Taco Bell plans upscale restaurant to battle Chipotle

The Doritos Locos craze can only take Taco Bell so far. The restaurant chain is now thinking a lot bigger about future growth, and it has an idea it hopes could do some serious damage to arch-rival Chipotle Mexican Grill (CMG).

Taco Bell will soon open a concept restaurant with premium $4 tacos. And because no one would ever pay $4 for a taco at a Taco Bell, the chain is giving this new restaurant a fancy name -- U.S. Taco Co. -- and a glitzy feel. The first U.S. Taco is set to open this summer in Huntington Beach, Calif.

The menu is a departure from standard Taco Bell fare. A core lineup of 10 tacos includes one with pulled pork and peach jalapeno barbecue sauce. There's one with fried chicken with gravy, and another with smoked beef brisket covered in melted Oaxacan cheese, The Orange County Register reports. Another taco has lobster.

U.S. Taco is also planning milkshakes with Guinness and tequila in them and habanero steak fries. What you won't see on the menu are burritos, beans, rice or tortilla chips.

The chain, owned by Yum Brands (YUM), is clearly going after younger diners with money to spend, including the kind of customers who can afford to drop $10 or $15 on a meal at "fast-casual" places like Chipotle and Panera Bread (PNRA).

Taco Bell isn't the only chain making a new push to appeal to millennials. KFC, another chain under the Yum Brands umbrella, earlier this month opened the first Super Chix fast-casual restaurant in Arlington, Tex. Super Chix, a rival of Chick-fil-A, sells chicken sandwiches and tenders, fries, and frozen custard.

But where Super Chix has been quiet about its relationship with KFC and its future plans, Taco Bell is trumpeting U.S. Taco. "I would love one day to see 1,000 of these," Taco Bell CEO Greg Creed told The Register about the new restaurant. "But let's not get that far ahead of ourselves. We're opening a restaurant and seeing what happens."

Taco Bell's new restaurant is coming as Chipotle is planning to raise prices. Items will likely go up by as much as 5 percent as costs have climbed for limes, beef, avocados and cheese, The Associated Press reports. Chipotle feels confident it can raise prices without much backlash because price isn't the reason customers visit. "Most of the value comes from the experience," Chipotle CFO Jack Hartung told analysts in a recent conference call.

Taco Bell doesn't have that kind of experience. But it's doing everything it can to make U.S. Taco the kind of place that can get away with higher prices for more upscale food.
  • Kim Peterson

    Kim Peterson is a financial journalist covering business and the economy. She has written for several online and print publications, including MSN Money and The Seattle Times.