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)
Copyright (c) 2019 Dow Jones & Company, Inc.
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