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CASE STUDY 13.2 HOW DO I KNOW THAT IT IS SAFE TO EAT These were the words of Ste

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CASE STUDY 13.2

HOW DO I KNOW THAT IT IS SAFE TO EAT

These were the words of Stephen Minnis, a 27-year-old from Limerick, Pennsylvania. On November 25, 2006, only a few weeks after he was discharged from the U.S. Air Force, Minnis dined at a Taco Bell in nearby Gilbertsville. Little did he know that the chicken chalupa he devoured for lunch that day would nearly kill him.

On November 30, Taco Bell officials learned that several customers had become sick with a virulent strain of E. coli after eating at one of the chain’s restaurants in New Jersey. Day by day, new cases of E. coli bacteria relating to Taco Bell were popping up throughout the Northeast in New Jersey, New York, Pennsylvania, and Delaware. Several of the victims were vegetarians, leading authorities to focus on produce rather than ground beef. Although green onions were initially suspected to be the culprit, extensive testing of Taco Bell ingredients had yet to determine the source of the outbreak. As word of the outbreak quickly reached the media, and more cases continued to arise, 1-800-TACO-BELL was flooded with telephone calls. Was Taco Bell food safe to eat? What was the source of the E. coli? What was Taco Bell doing to eliminate the problem? Upon hearing the news, Laurie Gannon, Public Relations Director at Taco Bell Corporation, probably asked herself how many times lightning was going to strike her company. In November of 1999, ground beef from a San Francisco Bay-area Taco Bell restaurant was implicated in an E. coli scare that sickened ten. In September of 2000, Taco Bell’s genetically modified taco shells sold in grocery stores were determined to contain a corn ingredient unapproved for human consumption. In December of the same year, green onions from Taco Bell restaurants were implicated in a hepatitis A outbreak in Florida, Kentucky, and Nevada. Now, as several Taco Bell customers became infected with E. coli, Laurie found herself in a difficult, yet all too-familiar position.

The Outbreak The first reported case of potentially deadly E. coli O157:H7 was in Middlesex County, New Jersey on November 17, six days before Thanksgiving. In the last two weeks of November, more cases were reported in the same county, leading county health officials to review the data and look for connections. Infected patients were asked whether they had recently eaten out, and if so, where. Officials determined that signals pointed to a single Taco Bell restaurant in South Plainfield, New Jersey, where nine out of eleven reported victims had eaten. On November 30, the owners of the franchise agreed to shut down, dispose of all its existing supplies, and have the restaurant professionally cleaned. Officials in the restaurant found no contaminated food, leading them to believe a Taco Bell worker was to blame. However, when four Taco Bells nearby were also found to be involved, county health authorities realized they might be dealing with a much bigger issue.2 On December 4, Taco Bell decided to voluntarily close eight of its other restaurants in Suffolk and Nassau counties in New York. As a precaution, the restaurants threw out all existing food and brought in new food. They also completely cleaned and re sanitized all of their utensils and cooking equipment.3

Cases of the E. coli infection relating to Taco Bell food continued to pop up throughout the Northeast, specifically New Jersey, New York, Pennsylvania, and Delaware. One case in South Carolina involved a patient who ate at a Pennsylvania Taco Bell. As the extent of the outbreak grew, the Food and Drug Administration (FDA) and the Centres for Disease Control (CDC) became involved in an extensive investigation and began the testing of Taco Bell facilities and ingredients. Taco Bell responded by hiring Certified Laboratories of Plainview, New York, an independent scientific laboratory to conduct tests on 300 samples of all ingredients. In Suffolk County, New York, a Taco Bell food safety team was flown in to collect samples of just about every type of tortilla, tomato, and Mexican seasoning from a Deer Park restaurant. Similar samples were collected by Taco Bell representatives from restaurants in multiple states and sent to Certified Laboratories for testing. Quick tests determined that three samples of green onions, also known as scallions, were contaminated with the E. coli bacteria. Although follow-up Federal testing of those samples were negative for E. coli, on December 6, the company announced that it had removed green onions from all of its restaurants nationwide.4 Taco Bell President, Greg Creed, said, “In an abundance of caution, we’ve decided to pull all green onions from our restaurants until we know conclusively whether they are the cause of the E. coli outbreak.”5 On December 9, 2006, Taco Bell Corporation affirmed that its restaurants were safe and that after more extensive testing by Certified Laboratories, all ingredients had tested negative for E. coli O157:H7, with the possible exception of green onions. However, on December 11, Taco Bell announced that the samples of green onions that tested positive for E. coli were confirmed negative by the company and the FDA. The results came from an open bin of white onions that tested positive for E. coli, but it was a different strain of the bacteria and no illnesses were linked to this strain.6 It was not until December 13, 2006, that Taco Bell determined lettuce from one of its California suppliers was the most probable source of the E. coli outbreak. The FDA and the CDC confirmed this through additional statistical analysis of the company’s food ingredients. Lettuce is served in approximately 70 percent of all Taco Bell menu items which, according to the CDC, increases the probability that it would be the source. Finally, on December 14, 2006, Taco Bell was informed by the CDC that the E. coli outbreak was over. The CDC also indicated that “contamination of lettuce likely occurred before reaching the restaurants.”7 By this time, all 90 Taco Bell restaurants that had been voluntarily close were up and running again. However, there were more than 400 confirmed or suspected cases of E. coli poisoning linked to Taco Bell restaurants.8

