Taco Bell Sues...Then Is Sued?

About three months ago, I read an article in the Wall St. Journal that reported upon what exactly is in Taco Bell’s beef.  Shortly after in January, Alabama-based law firm Beasley Allen filed a lawsuit against Taco Bell.  As you might know, Taco Bell is a subsidiary owned by Yum Brands.

The complaint filed by Beasley Allen claimed that Taco Bell’s products supposedly containing “seasoned ground beef” actually contain “taco meet filling”  The complaint then went on to say, “Taco meet filling is not beef.  In fact, it does not meet the minimum standards set by the United States Department of Agriculture to be labeled or advertised as ‘beef‘, seasoned or otherwise.”

As you might expect, the media and news outlets exploded, and customers decided to avoid Taco Bell products.  It got so bad that Taco Bell ended up taking out full-page ads denying the allegations in Beasley Allen’s complaint and it protested that its beef food items contained 88% beef and 12% spices.  

On April 18, Beasley Allen dismissed the suit.  Three days ago, Yum! Brands filed a 10-Q that indicated the three months of customer suspicion has negatively impacted the company more than analysts projected.  One account argued that the matter would be contained and cause only a “negative, short-term impact”.  Yum! ended up spending $3.5 million to defend itself against the lawsuit.  A new SEC filing indicates that Yum might be in for more serious losses:

“Taco Bell’s operating profits were significantly impacted in the quarter by the publicity associated with a lawsuit filed in late January 2011 alleging a violation of consumer protection statutes and deceptive business practices by Taco Bell through its advertising that the beef served in its products is ‘seasoned beef’.  Such claims were false and the lawsuit was voluntarily withdrawn on April 18, 2011.  Nonetheless, Taco Bell experienced a significant reversal in sales trends immediately following the filing of the lawsuit.”

Taco Bell has stated it may sue Beasley Allen over the incident.  After Taco Bell quantifies its losses, this case should get interesting.  Taco Bell must decide whether it’s going to try to recover the losses and the cost of its emergency advertising campaign.