#sources

### The China arms race

Stores in China since the country opened to foreign business. KFC arrived in 1987, three years ahead of McDonald's, and the head start was never surrendered.

|  | McDonald's | KFC & Pizza Hut |
| --- | --- | --- |
| 1987 | 0 | 1 |
| 1997 | 252 | 300 |
| 2002 | 460 | 700 |
| 2006 | 700 | 1,925 |
| 2008 | 800 | 3,600 |
| 2010 | 1,300 | 4,000 |
| 2012 | 1,500 | 4,460 |
| 2018 | 2,700 | 7,510 |
| 2023 | 5,000 | 13,100 |

Source: Modern MBA, “Why Taco Bell got so expensive”, aired February 2024. Chart: https://modern-mba.com/case/taco-bell#chart-4 · Sources: https://modern-mba.com/case/taco-bell#sources

### The wrong brand for the war

Share of 1999 transactions by time of day. Taco Bell is a lunch chain; its siblings sell at dinner, where orders are bigger and profits higher.

|  | Dinner | Lunch |
| --- | --- | --- |
| Pizza Hut | 74% | 24% |
| KFC | 64% | 34% |
| Taco Bell | 46% | 50% |

Source: Modern MBA, “Why Taco Bell got so expensive”, aired February 2024. Chart: https://modern-mba.com/case/taco-bell#chart-5 · Sources: https://modern-mba.com/case/taco-bell#sources

### No international copium

International store counts through Emil Brolick's tenure. Taco Bell's overseas estate did not move in seven years while KFC added nearly 3,000 stores.

|  | KFC | Taco Bell |
| --- | --- | --- |
| 2000 | 6,000 | 250 |
| 2001 | 6,416 | 239 |
| 2002 | 6,890 | 267 |
| 2003 | 7,354 | 249 |
| 2004 | 7,741 | 238 |
| 2005 | 8,288 | 245 |
| 2006 | 8,864 | 238 |

Source: Modern MBA, “Why Taco Bell got so expensive”, aired February 2024. Chart: https://modern-mba.com/case/taco-bell#chart-6 · Sources: https://modern-mba.com/case/taco-bell#sources

### The portfolio jewel

Annual food and drink sales in the United States through the Great Recession, which rewarded the chain giving the most food for the least money. Estimates.

|  | KFC | Taco Bell |
| --- | --- | --- |
| 2006 | $5.2B | $6.6B |
| 2007 | $5.3B | $6.4B |
| 2008 | $5.1B | $6.9B |
| 2009 | $4.9B | $7B |
| 2010 | $4.7B | $7B |

Source: Modern MBA, “Why Taco Bell got so expensive”, aired February 2024. Chart: https://modern-mba.com/case/taco-bell#chart-7 · Sources: https://modern-mba.com/case/taco-bell#sources

### Carrying the U.S. market

Store counts in the United States. Taco Bell is the only YUM Brands chain that has not regressed at home, and it passed Pizza Hut in 2020.

|  | Pizza Hut | Taco Bell |
| --- | --- | --- |
| 2014 | 8,000 | 5,889 |
| 2015 | 7,891 | 6,080 |
| 2016 | 7,712 | 6,208 |
| 2017 | 7,537 | 6,438 |
| 2018 | 7,557 | 6,577 |
| 2019 | 7,294 | 6,774 |
| 2020 | 6,526 | 6,833 |
| 2021 | 6,617 | 7,012 |
| 2022 | 6,472 | 7,232 |

Source: Modern MBA, “Why Taco Bell got so expensive”, aired February 2024. Chart: https://modern-mba.com/case/taco-bell#chart-8 · Sources: https://modern-mba.com/case/taco-bell#sources

### A growing liability

Share of YUM Brands profit by chain. Pizza Hut once paid a quarter of the company's profit and now pays a sixth, while still opening stores overseas.

|  | Pizza Hut | Taco Bell |
| --- | --- | --- |
| 2013 | 23% | 32% |
| 2014 | 20% | 32% |
| 2015 | 20% | 32% |
| 2016 | 20% | 32% |
| 2017 | 18% | 32% |
| 2018 | 18% | 33% |
| 2019 | 18% | 32% |
| 2020 | 17% | 36% |
| 2021 | 16% | 32% |
| 2022 | 16% | 35% |

Source: Modern MBA, “Why Taco Bell got so expensive”, aired February 2024. Chart: https://modern-mba.com/case/taco-bell#chart-9 · Sources: https://modern-mba.com/case/taco-bell#sources