Taco Bell Corporation Taco Bell is the nation’s leading Mexican-style quick service restaurant. The company was founded in Downey, California, by Glen Bell on March 21, 1962. The company went public in 1969, and in 1978, Glen Bell sold all 868 restaurants to PepsiCo, Inc., and became a major shareholder in PepsiCo. In October of 1997, PepsiCo spun off KFC, Pizza Hut, and Taco Bell to form Tricon Global Restaurants, which became the world’s largest restaurant company with annual revenues in excess of $22 billion.9 In May of 2002, Tricon changed its name to Yum! Brands, Inc., after acquiring Long John Silver’s and A&W All-American Food. The company is headquartered in Louisville, Kentucky, and is the largest restaurant company in the world (in terms of “system units”) with more than 34,000 restaurants in over 100 countries.10 Yum! Brands generated over $9 billion in total revenues in 2005. The company is also a leader in multi-branding, putting two restaurants under one roof, with KFC and Taco Bell being the most productive combination.11 Taco Bell began franchising in 1964. Of its 5,800 restaurants nationwide, almost 75 percent of its restaurants are owned and operated by independent franchisees, while the rest are company-operated.12 In 2005, Taco Bell itself exceeded $6 billion worldwide, with $4.4 billion in sales from franchises and $1.8 billion in company-operated sales.13 Taco Bell serves more than two billion consumers a year, or more than 35 million per week. According to company President, Greg Creed, nearly half of the entire U.S. adult population eats at a Taco Bell at least once a month.14 The company has more than 5,800 restaurants in the U.S., and over 278 restaurants operating outside the U.S. Taco Bell’s “leftof-center” thinking and commitment to marketing helps the company to target the 18–24 year-old demographic.15 The company is also committed to forward thinking and updating its marketing campaign as needed. The first most nationally acclaimed marketing campaign was for the 1997 “Yo Quiero Taco Bell!” Chihuahua dog, which won the company an American Marketing Association advertising award. Taco Bell has used other very creative marketing tools, one of which was free tacos for every American if the falling Russian space station MIR landed on a Taco Bell target in the Pacific Ocean in March of 2001. The company has also established multiple partnerships with MTV, X Games, Viacom, Microsoft, and Fox for various projects displaying the brand name. Currently Taco Bell maintains its originality in marketing with its current tagline “Think Outside the Bun.”

