Source 1
McDonald’s is declaring victory in the fast-food breakfast war
By Roberto A. Ferdman April 23, 2014 Quartz.com
An all-out American fast food breakfast war is upon us.
McDonald’s, which once enjoyed an effective monopoly on the morning fast-food rush, has found itself nudged
up against all sorts of egg sandwich-serving competition these days. “We’ve had some of our major competitors
that have made runs at breakfast, and it seems every year there’s someone new that is making a run,” CFO Peter
Benson said in the company’s earnings call yesterday.
While McDonald’s still derives a substantial chunk of its US sales from its breakfasts—some 25%—the fast
food egg-o-sphere is getting rather crowded. The US breakfast business at fast-food chains has morphed into a
$50-billion monster.
The thing is, McDonald’s claims it doesn’t care. In fact, it doesn’t even seem to take its competition all that
seriously. Are Americans defecting from the Egg McMuffin to try things like Taco Bell’s new waffle taco?
Sure, says Benson. But it’s only natural for people to explore new things, he told investors yesterday: “It’s new,
it will be something that they’ve not seen in the marketplace, so we expect customers to try it.” McDonald’s has
responded to the buzz swirling around new offerings by creating some buzz of its own. Earlier this month, it
struck out against its breakfast competition by offering free coffee for two weeks.
But just because people are trying all the new fast food breakfast fare, doesn’t mean they won’t—if they haven’t
already—come back to the Egg McMuffin. According to Benson, what’s good for breakfast is going to be good
for McDonalds. “I think that new entrants into the market always bring a different level of attention to
breakfast, which in many cases supports us,” Benson said. “We have become America’s favorite place to eat
breakfast. And we don’t plan on giving that up.”
By defining themselves in opposition to McDonald’s—as Taco Bell does in a recent spot mocking the Egg
McMuffin as old-fashioned—its competitors may actually end up confirming the supremacy of the world’s
largest fast food chain.
For its part, McDonald’s has projected nonchalance in the face of these challenges. After Taco Bell
unveiled the first national commercial for its new breakfast line, which slyly featured a handful of men who
happened to be named Ronald McDonald—like McDonald’s long-time mascot—McDonald’s responded
by sharing a clever photo on Facebook: “Imitation,” it announced, “is the sincerest form of flattery.”
Source 2
Who’s Losing in the McDonald’s-Taco Bell Breakfast Battle
By Suzanne McGee, The Fiscal Times, April 28, 2014
The battle between Taco Bell and McDonald’s that’s been playing out on your TV screen and across social
media — you’ve heard all about Ronald McDonald’s new look and newly active role on Twitter — isn’t just
about a Chihuahua taking on a spiffed-up clown for bragging rights. By some estimates, what is at stake is a
$30-plus billion fast food breakfast market, one that the industry hopes may be staggering back to life as the job
market recovers.
Budget breakfasts have always been appealing to some consumers, but a 2011 survey showed that almost half
of consumers dropped by some kind of quick service restaurant — whether a McDonald’s or an upscale
Starbucks — for a breakfast-type meal that year, up from only a third in 2009. And restaurants responded by
adding more menu items — and competing more ferociously for the attention and dollars of potential patrons.
The result: a full-out, no-holds-barred fast-food breakfast fight.
For most of us, what has followed has been tremendously entertaining and even profitable, as the rivals have
scrambled to offer better deals and even freebies, like the occasional cup of coffee. In one corner is the veteran,
McDonald’s, whose Egg McMuffins have been fueling some early risers and travelers for decades. In the other,
upstart Yum! Brands, whose restaurants thus far have had almost no presence in the breakfast market. It is now
trying to make a virtue of a combination of an established brand name and fresh and unusual menu items,
resulting in high drama in advertising primetime.
For the chains themselves, it’s serious business. That’s because their corner of the fast food business has been
stuck in slow-growth mode for some time. Both Yum’s network of chains — which includes not only Taco Bell
but also Pizza Hut and KFC’s fried chicken restaurants — and McDonald’s have to do battle with each other
but also with upstarts intent on siphoning away their business. Many of these offer newer concepts — think
Chipotle Mexican Grill or Noodles & Co.
The two chains certainly have great slogans to offer. In its corner, McDonald’s is brandishing “Wake up and
taste the free coffee!” Meanwhile, Yum! Brands and Taco Bell insist that “there will be breakfast envy…” But
spending on costly television campaigns promoting low-priced items like a $1.99 breakfast waffle or a $1.39
Egg McMuffin is going to have to pay off big in order to boost Taco Bell and McDonald’s businesses. There’s
little evidence so far that either Taco Bell or McDonald’s will emerge victorious.
The earnings figures for both companies suggest that the loser in the breakfast wars, so far, may be the
shareholders. Overall, competition is eating into McDonald’s revenues and profits — and not just at breakfast
time — with the result being that the company posted not only disappointing same-store sales figures but
disappointing earnings.