### Worse with inflation

Average gross earnings per store in 2023 dollars. Two of the three earn less in real terms than in 2000; Taco Bell earns half as much again.

|  | 2000 | 2022 |
| --- | --- | --- |
| KFC | $1.47M | $1.17M |
| Pizza Hut | $1.05M | $0.7M |
| Taco Bell | $1.2M | $1.86M |

Source: Modern MBA, “Why Taco Bell got so expensive”, aired February 2024. Chart: https://modern-mba.com/case/taco-bell#chart-10 · Sources: https://modern-mba.com/case/taco-bell#sources


## Takeaways

1. Taco Bell runs a **24%** restaurant-level operating margin, the highest in American fast food — level with **Chipotle**, ahead of **McDonald's** at **16%** and **KFC** at **13%**, and against **−2%** at **Pizza Hut** and **−6%** at **Burger King**.
2. The average Taco Bell grossed **$1.8 million** in 2022, against **$1.5 million** at **Popeyes**, **$1.2 million** at **McDonald's**, **$1.1 million** at **KFC**, and **$0.7 million** at **Pizza Hut**. In 2000 the order was close to reversed: Taco Bell sat near the bottom at **$0.7 million** while **McDonald's** led at **$1.4 million**.
3. Restated in 2023 dollars, Taco Bell is the only **YUM Brands** chain whose per-store earnings have beaten inflation — **$1.20M in 2000 to $1.86M in 2022**, while **KFC** slipped from **$1.47M to $1.17M** and **Pizza Hut** from **$1.05M to $0.70M**.
4. Taco Bell has no international crutch. In 2022 it ran **7,232** American stores against **986** overseas. **KFC** ran **3,886** at home against **23,874** abroad, **McDonald's** **13,444** against **26,831**, and **Pizza Hut** **6,472** against **12,562**.
5. The rest of the industry runs one playbook — shrink at home, cut costs, open overseas. American store counts between 2002 and 2022 fell at **Burger King** (**8,264 to 6,779**), **Pizza Hut** (**7,599 to 6,472**), and **KFC** (**5,472 to 3,886**), while **McDonald's** held flat at roughly **13,450**.
6. **PepsiCo** bought Taco Bell, **Pizza Hut**, and **Kentucky Fried Chicken** during the fast food gold rush that followed **McDonald's** success under Ray Kroc, then spun the restaurants out as **YUM Brands** in 1997. The legacy is still on the menu board: you cannot order a Coca-Cola at any of the three.
7. Taco Bell was resourced like its siblings and delivered the least. In 1997 it ran **6,700** American stores against **8,600** at **Pizza Hut** and **5,100** at **KFC**, but sold **$4.8 billion** worldwide against **$7.2 billion** and **$8.4 billion**.
8. **YUM Brands** ran the 1990s and 2000s as a war on **McDonald's**, and the battlefield was China. The first **KFC** there opened in 1987, three years ahead of the **Golden Arches**. By 2002 **KFC** and **Pizza Hut** had **700** Chinese stores against **460**; by 2023, **13,100** against **5,000**.
9. Taco Bell was never sent, and the daypart mattered as much as the cuisine. In 1999, **50%** of Taco Bell transactions happened at lunch against **34%** at **KFC** and **24%** at **Pizza Hut** — both dinner chains, where orders are bigger and profits higher.
10. On the numbers it did not deserve a ticket anyway. American same-store sales at Taco Bell ran **2%, −4%, −2%, 2%, 3%**, and **0%** from 1994 to 1999, while **KFC** posted six straight positive years including **7%** and **6%**.
11. Then the sales came without the stores. Worldwide sales went from **$5.0 billion** in 1998 to **$6.6 billion** in 2006 while the American footprint fell from **6,700** locations to **5,608** — and the overseas estate did not move at all, from **250** stores to **238**.
12. The Great Recession made Taco Bell rather than hurt it. American sales rose from **$6.6 billion** to **$7.0 billion** between 2006 and 2010 while **KFC** fell from **$5.2 billion** to **$4.7 billion**. Worldwide sales reached **$9.1 billion** by 2015 and **$10.7 billion** by 2018, while **Chipotle** stalled at **$4.4 billion**.
13. Taco Bell has overtaken **Pizza Hut** in its own country. In 2014 there were **8,000** American **Pizza Huts** and **5,889** Taco Bells; by 2022 it was **6,472** against **7,232**. It is the only **YUM Brands** chain that has not shrunk at home.
14. Which is the whole problem. **Pizza Hut's** share of company profit has fallen from **23%** to **16%** with a restaurant margin of **−2%**, **KFC** has closed a quarter of its American stores since 1999 while opening **23,874** abroad, and Taco Bell is the only brand left carrying the United States — so every lever the company has now points at the American customer.