Related Health Concerns and Issues Taco Bell has survived several previous health issues. In November of 1999, ten customers were sickened with an E. coli infection after eating at Taco Bell restaurant in San Francisco. Although testing of ingredients came back negative, ground beef was suspected to be the source of the E. coli.16 In September of 2000, the company was accused of selling genetically modified Kraft taco shells in grocery stores. The shells contained a protein molecule (Cry9c) that was unapproved for human consumption.17 In December of the same year, Taco Bell restaurants were implicated in a hepatitis A outbreak in multiple counties in Florida, Kentucky, and Nevada. Analysis revealed that the green onions were likely the source, but that the ingredients were contaminated prior to arrival at the Taco Bell restaurants.18 The company has also endured criticism for the general quality of its food and ingredients, especially the beef it uses. However, Taco Bell is not alone in these health concerns. In late 2006, around the same time as Taco Bell’s E. coli outbreak, nearly three dozen people fell ill with symptoms consistent with an E. coli infection after eating at a Taco John’s restaurant in Cedar Falls, Iowa. Several people also became ill after eating at a Taco John’s in Albert Lea, Minnesota. The first illness was reported to the Black Hawk County Health Department on November 28, 2006.19 Kevin Teale of the Iowa Department of Health said approximately 40 people had reported symptoms consistent with E. coli and 14 had been hospitalized.20 Although the outbreak had no connection to that of Taco Bell, lettuce from a California farm was determined to be the likely source.21 E. coli E. coli is an abbreviation for Escherichia coli bacteria, commonly found in the intestinal tracts of humans and other animals. Most E. coli infections are associated with undercooked meat that has come in contact with animal feces, but the bacteria can also manifest itself in leafy vegetables, such as spinach and lettuce. Generally, E. coli is harmless, but certain strands, especially E. coli O157:H7, can cause abdominal cramps, fever, kidney failure, blindness, paralysis, and even death. Where is it Found? E. coli is generally found in a cow’s large intestine, and it is ever-present in cattle lots. Because of this, the bacterium is most likely to be found in ground beef or vegetables that are grown near animals or irrigated with water contaminated by the cow manure in fertilizer.22 E. coli can also be found in drinking water, lakes, or swimming pools that have sewage in them; milk that is not pasteurized; and produce that is grown or washed in contaminated water. Effects Many times, E. coli goes unnoticed because it is difficult to detect and nearly impossible to treat or eradicate. There are an estimated 73,000 cases and 60 related deaths reported annually in the United States, and fortunately this number has decreased over the past decade due to guidelines implemented by the FDA, CDC, and USDA.23 Of these 73,000 cases, an estimated 2,100 result in hospitalization in the United States. Because the symptoms are not necessarily specific to E. coli, illnesses are often misdiagnosed, and hospitals spend considerable resources on treatment.

There are thousands of strands of E. coli, mostly harmless, but it only takes one strand to cause an outbreak. The Escherichia coli O157:H7 strand was traced to the Taco Bell outbreak, and it is also the same strand that was linked to the California spinach outbreak in September and October of 2006. This particular strand of E. coli makes a potent toxin that latches onto intestinal cells. Just ten cells of E. coli O157:H7 are enough to infect a person, compared to the hundreds of thousands of cells needed to infect a person with Salmonella or cholera.25 Symptoms the E. coli bacteria can cause many symptoms, including mild fever, diarrhoea, bloody diarrhoea, or dehydration. These symptoms usually occur within two to three days of exposure, but they can arise within one day or up to a week later. Fortunately, most healthy adults recover completely within one week. Another possible result of contact with the bacteria is haemolytic uremic syndrome (HUS), which can cause decreased urine production, kidney failure, anaemia, oedema, hypertension, blood-clotting, seizures, or death. HUS can be diagnosed through stool sample testing, but it does result in an estimated 61 fatalities each year.26 Taco Bell’s Suppliers According to Taco Bell’s President Greg Creed, extensive testing determined that the current outbreak was an “ingredient issue” and said it “was not about the hygiene of our restaurants.”27 As a result, the E. coli outbreak put the spotlight on Taco Bell’s produce suppliers. After being harvested, most produce is moved to processing plants where it is washed, sorted, and cooled for transport to supermarkets or distribution centres around the country. There are resting guidelines in place at various steps along the distribution chain that major food distributors follow. Bryan Silbermann, President of the Produce Marketing Association, a trade group that represents restaurants, farmers, and other companies in the produce supply chain, confirms that for the past decade, all the major restaurant and supermarket chains have insisted that outside auditors monitor suppliers.28 Taco Bell’s produce suppliers typically purchase lettuce and onions from multiple farms, many of which are in California. As for the lettuce, suppliers clean, rinse, shred, and pack the produce into sealed containers for shipment to Taco Bell’s distributors, which in turn send them to the company’s stores.29 The onions undergo an even more extensive process: they are washed with a chlorine solution to kill contaminants, rinsed with water, trimmed, sanitized again, rinsed with water, dried, and put into 8-ounce bags that are not air-tight. No human skin contact is allowed during this process and the produce bags are coded and traceable. These bags are then packed and shipped to Taco Bell restaurants by way of McLane distribution in New York. Inventory turnover of the onions is dozens of times every two to three weeks.30 Despite these procedures, there is still the possibility that shipments can be contaminated. Michael Hansen, a senior scientist at Consumers Union, a consumer advocacy group, said “Because we have more industrialized systems now where things are concentrated, we need more tracking of produce. You’ll continue to see these types of outbreaks until people start looking at the whole food chain to find out where this is happening.

