Is Taco Bell Giving McDonald's a Run For Its Breakfast Money?
Is Taco Bell's breakfast giving McDonald's a wake-up call?
The Yum chain's launch in late March went directly after McDonald's with marketing that aggressively framed the Golden Arches as hopelessly outdated, and trumpeting Taco Bell as the next generation of fast-food breakfast. Its cheeky TV ads used real-life Ronald McDonald's proclaiming their love for Taco Bell's morning fare.
The first clue to whether this audacious play is playing off came during Yum's second quarter earnings this week. Yum Brands CEO David Novak said in an earnings call last week that breakfast comprised around 7% of sales in the quarter and that Taco Bell's sales in U.S. stores open at least a year increased 2% from the quarter a year earlier.
Mr. Novak also said that breakfast has already turned a profit and that the company expects the breakfast business to add anywhere from $70,000 to $120,000 in annual sales per restaurant.
Taco Bell at the close of 2013 had about 5,346 restaurants in the U.S., according to Technomic. Projecting sales using those numbers, Taco Bell could stand to reap an estimated $375 million to $641.5 million in first-year sales from breakfast. Apply Mr. Novak's statement that breakfast accounted for 7% of total sales in the quarter to Technomic's $7.8 billion sales figure for all of 2013 and that puts the first-year projection for breakfast sales in the middle of that range, at about $546 million.
That hardly puts a dent in McDonald's, which sources an estimated 25% of its U.S. sales from breakfast. The chain's systemwide U.S. sales last year were close to $35.9 billion, with an estimated $8.9 billion coming from breakfast.
"McDonald's does more breakfast sales in the U.S. than Taco Bell does total sales globally," said Darren Tristano, exec VP at Technomic. Even so, he cautioned not to dismiss the breakfast offensive from Taco Bell. "McDonald's has to pay attention," he said.
Franchisees seem attentive but unfazed. Dick Adams, a former McDonald's franchisee and consultant, said that he doesn't think that Taco Bell's breakfast can hurt McDonald's, with its more than 14,000 U.S. locations. Mr. Adams said he hasn't heard from one franchisee that "is actually concerned about Taco Bell's breakfast. It's a stretch to think that they would be a threat." He added that he believes Mr. Novak's initial sales numbers may not hold up after the novelty wears off.
McDonald's, though, does have its own set of challenges. The company reported its second-quarter results this week, with U.S. same-store sales dropping 1.5%. The chain has said that to help boost sales, much of this year in the U.S. would be dedicated to fixing its slowing operations, which in part has been caused by a complicated and lengthy menu.