Same-store sales in the U.S. have fallen short of expectations for eight months in a row, and posted a 0.6
percent decline in March, the fifth consecutive month in which the chain witnessed a year-over-year drop in
sales. (True, the March figures were the smallest drop in those five months.) First quarter profits slipped from
$1.26 a share a year ago to $1.21 a share for the just-ended quarter.
McDonald’s CEO Don Thompson told analysts last week that the Golden Arches hadn’t seen any impact from
the “most recent competitor” in the breakfast fight, but he pledged his firm will embark on a new marketing
initiative. And yes, it will revolve around breakfast. They don’t just microwave, the CEO would like the world
to know: “we crack fresh eggs, grill sausage and bacon.”
When it comes to Yum! Brands, sales in China rather than sales of breakfast sandwiches have a much greater
impact on the company’s bottom line. While the earnings figures were healthy — 87 cents a share, up 24
percent from year-ago levels, and 3 cents better than analysts had expected — Yum! could still do with a bit of
a boost even from a waffle taco or two. That’s because while its profits beat expectations, its revenues came up
short: $2.72 billion, rather than the $2.81 billion that analysts had been anticipating.
For both fast-food chains, the biggest competitive threat, ironically, isn’t the snazzy slogans and snarky ad
campaigns, but the big push from the group of restaurants referred to as “fast casual” — those like Chipotle and
Panera — that boast of offering fresh ingredients and healthier food choices than the burger/fried chicken/pizza
joints of yore. Ultimately, it might not matter how many guys named Ronald McDonald Taco Bell can convince
to eat waffle tacos if the rest of the world turns up their noses at the idea and heads off for a gluten-free muffin
at their local coffee shop instead.
If you’re an investor, however, the hullabaloo is likely to end up distracting you from what really matters. In the
case of McDonald’s, that is whether the chain as a whole can reinvigorate sales of all its products (and not just
breakfast sandwiches) while riding out any commodity price pressures over the course of the summer. For
Yum!, the biggest headwind remains, as always, what lies ahead for the chain’s China stores: Are its poultry
supplies safe in reality and in the eyes of its consumers? And how resilient are those consumers going to be if
China’s economy succumbs to a fit of the hiccups?
Squabbling over who gets the right to charge you a few bucks for your morning fast food may seem like small
potatoes. But set against a backdrop of weak economic growth and lackluster or even declining sales, finding a
new way to woo consumers may prove crucial. Eventually, that is.
For now, the breakfast wars make for great entertainment for those of us on the sidelines. An investor in either
of these companies may well wonder just how lavish a marketing budget he’s going to end up financing — and
whether it will be worth that high price.
Source 3
McDonald's CEO says eatery actually cracks eggs, shakes off 'breakfast war'
Published: April 23, 2014
By CANDICE CHOI The Associated Press
McDonald's apparently isn't scared by a waffle taco.
Without specifying names, McDonald's CEO Don Thompson said during a conference call Tuesday that the
company hasn't seen any impact from the "most recent competitor" at the breakfast table.
In apparent references to Subway and Taco Bell, he also noted that McDonald's seems to face new rivals every
year in the mornings, whether they're "sandwich shops or taco shops."
The comments come after Taco Bell's launch of its national breakfast menu late last month, which generated
considerable fanfare because of the chain's TV ads featuring real-life men named Ronald McDonald professing
love for items like the waffle taco. But Taco Bell's lineup is still fairly limited compared with McDonald's, and
it's not clear whether it will be able to convince people to stop by in the morning.
Taco Bell, which is owned by Yum Brands, has declined to say how its breakfast is faring so far. In a phone
interview, chief marketing officer Chris Brandt didn't have much to say about the comments by McDonald's.
"Well, good for them," Brandt said.
McDonald's, which has been in the breakfast business for about 30 years, counts on items like the Egg
McMuffin and Sausage Biscuit to generate 25 percent of its U.S. sales. The company, based in Oak Brook, Ill.,
has more than 14,000 U.S. locations, compared with around 6,000 for Taco Bell. During the earnings call
Tuesday, Thompson also seemed to draw a distinction between McDonald's breakfast and its unnamed rivals,
noting that McDonald's cooks its food on site. “We crack fresh eggs, we grill sausage and bacon, we bake
biscuits and we toast muffins," Thompson said. Later, he emphasized the point that McDonald's actually cooks
fresh eggs in its restaurants, explaining that "It isn't a microwave deal."
Taco Bell has said it uses frozen eggs that are thawed and cooked in the mornings. Although McDonald's cooks
eggs to order for some breakfast sandwiches, it also uses frozen products in some cases. But the company has
been trying to focus on improving its image as a chain that serves quality food, emphasizing words such as
"restaurant" and "kitchen" in describing itself.
In the meantime, McDonald's plans to intensify marketing around its breakfast, with a focus on its coffee.
Although traditional fast-food chains are struggling to boost sales, breakfast has remained a growing category in
the industry and McDonald's is apparently determined to defend its leading position. For the first quarter,
McDonald's said its sales at established U.S. locations fell 1.7 percent. Global sales edged up 0.5 percent as
gains in Europe offset the domestic decline.
Source 4
Rick McKee, Augusta Chronicle August 31, 2013