Franchisees With 5,800 restaurants nationwide and millions spent on television ads and marketing campaigns, Taco Bell is an enormous operation with a largely corporate image. However, at the companies core is a collection of businesses, franchises owned by individuals. While most of the focus after an E. coli outbreak is on the corporate parent, the hardship can be worse for those franchise owners. According to Paul Argenti, a professor of corporate communications at the Tuck School of Business at Dartmouth College, “[Franchisees] stand to lose the most. It’s unfortunate. They are suffering because of the problems that developed at the corporate level.”32 While restaurants in the area of the outbreak stand to lose much in sales, franchises around the country can also take a large hit. Some estimates indicate that same store sales may fall by as much as 20 percent.33 In 1993, when people in the Northwest fell ill after eating tainted hamburgers from Jack in the Box, one franchise in El Paso, Texas, far from the outbreak saw a $10,000 per week drop in sales. The manager of the franchise said it took several years for the store to fully recover.34 Of the 90 stores that closed temporarily, all but four were franchises. After such a crisis, being a franchise owner is both a blessing and a curse. While the franchisees have the marketing and financial strength of Taco Bell Corporation to back them up, they are also largely dependent on their parent company’s public relations and advertising to lure customer’s back.35 Another disadvantage for some franchisees is that they, rather than their parent company, may be held liable for serving contaminated food. In response to the E. coli outbreak, some Taco Bell franchisees were named in lawsuits filed on behalf of customers who were sickened. The law holds the server of the food liable for such illnesses, but the franchise owners often try to pass the liability on to the parent company, the suppliers, distributors, or farmers. Franchise owners do not think they should be held liable for following company protocol and using the food suppliers dictated by the corporate parent.

Government’s Role and Response Following the E. coli outbreak in the Northeast, lawmakers in New York called on the United States Food and Drug Administration (FDA), the Centres for Disease Control and Prevention (CDC), and the United States Department of Agriculture (USDA) to create a joint task force to examine the E. coli outbreak and recommend changes in laws and regulations to prevent contamination of food.37 In April of 2007, the USDA published new guidelines for the produce industry to prevent contamination throughout the food supply chain, from before planting to the dinner table. Fortunately, food-borne illness has generally declined over the past decade. In an effort to maintain this trend, the industry is pushing for voluntary changes and not more government regulation.38 The CDC, FDA, and USDA are all working together with state and local health departments to rapidly detect infections, identify sources, and provide information on treatment and prevention of E. coli O157:H7. According to Ken August from State Health Services, “The USDA is looking at [Taco Bell] distribution centers and trying to trace back products; the FDA is looking at [produce] products, and the CDC is continuing to look at the individual cases of illness.”39 Center for Disease Control and Prevention (CDC) The CDC is the leading federal agency for conducting disease surveillance and outbreak investigations in the United States.40 It was founded in 1946 to help control malaria and now monitors the extent of outbreaks, either ongoing or concluded. The CDC uses a case-control study with a standard epidemiological method to investigate an outbreak that involves comparing foods consumed by ill and well persons to show statistical links to particular food ingredients. This method focuses on ingredients consumed more often by ill rather than well persons. The Pulse Net system matches illness in people to those in an outbreak and allows for rapid comparison of “DNA fingerprints” of E. coli O157. The top priority of the CDC is to communicate health messages to the general population. It is one of thirteen major operating components of the Department of Health and Human Services (DHHS) and its primary goal is “protecting the health and safety of all Americans and providing essential human services, especially for those people who are least able to help themselves.”41 Food and Drug Administration (FDA) The FDA is responsible for regulating everything Americans eat, except meat, poultry, and processed egg products, which are regulated by the USDA. The FDA’s role has grown more important in recent years as consumption of produce, and particularly “ready-to eat” products, has greatly increased. The FDA launched the Lettuce Safety Initiative in August 2006 due to spinach contamination in the Salinas Valley in California. The objectives of this initiative were to assess current industry approaches, alert customers early and respond rapidly once outbreaks occur, obtain information for use in developing guidance in hopes to minimize outbreaks in the future, and to consider regulatory action, if necessary.

