Menus are the most powerful tool restaurants have to manage margins: Del Taco CEO

John Cappasola Jr., Del Taco CEO joins the Yahoo Finance Live panel to discuss the company’s recent earnings and the digital transformation in restaurants through apps and delivery.

Video Transcript

ZACK GUZMAN: Welcome back to "Yahoo Finance Live." I want to spotlight one of the recent earnings updates we got in a sector that has benefited here in the pandemic as Americans have been eating out quite a bit. That would be Del Taco. Shares, again, in the green today after we got the update from that fast casual Mexican restaurant. And the numbers coming in with-- beating. It beat on the top and bottom lines, total revenue of $156.7 million, as well as adjusted earnings per share of $0.20.

For more on the way that Del Taco has been able to navigate this increase in Americans dining out and taking food to go, I want to bring on the CEO of Del Taco here with us, John Cappasola, Jr. joins us now. And John, I mean, talk to me about what kind of growth you've seen through all this, how you're able to-- to really keep that up as maybe restaurants start to reopen. I know you're out in California, so things are a little bit different across the country. But what are you looking forward to as we return to normal here?

JOHN CAPPASOLA JR: Well, certainly during the pandemic, we saw consumers really shift. And the drive-through business was good for us. We were able to-- to take advantage of that and get more efficient and make sure we delivered great guest experiences through that drive-through. The delivery business grew exponentially. I mean, it was three to four times pre-pandemic numbers.

And so able to deliver great experiences with our guests through, really, technology integration. And that, I think, will continue to move forward. I think convenience that is enabled by the digitization of brands and how consumers want to use brands moving forward will-- will be a big part of the very active recovery that will occur over the next several quarters and years. And we want to continue to be able to play in that space and deliver great experiences.

AKIKO FUJITA: When you talk about the shift in habits, it's been incredible to see the growth of these third-party delivery services. You look at Del Taco overall, you have raised prices in recent quarters. But the most significant increase was in delivery, about 20% is what I'm seeing here over the last few quarters. How strong has the demand been there? And what does that tell you about how much leverage you have to trade off the price for the convenience that these delivery services offer?

JOHN CAPPASOLA JR: Yeah, and you're referring to some premium pricing which we've tested. And I think convenience is a driver for the consumer in regards to delivery. It is a great way to kind of access brands without having to leave the house. And-- and we found through our work and our research that guests are-- are willing to pay a little bit more for that convenience.

And-- and for us, like I said, the demand has been great. It was up three to four times pre-pandemic. We've maintained a nice plateau in that area really over the last couple of quarters. And I think when it comes to convenience and accessing brands, the guest wants it when they want it, how they want it. And that's exactly where we want to be as a brand is we're doing some additional testing on off-premise.

We've got a program called park and get it. So whether the dining rooms are open or not, assuming they will be soon, we've got an opportunity to leverage technology for guests to be able to order from their-- the comfort of their car, maybe under a shade tree in our parking lot, and-- and have that food brought out to them so that they can just have a nice relaxing moment and enjoy an Epic Burrito, like you see here on the screen. So technology is going to be a big piece delivery will continue to perpetuate.

ZACK GUZMAN: When we look at maybe how you guys are looking to change things up, too, obviously you're not operating in a vacuum. There are other restaurants out there specifically in your space. I would point to Taco Bell as maybe one that recently rolled out a Chicken Sandwich Taco, which kind of seems redundant. But when we look at that, I mean, poultry seems to be the major player right now. We've been talking about these chicken sandwiches forever, now in taco form. I mean, what do you look at in terms of menu items maybe to differentiate Del Taco from the space?

JOHN CAPPASOLA JR: I think menu innovation is-- is really important in our space. And for us as a QSR-Plus brand and a real value-oriented QSR-Plus brand, we really innovate across our menu from-- from low price value-type products all the way through mid-tier and premium, and we'll continue to do that. Guests are looking for great taste and great flavors, and they're going to reward brands that are able to deliver that.

I mean, we were the first Mexican QSR to the space with crispy chicken, and we launched our crispy chicken menu back in July. And we've had over 11 different products and flavor variations that have been added to that menu over time since we launched. We're really excited about that protein.

Guests are excited about it. And I think that's what really matters. But as we move forward, we'll continue to bring products to the menu that really guests crave and that can help us uniquely differentiate ourselves as a-- as a brand that can bring real fresh quality ingredients to the table under the same umbrella as a value platform.

AKIKO FUJITA: John, we've been talking a lot about inflation concerns as we see some of this pent-up demand from the pandemic really pick up as economies start to reopen. From a cost perspective, how significant have the increases been for you in terms of food and supplies? And how are you looking at your menu right now and the potential to maybe have to shift it up?

JOHN CAPPASOLA JR: Well, there are always puts and takes. I think the menu is the most powerful tool that we have in restaurants to be able to manage your margins. And we will absolutely continue to do that. We have a big initiative around menu simplification that we continue to work on that will help that.

But in regards to kind of the underlying inflation, we said we expect food inflation to be around 1% for the brand for 2021. And that's because we-- we actually-- we buy on the commodity. With our fresh ingredient platform, we get out ahead of buys. We bring in whole produce. And we do the work in our kitchen to create these great ingredients and these great flavors for our guests.

So we feel good about that outlook for 2021 and how we're positioned. And obviously, commodities are always in a position to be volatile. But when you've got a large menu like we do, we have the ability to manage that kind of across that menu, across proteins, and across ingredients, et cetera.

ZACK GUZMAN: All right, Del Taco CEO John Cappasola, Jr., appreciate you coming on here to chat with us today. Be well.