MCD McDonalds Corp

By Heather Haddon 

The breakfast business is about to get even more crowded, as fast-food chains make a renewed push for the fickle morning customer.

Wendy's Co., which doesn't serve breakfast nationally after previous attempts floundered, is trying again. It joins Shake Shack Inc. and an increasing number of fast-food chains in trying to capture more business in the morning. McDonald's Corp., Burger King, and Dunkin' Brands Group Inc. also continue to make breakfast a priority.

Breakfast visits have risen 7.7% at fast-food restaurants in the past five years, with the dollars spent increasing 31%, according to market-data firm NPD Group Inc., while visits during lunch and dinner dropped nearly 1% across the time period. U.S. consumers are increasingly ditching cereal at home for egg-and-sausage sandwiches out, NPD surveys show. A dietary trend toward eating more protein is helping to fuel that trend.

Fast-food chains also are hoping to capture the business of convenience-minded consumers such as Lance Hutchins, a 33-year-old soda-company employee. "I work on the fly a lot, so fast-food breakfasts are pretty much my only choice," he said, adding that he has no loyalty to any one restaurant.

Fast-food restaurants are finding sustained business in breakfast elusive, however. Growth in breakfast visits peaked three years ago, coming in at a 1% increase in the past year, the NPD figures show.

Still, Wendy's said it is spending tens of millions of dollars and hiring thousands of workers to bring breakfast next year to nearly 6,000 locations in the U.S. It is hoping a simpler, meat-focused menu of items, such as a Baconator sandwich and honey butter chicken biscuit, will make breakfast profitable when three previous attempts have failed. Breakfast will eventually account for 10% of total U.S. sales, more than $1 billion, according to the company, one of the larger fast-food chains without breakfast.

Some analysts say Wendy's breakfast sales targets are too aggressive and that it is late to the morning game. Competitors also have ample time to push back now that the offering has been unveiled months before it actually rolls out, said KeyBanc Capital Markets analyst Eric Gonzalez.

"We expect an onslaught of discounting from other chains that have greater scale, established customer bases and a lot to lose," Mr. Gonzalez said.

The two biggest Wendy's burger competitors, McDonald's and Burger King, have spent years focusing on breakfast, with mixed results.

McDonald's, which reports earnings Tuesday, said sales in breakfast rose last quarter but by a weaker amount than lunch or dinner. Analysts expect sales in McDonald's most recent quarter to grow overall, but breakfast to remain a challenge for the world's largest fast-food company by revenue as competition increases.

McDonald's executives say new offerings and promotions will help. Chief Executive Steve Easterbrook recently pointed to bacon promotions, improved coffee and a new morning item, fried rods called Donut Sticks, as ways it has been working to boost breakfast sales amid growing competition.

But the chain also has conceded that the all-day breakfast introduced in 2015 wasn't sustainable. The menu proved complicated to execute, and this fall McDonald's is allowing franchisees to scale back on which morning items they serve all day.

Large Burger King franchisee Carrols Restaurant Group Inc. said in August that it was experiencing weakness in breakfast sales, prompting it to put more money into marketing.

Burger King parent company Restaurant Brands International Inc. told investors earlier this year that it wanted to lift the morning meal beyond 15% of total sales, and would spend to do so.

"We already have a profitable business in breakfast built over many years of investment," a Burger King spokeswoman said in response to the Wendy's launch.

Beyond fast-food chains, coffee competitors such as Dunkin' are raising their breakfast game. Dunkin' offered new breakfast burritos and sandwiches this year, including one with plant-based sausage made by Beyond Meat Inc., that it plans to sell nationally given the positive response during a New York City test this summer.

Convenience chains such as Wawa Inc., Sheetz Inc. and 7-Eleven are stocking larger lines of breakfast sandwiches, fruit and yogurt alongside their coffee to lure repeat morning customers. And Starbuck's Corp., one of the biggest morning competitors, is seeking to bolster food sales through delivery, with the chain rolling service through Uber Technologies Inc.'s Uber Eats division in the U.S. early next year.

For Wendy's, the company spent two years in trying to make breakfast work this time, and involved executives, board members and franchisees in the decision-making. "We went to school to make this time work," said Kurt Kane, the company's chief commercial officer and U.S. president, in an interview. He added: "We are prepared to do what it takes to win."

The chain's past attempt in 2012 faced aggressive pushback by competitors, including McDonald's, and suffered from too little advertising and a regional approach, according to Wendy's executives.

This time, Wendy's is planning a national advertising campaign and reduced the menu to 18 items focused on takeout, down from 45 last time.

However, the company's shares fell 10% in a day after Wendy's announced its return to breakfast last month. They have largely recovered since, partly because of upbeat sales figures earlier this month.

(END) Dow Jones Newswires

October 21, 2019 13:43 ET (17:43 GMT)

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