United States Department of Agriculture (USDA) The USDA develops and executes policy on farming, agriculture, and food. It aims to meet the needs of farmers and ranchers, promote agricultural trade and production, and works to assure food safety. The USDA also concerns itself with assisting farmers with the sale of crops on both a domestic and world market. The USDA currently inspects the manufacturing plants where Taco Bell’s ground beef is cooked and then shipped to restaurants.

Financial Effects As a result of the E. coli outbreak, Taco Bell sales at all U.S. restaurants nationwide decreased by 2 percent in the fourth quarter while operating profits fell $20 million. About half of the $20 million was due to lost sales, while the other half related to marketing, consumer research, legal and other expenses.44 During the lowest point in the middle of December, sales were down as much as five percent. Since then, sales have begun to recover, but Taco Bell has still not completely won back its customer base. David Novak, Yum Chairman and Chief Executive, said, “loyalty among core customers remains strong, but the challenge is to get occasional diners back in Taco Bell restaurants.”45 Despite the negative impact of the E. coli outbreak in the northeast U.S., Yum Brands fourth quarter profits grew 3 percent thanks to strong international sales. Same store sales for Taco Bell fell 5 percent for the three months ended December 30, compared to a seven percent gain the previous year.

Current and Impending Litigation By March of 2007, 11 lawsuits had been filed against Yum Brands, Inc., and its Taco Bell Corp. subsidiary in response to the 2006 E. coli outbreak. At least five of the lawsuits named franchises that were not company owned, and Yum stated in its 2006 annual report that it was not liable for any losses at these restaurants. However, Yum said it had provided these franchises the estimated litigation costs.47 One of the first lawsuits was filed by Jared Keller when he fell ill with E. coli and was hospitalized for two days after eating food from a Taco Bell restaurant in Utica, New York, on November 25. The lawsuit accused the restaurant chain and a California farm of negligence and breach of warranty for serving tainted food. Keller’s lawyer said the companies failed in their obligation to “prepare, serve and sell food that was fit for human consumption” and violated federal, state, and local food safety regulations.48 The lawsuit names Yum Brands as a defendant, as well as Boskovich Farms, Inc., of Oxford, California, and Ready Pac Produce, Inc., of Irwindale, California. Keller is seeking unspecified damages but has already accumulated thousands of dollars in medial expenses.49 Taco Bell has made no comment on the lawsuits so far, but a spokesman for the restaurant chain, Rob Poetsch, stated, “All our efforts are focused on helping authorities get to the bottom of this. But I can say we are very concerned about all the people who have gotten ill.”50 What Have Other Restaurant Chains Done? In response to the recent E. coli outbreak, Taco John’s made substantial efforts to win back its customers’ loyalty and appetites. Company executives flew to Minnesota and Iowa, where the outbreak had occurred, and vowed to pay customers’ medical bills. The company also advertised how it was changing its food safety practices to make sure another outbreak did not occur. To increase positive publicity, Paul Fisherkeller, CEO of Taco John’s, ate several chicken and beef tacos at the restaurants that had served the tainted food. The chain has also been very open with franchise owners, constantly updating them with new information and keeping “their confidence and energy strong.” Taco John’s even provided financial assistance to three franchises and gave additional marketing and customer support.

What’s Next For Taco Bell?

After the E. coli outbreak had ended, many Taco Bell customers responded to the issue: I eat there because it is cheap for how much food you get. Statistically, I thought I would be fine. —Myles Jeffrey, 16-year old high school senior 52 Think about it, just because it happened, they are going to be cleaner. —Hiral Patel, 20-year-old 53 It didn’t really bother me, I figure it’s all safe, and they’ve taken care of it. Do you notice there’s no one else here but me? —Randy McLain, Data Processing Consultant 54 Sentiments like these may have offered Taco Bell a slight glimmer of hope, but Laurie Gannon knew the beleaguered food chain had a monumental task on it hands in convincing customers that its food was once again safe to eat. How should Taco Bell respond to the E. coli outbreak? How will the company rebuild customer confidence? Who should Taco Bell communicate with to alleviate the problem? What steps should the company take to improve the quality of its food and prevent future health concerns? How long would it be before lightning strikes Taco Bell again?

