McD's CEO: We Have Not Been Affected by Breakfast Competition

Don Thompson Says Morning Rivalry Happens Every Year

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McDonald's says it hasn't been affected by "recent competitors" in the breakfast space, a comment that was an obvious reference to Taco Bell's recent entrance into the day part.

Don Thompson
Don Thompson

"We have not seen an impact relative to the most recent competitors that entered the space," said CEO Don Thompson during the company's first quarter earnings call today. "It seems every year there's someone new that is making a run" at breakfast he said, either its close competitors, sandwich shops or "taco shops," said Mr. Thompson.

The Yum chain launched its biggest menu rollout yet on March 27. McDonald's is by far the dominant player in breakfast, and morning meals account for an estimated 25% of its U.S. sales.

But while Mr. Thompson's reaction was cool, McDonald's isn't dismissing Taco Bell altogether. The day after Taco Bell's launch, McDonald's announced it would offer free coffee in the U.S. in a two-week promotion that started on March 31. McDonald's this month has also began advertising its McGriddles breakfast sandwich, an item that features pancakes in lieu of bread. (Taco Bell has a waffle taco in its breakfast lineup.)

Mr. Thompson indicated in his remarks that the Golden Arches intends to stress the freshness of its breakfast menu as a point of difference. "Customers choose McDonald's because of our great products, cooked in our restaurants and kitchens. We crack fresh eggs, we grill sausage and bacon, we bake biscuits and we toast muffins," he said, later adding that McDonald's breakfast "isn't in a microwave deal. We actually cook" -- a comment that's an apparent dig at its competition.

Because Taco Bell's brakfast launched just days before the end of the first quarter, its sales results won't be available until after the second quarter.

Global same-store sales at McDonald's increased 0.5% in the first quarter. Net income fell 5% to $1.2 billion,

In the U.S., the chain's same-store sales decreased 1.7% in the first quarter and operating income declined 3%. The company's earnings release said that top-line results reflected declines in guest traffic amid "challenging industry dynamics" and severe winter weather. The chain said the U.S. remains focused on improving the restaurant experience through a continued commitment to operations and service excellence, customer engagement and menu choice to drive sales and profitability.

McDonald's same-store sales for March were down 0.6%, marking its fifth month consecutive sales drop in the U.S., though the chain had been fighting decelerating sales since early 2012.

McDonald's said last month that its three priorities were menu, digital and marketing. U.S. marketing is now overseen by Deborah Wahl, who just joined McDonald's as U.S. chief marketing officer in early March. In an effort to take digital media more seriously, the chain named Atif Rafiq, an veteran, its first chief digital officer.

McDonald's said late last year it was moving away from limited-time offers and will roll out new products at a slower pace after rolling out four items last year in too quick a succession. Mr. Thompson said Tuesday that the chain's strategy is to have a balance between "our core and new products and [focus on] enhancing marketing effectiveness while maximizing our opportunities to grow."

He also said the chain is "strengthening our marketing messaging to better resonate with customers and create stronger awareness." He cited McDonald's "recent changes in U.S. marketing to directly align our marketing efforts with targeted consumer segments." He didn't offer further details, but the chain earlier this year announced it was rejiggering its marketing department. Marketing at the Golden Arches used to be organized by product but is now organized around consumer groups such as millennials, families and adults.

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