## Common questions

### Why did Taco Bell get so expensive?

Because it is the only brand at YUM Brands still growing in the United States, and the company needs it to cover for the other two. KFC has fallen from 5,200 American stores in 1999 to 3,886, and Pizza Hut's share of company profit has dropped from 23% to 16% with a restaurant margin of −2%. Taco Bell's job is now to maximize American profit, which is what the price rises, the item removals, and the app-only products are for.

### Why does Taco Bell keep removing and bringing back items like the Mexican Pizza?

Because the removal turned out to be worth more than the product. Cutting the Mexican Pizza produced a loud enough backlash that reissuing it as a limited offer generated a burst of hype, transactions, and guaranteed profit in a short window — and asking customers to vote on which item returns generates digital engagement data on top. The episode covers how that became the strategy rather than an accident.

### Is Taco Bell more profitable than McDonald's?

Per store, yes. Taco Bell runs a 24% restaurant-level operating margin against 16% at McDonald's, and the average Taco Bell grossed $1.8 million in 2022 against $1.2 million at McDonald's. McDonald's is far larger — 13,444 American stores and 26,831 international — but on the economics of a single restaurant, Taco Bell is ahead.

### Who owns Taco Bell?

YUM Brands, which also owns KFC and Pizza Hut. All three were bought by PepsiCo during the fast food boom that followed McDonald's success under Ray Kroc, and were spun out into YUM Brands in 1997 so PepsiCo could concentrate on snacks and soda.

### Why can't you get Coca-Cola at Taco Bell?

Because Taco Bell, KFC, and Pizza Hut were all owned by PepsiCo before the 1997 spin-off, and the beverage relationship survived the separation. Nearly fifty years on, the options are still Pepsi, Mountain Dew, and other PepsiCo brands — which is also why Mountain Dew Baja Blast could exist as a Taco Bell exclusive.

### Why doesn't Taco Bell have many international locations?

It was left out of YUM's expansion into China and Asia because Mexican food was a hard sell abroad and Taco Bell is a lunch chain with smaller tickets than dinner-led KFC and Pizza Hut. Where it has since expanded, the value proposition has not landed: customers in Europe and Asia expect American fast food to be a sit-down meal rather than a cheap grab-and-go. In 2022 it ran 986 international stores against 7,232 in the United States.

### Is Pizza Hut losing money?

Its American restaurants are. Pizza Hut's restaurant-level operating margin was −2% in 2022, its contribution to YUM Brands profit has fallen every year from 23% in 2013 to 16% in 2022, and the average store earns less in real terms than it did in 2000 — $0.70 million in 2023 dollars against $1.05 million. It is holding its scale by opening overseas, from 8,697 international stores in 2016 to 12,562 in 2022.

### How many KFCs have closed in the United States?

American KFC locations have fallen from 5,200 in 1999 to 3,886 in 2022, a 25% decline, and the chain was already down from its 1990s peak before that. Over the same period international stores went from 5,600 to 23,874. Per store, KFC earned $1.47 million in 2000 and $1.17 million in 2022 once both are stated in 2023 dollars.

## Discussion

- Taco Bell got good because it was left out — the wrong brand for the war in China, and therefore under no obligation to scale fast. What did fifteen uninterrupted years in one market buy that money could not?
- Creed's rule was that Taco Bell never cuts the price of a Crunchwrap; it invents a 99-cent item to sit beside one. Why does that preserve pricing power when a discount destroys it?
- McDonald's, KFC, and Burger King spent a decade training customers never to pay full price. How would you undo that, and how long would it take?
- Being excluded from the growth story turned out to be the advantage. When is neglect good for a business unit, and what conditions make it merely fatal?
- You run a brand inside a portfolio and you are not the priority. How do you turn that into an advantage rather than a slow decline?

## Sources

Store counts, system sales, restaurant-level margins, and brand profit shares from YUM Brands and PepsiCo annual reports and 10-K filings; benchmark chain figures from company filings and franchise disclosure documents; GDP growth from World Bank national accounts; per-store earnings restated in 2023 dollars

---

From [Modern MBA](https://modern-mba.com/). Read this case in full at [https://modern-mba.com/case/taco-bell](https://modern-mba.com/case/taco-bell), or watch the episode at https://www.youtube.com/watch?v=WKh85_81US0.