DISCUSSION QUESTIONS

1. What is Laurie Gannon’s primary concern? What should be her first course of action? Which actions should follow from those?

2. Who are the key stakeholders in the case? Who has the most to gain or lose? What’s at stake for each of them?

3. What should Taco Bell do to rebuild its customers’ confidence and loyalty? What message should the company communicate to its customers? How should the message be communicated?

4. Whose responsibility is it to ensure the safety of the food served at Taco Bell? Who is to blame for the current E. coli outbreak?

5. What steps should Taco Bell take to prevent future contamination and to ensure that the entire supply chain is held to a high standard?

6. Should the FDA, CDC, and USDA impose more regulations on the food industry and suppliers, or should these industries be self-regulated?

7. How should Taco Bell respond to the current litigation? Should it accept liability or leave it in the hands of the franchisees? Should either Taco Bell Corp. or Yum Brands, Inc., provide litigation assistance to the affected franchises?

8. Will Taco Bell be able to maintain its customer base and sales levels in lieu of all the food quality and safety issues the company continues to face? What is unique about Taco Bell has allowed the company to survive similar health concerns in the past.

Explanation / Answer

1. What is Laurie Gannon’s primary concern? What should be her first course of action? Which actions should follow from those?

Ans: The primary concern for Laurie Gannon is addressing the many calls from media coming on their call center. Her first focus should be to address the call and do not let the rumors to spread. To do so, she must do a press release and answer all the questions to pacify the matter at that moment.

2. Who are the key stakeholders in the case? Who has the most to gain or lose? What’s at stake for each of them?

Ans: The key stakeholders in this case are the Customers, Employees, Management, Franchise/business Partners, Shareholders and Society. Among the all, its Franchise/business Partners are the one who has most to gain or lose, because their business is on the stake.

3. What should Taco Bell do to rebuild its customers’ confidence and loyalty? What message should the company communicate to its customers? How should the message be communicated?

Ans: Taco Bell must re-instate the confidence of its customer in the product. The customer should be informed personally that, things are not that bad, and Taco Bell is taking sufficient measures to stop any miss-happening in the future. Also, Taco Bell should compensate to all those who have suffered physically or mentally.

4. Whose responsibility is it to ensure the safety of the food served at Taco Bell? Who is to blame for the current E. coli outbreak?

Ans: Its collective responsibility of all the suppliers and business partners along with Taco Bell to ensure the safety of food. There should have been multi-level check points to ensure the quality of the food items. On the main front, its Taco Bell Top Management that failed, and should be blamed for the same.

5. What steps should Taco Bell take to prevent future contamination and to ensure that the entire supply chain is held to a high standard?

Ans: There should be multi-level of quality check for all the food ingredients. Right from farmers to the suppliers to the Business partners, all must have adequate quality control mechanism. Above and all, Taco Bell should make sure all the following the QC procedures well.

6. Should the FDA, CDC, and USDA impose more regulations on the food industry and suppliers, or should these industries be self-regulated?

Ans: There are already sufficient regulations are there. Its all about implementing them. Therefore, the onus of maintaining quality control is on food industry and its suppliers, and hence they must take necessary steps to self-regulate themselves.

7. How should Taco Bell respond to the current litigation? Should it accept liability or leave it in the hands of the franchisees? Should either Taco Bell Corp. or Yum Brands, Inc., provide litigation assistance to the affected franchises?

Ans: Taco Bell should take the whole responsibility of the situation and pacify all its customers by promising to ensure higher quality standards in the future. Hiding behind others is only going to worsen the matter and blame game will prove beneficial to none. Also, it should provide litigation assistance to the affected franchise partners.

8. Will Taco Bell be able to maintain its customer base and sales levels in lieu of all the food quality and safety issues the company continues to face? What is unique about Taco Bell has allowed the company to survive similar health concerns in the past.

Ans: Yes, like the past Taco Bell will be able to maintain its customer base and sales level. Due to its large size and wide presence, taco bell has more good stories to share than the bad ones. Also, its huge marketing expenditure will help it bounce back. Due to huge franchise system, taco bell always gets the benefit of doubt to escaping the adversaries.

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