Will Taco Bell's New Breakfast Be a Flop?
As a big fan of breakfast at both McDonald's and Burger King Worldwide , I was eager to give Taco Bell of Yum! Brands a try. After seeing the clever commercials on TV all weekend, I drove past my local crowded Starbucks and Dunkin' Brands Group's Dunkin' Donuts on my way to Taco Bell first thing Monday morning, eager to sample what I expected to be a new serious contender in the breakfast wars. The conclusion: Taco Bell still has a ways to go.
Rise and shine
To recap, Yum! Brands began a national rollout of breakfast at Taco Bell on March 27. This is the company that has urged consumers to "think outside the bun," so naturally, Yum! Brands has a lineup of original and creative breakfast ideas. These include things such as the waffle taco, the AM crunchwrap, and the AM grilled taco, all of which contain eggs, cheese, sausage, bacon, and/or hash browns in different combinations. These are the three I happened to try.
When I pulled up, I was the only one there. Granted, this is one location, one day, only during one slot of time, but it still raised an eyebrow. The goal of Yum! Brands is to tackle the messy sandwiches that McDonald's, Burger King, Starbucks, and Dunkin' Brands are famous for. Instead, Yum! Brands wants Taco Bell to be known for offering "portable handheld breakfast on the go." And that's exactly what I got with the AM crunchwrap and the AM grilled taco. It wasn't nearly as flavorful as those four competitors' sandwiches in my experience, but it was wrapped so perfectly and neatly it seemed like the perfect sandwich for the morning worker on the go.
The waffle taco, which is the main feature and most heavily promoted, came so messy it soaked right through the box. I had read elsewhere that the waffle could be described as similar to an Eggo Waffle, and I'd have to agree, though maybe not even that good.
Wake up and smell the coffee
If you're like many people, the first thing you think about in the morning is coffee. Not surprisingly, Dunkin' Donuts actually gets the majority of its sales from coffee than from actual doughnuts, and even all food combined. The coffee brings patrons in, then Dunkin' Donuts hopes to sell them some food, too.
Starbucks is the same way, but that's obvious. However, to give you an idea of how much people "need" their coffee, even with mall traffic down 15% this holiday season, Starbucks saw a 4% rise in traffic to its stores. Same-store sales were up even better at 5% because of sales of higher-ticket items or people buying food more often.
McDonald's and Burger King recognize the coffee-first mentality, and each has taken turns running a free coffee promotion for morning patrons. Apparently, the thinking there is to lure people in with coffee, then hopefully they'll buy food. Both McDonald's and Burger King have slowly built a reputation for great coffee over the years, especially with the introduction of McCafe by McDonald's and Burger King following suit with its own fancy coffee selections.
This is where perhaps Yum! Brands may fall short. Does Taco Bell even serve coffee? It does now, but did it before? One thing for sure is that Taco Bell is not famous for its coffee. And if Yum! Brands is busy tempting guests with food instead of what they crave the most -- coffee -- then it had better be some really great food and not miss the mark.
Prior to the national rollout, Taco Bell reported from test markets that only 4% of the day's sales came from breakfast. Compare that to McDonald's, which depends on breakfast for over 20% of its sales. It sounds like Yum! Brands still has a long way to go, or the breakfast promotion may be a failure. Maybe it's fancy coffee time, Yum! Brands?
Foolish final thoughts
All that said, Yum! Brands could withdraw the breakfast concept just as easily as it rolled it out, so it's likely a low-risk attempt and worth a shot. Much of the overhead is already paid for during the lunch time frame and beyond, and Taco Bell is already a popular brand, so it doesn't have much to lose. Based on next year's analyst estimates for EPS of $4.17 per share, Yum! Brands trades with a P/E of 18. This compares to McDonald's 15 and 16, so a slight premium, but with more potential upside. Burger King Worldwide trades with a P/E of 24, which looks a bit pricy. Fools may want to take a closer look at Yum! Brands.
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The article Will Taco Bell's New Breakfast Be a Flop? originally appeared on Fool.com.Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide, McDonald's, and Starbucks. The Motley Fool 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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