Fast Food Chains Race To Grab Breakfast Business

Date : 01/20/2012 @ 12:20PM
Source : Dow Jones News
Stock : Chipotle Mexican Grill, Inc. (CMG)
Quote : 328.07  0.73 (0.22%) @ 12:15PM

Fast Food Chains Race To Grab Breakfast Business

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Fast food chains are placing a bigger focus on breakfast, now that more consumers are going back to work, and growing trends, like specialty coffee drinks, are luring them to eat out more in the mornings.

Chains like Yum Brands Inc.'s (YUM) Taco Bell and Wendy's Co. (WEN) are expanding tests of new breakfast menus, in hopes of capturing some of the growing market.

Restaurants already control a large portion of the lunch and dinner business, but only 10% of breakfast meals are provided by any type of restaurant, according to Bain & Co. "There's always some hot day part," said Aaron Cheris, consumer products analyst at Bain. "Five to 10 years ago, it was late-night business, and now it's breakfast."

McDonald's Corp. (MCD) all but cornered the breakfast market back in the 1970s with the launch of its iconic Egg McMuffin. And with the launch of its McCafes around 2007, it spurred the breakfast business once again.

Over the past five years, breakfast has accounted for more than 60% of traffic growth for all types of restaurants, Bain notes. And still, breakfast sales of roughly $37 billion are just a drop in the bucket of nearly $400 billion in total restaurant sales annually.

In December, Yum said Taco Bell's breakfast would be in 800 restaurants in the Western region by early this year. A Taco Bell spokesman said that as of next week, its new breakfast menu will be expanded to 10 Western states, such as California, Arizona and Colorado.

The so-advertised "First Meal" plays on Taco Bell's value, with burritos ranging from 99 cents to $2.79, a spokesman said.

Fast-food chains can try to win business by playing up their value, convenience, premium beverages or healthy and fresh options.

"The key is to remember the things that made your customers come to you for other meals, and play that up for breakfast too," Cheris said.

Wendy's and Taco Bell are also riding on the improving labor market this year, as unemployment data released Thursday show a continued trend toward fewer new applications for unemployment benefits.

In December, the unemployment rate measured 8.5%, the lowest level since February 2009, but still well above historic norms.

As the core fast-food consumer begins leaving the house early for work in the morning, they are more likely to swing by the drive-through on the way.

Taco Bell has been testing various breakfast menus at locations near its California headquarters for at least five years. The menu it has come up with boasts several obvious breakfast burritos similar to those of other fast-food chains, and also has twists like a sausage-and-egg wrap. It has also partnered with major brands like Johnsonville, Cinnabon and Seattle's Best Coffee for the new items.

Wendy's said last year that its revamped breakfast adds up to $150,000 in additional sales per store. It expected to have its new breakfast menu in about 1,000 stores by the end of the year. A spokesman said the company will give the latest "highlights" on breakfast progress at its investor day on Jan. 30.

Wendy's is going after the fresh and premium market, with items such as the artisan egg sandwich, honey butter chicken biscuit and mornin' melt panini giving it a more upscale feel than a typical quick-serve chain. Coupled with baked goods like muffins, the food looks more like that of Starbucks Corp. (SBUX) or Panera Bread Co. (PNRA) than a typical fast-food breakfast.

Wendy's is drawing upon its heritage of having non-traditional fast-food items, like its baked potatoes and chili, and its new push to be more like the fast-casual chains with "natural cut" fries and bigger burger patties.

However, it has to be careful not to alienate its more typical fast-food-loving customer segment, said Patrick O'Reilly, president and chief operating officer of Applied Predictive Technologies, a business analytics software company.

"You also risk diluting your message to consumers and complicating your processes for employees when you add a whole new menu," O'Reilly said, which is likely why Chipotle Mexican Grill Inc. (CMG), despite its rapid success at lunch and dinner, hasn't attempted to add breakfast to its offerings.

However, for some chains, like Subway restaurants, "You have this asset sitting there, and employees are already there preparing for lunch, so it makes sense to open a few hours earlier," O'Reilly said. Subway began rolling out its breakfast sandwiches a couple of years ago.

-By Annie Gasparro, Dow Jones Newswires; 212-416-2244;

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