Is a McDonald's Move to Extend Breakfast Hours Too Little, Too Late?
McDonald's has been hinting at longer breakfast hours, and they are a long time coming. The fast-food chain's short breakfast hours have irritated so many for so long, they provided the foundation for a scene in an Adam Sandler movie. So, it's little wonder that when a McDonald's spokesperson mentioned longer hours recently, it drew plenty of attention.
Source: Wikimedia Commons, Evan-Amos.
But it wasn't long -- only a day, in fact -- before some of that thunder was stolen by a competitor, when Yum! Brands' Taco Bell announced plans to enter the breakfast market with its own breakfast taco. Media outlets were quick to play up the Taco Bell vs. McDonald's storyline.
However, McDonald's breakfast worries run much deeper than Taco Bell and its planned waffle taco. And plans for the company to extend its breakfast hours may be coming too late in the game for it to wrest control of breakfast back beneath the Golden Arches. With faster-growing competitors Dunkin' Brands and Starbucks both successfully pushing further into the breakfast market, McDonald's may be trying to close the door after the Egg McMuffin is already out of the barn.
MCD Revenue (TTM) data by YCharts.
No longer just a doughnut shop
Dunkin' Brands operates more than 7,000 Dunkin' Donuts stores in the U.S., about half of the number of stores serving up Sausage McMuffins. The Boston-based company identified breakfast sandwiches as one of the key drivers of the growth of the Dunkin' Donuts chain, long known primarily for coffee and... well, doughnuts.
William Blair & Company analyst Sharon Zackfia remarked during the Feb. 6 Dunkin' Brands conference call that that "it's been incredible how you've diversified the breakfast sandwich menu."
John Costello, Dunkin's president of global marketing and innovation, said DD sees plenty of opportunity to continue expanding its breakfast offerings, as well as its lunch menu. The company specializes in quick service and it's continually looking to improve on that front. Its food focus, as Costello puts it, is "grab-and-go."
"All of our foods, starting with our doughnut heritage, [are] highly portable. Donuts are the ultimate grab-and-go," he said.
Breakfast sandwiches wrapped up in waxed-paper pouches might not be the "ultimate grab-and-go," but they aren't that far behind. This expansion for Dunkin' Donuts provides a direct challenge to McDonald's in many of the markets it operates in. And as Dunkin' expands its menu offerings further, it could look to eat more of McDonald's lunch, as well as its breakfast.
A big competitor in coffee is adding food
Starbucks, which operates about 11,000 stores in the U.S., is another major rival of McDonald's that's expanding its food menu, and has so far seen great results, according to management.
Starbucks breakfast sandwiches. Source: Starbucks.
Here's what founder and CEO Howard Schultz had to say about the growth of Starbucks La Boulange menu:
I'll tell you we've got some great new innovations coming both in that morning category around the savory items and warm items, as well as in lunch. Everything we have seen so far encourages us that we [are] just beginning to go after where is there big, big good opportunity, both in our busy day part to drive [and] increase the cash.
McDonald's has been feeling heat from Starbucks for some time, of course, and it's likely one reason why Mickey D's has put continuing emphasis on its coffee drinks.
Consider what three separate McDonald's executives had to say on the subject during the last conference call.
CEO Don Thompson: "We're enhancing the breakfast experience by creating more of a coffee culture through high-quality McCafe products [that] pair very well with delicious foods both existing and new."
COO Tim Fenton: "We're reestablishing our breakfast with a lot of emphasis on beverage and coffee. We know that coffee drives the visits at our breakfast time."
CFO Pete Bensen: "This notion on coffee is not just about coffee, it's about our breakfast business.... If we lose relevance in coffee, then we are going to lose the transaction which yields the food purchase."
You think maybe they're a little concerned about coffee-centric competitors eating away at McDonald's breakfast business?
The Foolish bottom line
A move to extend breakfast hours at McDonald's may be a smart one to try to win back customers, and it would dovetail with the company's focus on building more of a coffee culture within the chain. But if McDonald's could be one-upped on speed and selection by Dunkin' Donuts, one-upped on quality by Starbucks, and one-upped on cleverness by Yum!'s Taco Bell, it may be fighting an uphill battle on the breakfast front.
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The article Is a McDonald's Move to Extend Breakfast Hours Too Little, Too Late? originally appeared on Fool.com.
John-Erik Koslosky has no position in any stocks mentioned. The Motley Fool recommends and owns shares of McDonald's and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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