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Taco Bell’s Chinese foray to test appetite for nacho cheese

Taco Bell, which is making a return to China this year, is betting that the country wants quesadillas and tacos made with warm nacho-cheese sauce.

The chain is adjusting its menu to meet local tastes, and that includes having the food be hotter when it arrives, said Shivram Vaideeswaran, the brand’s global marketing and innovation director. Americans were more forgiving than the Chinese about the temperature of their food, and the warm nacho-cheese approach had not been tried before, he said. In the United States, crunchy tacos are made with cheddar cheese – typically room-temperature – while quesadillas have a three-cheese blend.

“Having food that’s incredibly warm is very important in Chinese culture,” Vaideeswaran said in an interview on Thursday. “It’s warm, it’s melty, and it’s really good.”

Taco Bell’s latest push into China should come in late December, Vaideeswaran said, making it an early test of the company’s plan to split off its Chinese operations. But the opening could slip until next year, he said.

Taco Bell’s owner, Yum Brands, expects to complete the spin-off of its business in China by the end of this month. The new company, Yum China Holdings, will pay a licensing fee to operate KFC, Pizza Hut and Taco Bell in China.

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Unlike Taco Bell, KFC and Pizza Hut are already well-established in the country. Yum China plans to expand by ramping up delivery and trying to entice more consumers to join loyalty programmes.

For Taco Bell, going big overseas is a more recent phenomenon – but the chain is committed to expanding quickly. Yum executives have said the Mexican-themed chain could have US$15 billion in system-wide sales by 2022, up from more than US$9 billion currently. The chain is adding stores in Brazil, Colombia, Spain, India and Canada as well.

This isn’t Taco Bell’s first push into China. The chain opened locations in the country in 2003, but that expansion didn’t take off. The company hopes the latest attempt will be different. The new restaurant will be located in Shanghai, the country’s largest city.

Ivan Feinseth, partner and chief investment officer at Tigress Financial Partners in New York, also sees Yum having more success this time around.

“The company is getting brand acceptance with the help of social media,” he said. “Also, the menu is more geared to the Chinese consumer. We are very bullish on Yum.”

Nacho cheese, of course, isn’t part of Chinese culture. But the Tex-Mex favourite was seen as a way to make Taco Bell more palatable to locals, Vaideeswaran said. The approach was honed through focus groups in the country, he said.

A tepid taco – which might be fine for Taco Bell’s American clientele – wouldn’t fly in China.

“A lot of food is not really served cold,” he said. The warm nacho cheese is a way to “layer in that local relevance.”