Takeout-Breakfast War Reheats
Eager to tap what is at least a $15 billion market -- one that some think will grow in coming years -- fast-food companies have ratcheted up their breakfast offerings. Among them: Starbucks Corp. has opted for an eggs Florentine sandwich with spinach and havarti cheese; Dunkin' Brands Inc.'s Dunkin' Donuts and McDonald's Corp. have locked horns over lattes, cappucinos and premium roast coffee. Wendy's International Inc. and Burger King Holdings Inc. have renditions of bacon, egg and cheese sandwiches.
Others are testing less conventional items: breakfast pizza omelets at Papa John's International Inc. and guacamole and bacon burritos at Yum Brands Inc.'s Taco Bell. But some analysts worry that interest in the new items will fade, like the bagels that came before them, as soon as limited-time offers and other promotional gimmicks subside.
"Consumers are attracted by balloons, big signs and hype," said Tom Miner, an analyst with Technomic, a Chicago restaurant market-research firm. "But then they say, 'OK, I've done that,' and they either move on to the next new thing or go back to eating a cup of yogurt over the kitchen sink." Mr. Miner adds that the cycle generally lasts three years.
Breakfast currently accounts for 11% of sales at fast-food restaurants, a figure that has stayed "relatively flat" in the past several years, according to Bob Sandelman, chief executive of research firm Sandelman & Associates.
That may change this year, but Mr. Sandelman said that "past evidence suggests there's not going to be any long-term growth. It's a super-heated share battle, but it doesn't look like it'll last."
Even if much of the hype is temporary, some analysts and fast-food companies still see plenty of room to grow, at least for a while. Mintel, a market-research company in Chicago, said fast-food breakfast sales have risen nearly 44% to $14.9 billion since 2001 but only a quarter of Americans say they buy breakfast at fast-food restaurants. (Other estimates vary. Technomic puts the fast-food breakfast industry closer to $24 billion.)
Packaged Facts, a division of Market Research Group, estimates that the $65 billion breakfast industry (including traditional restaurants) will grow to $83 billion by 2015, and analysts say much of that growth could occur at fast-food chains.
"Our on-the-go society is really tailor-made for buying breakfast on the way to work," said David Morris, an analyst at Mintel. "Combine that with an underpenetrated market, and we see a strong trend that should last at least two or three years."
The competition is fierce and includes traditional fast-food joints, doughnut shops and coffee chains.
Analysts disagree on which factors will contribute to breakfast success. Some say Starbucks, which has already capitalized on CDs and movies, will be able to lure loyal customers with its new line of hot foods. Others argue that fast-food chains have a leg up because of their accessible locations and drive-throughs.
Already, breakfast promotions by McDonald's and Dunkin' Donuts have proved fruitful. McDonald's said its U.S. coffee sales rose 16% after it introduced premium roast coffee last year. Dunkin' Donuts sells 2.7 million cups of coffee drinks (and tea) a day that account for two-thirds of the company's $5 billion in sales for 2006. Doughnuts, by comparison, make up 17% of sales.
Dunkin' Donuts Executive Chef Stan Frankenthaler said his company has adapted its menu in recent years to offer more variety and portability for the hurried commuter.
"Breakfast is a very personal, customized meal," Mr. Frankenthaler said. "Today I might feel like something sweet, tomorrow something salty, something light one day, heavy the other."
The company's limited-time Supreme Omelet -- bacon, mushrooms, hash-brown potatoes, scallions and cheese on a croissant -- has been popular, Mr. Frankenthaler said, because it "reminds people of a special-occasion breakfast or a weekend family brunch."
Breakfast makes up one-third of the U.S. revenue for McDonald's. The Egg McMuffin, launched three decades ago, continues to be one of the company's best sellers and has helped McDonald's secure 40% of the fast-food breakfast market, according to Sandelman.
Even so, the company is under pressure to attract and retain morning customers. More and more of the company's stores are opening earlier -- before 6 a.m. -- and the menu has expanded to include cinnamon rolls and fruit, McDonald's spokeswoman Danya Proud said. There is speculation that McDonald's may soon introduce an all-day breakfast menu.
Wendy's said recently it has crossed its 500-store milestone as part of the "continuing expansion of its new breakfast menu." The company said it expects to expand breakfast -- which, among other things, includes a Frescuit, a biscuit with egg, cheese and bacon -- to nearly 750 U.S. and Canadian restaurants by the end of the third quarter.
Starbucks, which has already built an empire on premium coffee and pastries, is taking a slightly different approach. While its fast-food competitors are expanding breakfast options, Starbucks has fired back with a new line of lunch salads and sandwiches.
The company's breakfast sandwiches, which were introduced in 2003, account for about $35,000 annually of each store's revenue, according to Bridget Baker, a spokeswoman for the company. She wouldn't disclose annual revenue for each store, but said the company hopes its new lunch items will generate similar revenue.
But analysts say it may be easier to introduce breakfast tacos at Taco Bell or premium coffee at Dunkin' Donuts than to market lunch at Starbucks, a company that has built itself around coffee.
Customers at the Starbucks in New York's Times Square during a recent weekday lunch hour echoed that sentiment.
"Pastries at Starbucks are all right, but sandwiches and salads? That's weird," said Henry Faustino, 24 years old, who was buying his usual caramel Frappuccino. "I'm sticking to their drinks. If they made beer, I'd buy it."
Only a few customers picked up sandwiches. Most ordered iced coffees and lattes without glancing at the Black Forest ham, egg and cheese sandwiches or fruit and cheese plates. But most said they'd grab a bite to eat if they were pressed for time and already buying coffee.
James Maher, an analyst at ThinkEquity Partners, said consumers are more likely to pick up food with their morning coffee than the other way around.
"What constitutes a good cup of coffee is constantly improving," Mr. Maher said. "Consumers want premium. They're always trading up and they'll go out of their way to get the best cup of coffee."
Still, many analysts say there's no way to tell what will happen.
"What generally decides these battles are consumers' feelings for a particular product," Mr. Miner said. "Wendy's and Burger King are looking for the kind of product magic that will do what the Egg McMuffin did for McDonald's. But if they come out with just another egg-bacon-cheese combo, it's going to be tough."
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