New York (CNN Business)Last year, America’s biggest chain restaurants went all in on breakfast.
Companies ranging from Wendy’s to McDonald’s to Dunkin’ invested heavily in the meal, testing out everything from new chicken sandwiches to plant-based options. Now, with people stuck at home because of the coronavirus pandemic, it’s one of the industry’s worst-performing segments. McDonald’s (MCD) CEO Chris Kempczinski said during the company’s first-quarter analyst call last week that “breakfast is down” compared to other meals.
Similarly, Jose Cil, CEO of Restaurant Brands International (QSR), which owns Burger King, Popeyes and Tim Hortons, said during an earnings call last week that breakfast and snacking “have seen a disproportionate decrease, while lunch and dinner have shown more strength.”
Wendy’s launched its breakfast menu nationally in March. The decline makes sense: Breakfast is “an easy meal to replace yourself if you’re doing your own cooking now,” said IHOP president Jay Johns during a recent call discussing the chain’s financial results. “If you’re only going to order out one time a day,” he said, you’re more likely to order dinner. Read MoreLower breakfast sales are a problem for the fast food industry, which was struggling to maintain customers and bring in new ones even before the pandemic, as more upscale, fast-casual chains like Chipotle (CMG) and Panera brought in a higher share of diners. “The loss of breakfast is a heavy blow,” said Sara Senatore, a senior research analyst who covers restaurants for Sanford C. Bernstein. “That will have implications for which chains see the biggest decline in their volumes.” Before the pandemic hit, breakfast made up about 25% of McDonald’s sales and 40% of its profits, said Senatore.”Almost every operator has a sizable investment in breakfast,” said Peter Saleh, restaurant analyst at BTIG. And “it’s probably going to be one of the last” meals to really come back, he said. People are likely to keep whipping up breakfast at home until they resume their normal routines. Until then, companies will likely have to wait it out. Their best option may be open their restaurants later in the day to recoup those costs, he said. The exception may be Wendy’s (WEN), which made sure people knew it was open for breakfast earlier this year through advertising about the new launch.
Breakfast wars
In September, Wendy’s announced that it was preparing to roll its breakfast menu out nationally. At the time, the company said it planned to hire 20,000 employees and invest $20 million in the project. Prior to the rollout, Wendy’s had only sold breakfast at relatively few of its stores. The new menu officially launched in early MarchIt had good reason to expand: At the time, fast food chains were struggling with sluggish traffic. People were generally spending more on each purchase, but making those purchases less often. Within the profitable breakfast category, the fight for customers was heating up. McDonald’s fought back by giving out free Egg McMuffins on the day of the launch, and deemed it “National Egg McMuffin Day.” Even before that campaign, McDonald’s was testing out new chicken breakfast sandwiches.
Breakfast is an important segment for McDonald’s. Other chains were already stepping up their breakfast games. Dunkin’ last year launched a Beyond breakfast sandwich, made with plant-based sausage. IHOP announced a new fast-casual breakfast concept called Flip’d, targeted at customers who want breakfast on the go. Flip’d will serve IHOP-inspired items, like pancake bowls, egg sandwiches and breakfast burritos. But unlike IHOP meals, Flip’d locations will have limited seating, and its offerings are designed to be eaten on the go. Wendy’s launched its breakfast before states started issuing stay-at-home orders because of the pandemic. It saw immediate results. The launch “truly exceeded our expectations,” said CEO Todd Penegor said during a call discussing the company’s earnings Wednesday.”Breakfast performed extremely well out of the gate,” he added, noting that for the first week all restaurants were serving breakfast, sales at stores open at least a year jumped 16%.Penegor said that Wendy’s has been able to largely avoid the breakfast sales dip because it invested so much in promoting the new menu.”Across the industry [breakfast] has been hit very hard,” he said. “But we are very pleased with the advertising support that we’ve had out there,” he said. “We’ve been able to get folks to come out and continue to try our great breakfast offerings.”Still, it wasn’t enough to lift its US same-store sales, which were flat for the quarter. Similarly, McDonald’s sales at US restaurants open at least 13 months ticked up just 0.1%.
Long-term bet
Companies in the industry said breakfast is still important long term. They plan to have breakfast on the menu when people once again start eating the meal out or on the go. “As we start to really get into the recovery phase, getting back that breakfast business is going to be critical for us,” said McDonald’s Kempczinski. He added that the company will be “very aggressive” in its efforts to boost that part of the business. Bigger chains may also benefit from smaller restaurants failing. Before the pandemic, many people might have picked up breakfast at local coffee shops. If those locations suffer, major chains may attract those customers, noted Morningstar analyst R.J. Hottovy.
“Coffee is one of the more fragmented categories,” he said. About half of coffee shops in the United States are operated by small chains, he said. “That group is going to be hit pretty hard,” he said.With unemployment at unprecedented levels, people will be looking for deals on food. Wendy’s was already offering value deals for breakfast, Hottovy noted, and others will likely start discounting breakfast meals to draw customers back in.
Source: edition.cnn.com
