Watch Out McDonald's, the War Over Breakfast Is On. Tacos, Anyone?

Source: McDonald's

For many years, McDonald's (NYSE: MCD  ) has been the place to go to grab breakfast on the run. Sure, there's always been some light competition from other fast-food operators, but McDonald's has always dominated the morning munchies.

Well, put down your hotcakes, hash browns, and piping hot McCafe because there's a new war brewing over breakfast business, and you won't believe who's setting an early alarm to lure the hungry morning masses.

What? Tacos for breakfast?
When I first heard that Yum! Brands (NYSE: YUM  )  Taco Bell was serving breakfast, I laughed. It sounded like a desperate, bizarre move. 

Source: Taco Bell

Take a look at the breakfast menu and you'll see that we're not talking about tacos for breakfast, here. Or at least not traditional ones.

Taco Bell has come up with a creative lineup that includes the Waffle Taco and Crunchwraps. They actually look pretty good. And they also look much easier to hold and eat while commuting to work (hopefully as a passenger!).

Yum! Brands seems to know what it's doing, and the new items look like a winner -- and the timing couldn't be better.

The company had a slow year in 2013, mostly due to things beyond its control such as a poultry scare in China. However, its Taco Bell brand has never been hotter in the U.S., where it accounted for two-thirds of its profits last year.

Yum! Brands is determined to grow earnings per share for the company by 20% this year, and it looks like it may do it. 

Remember, this is the company that invented the "fourthmeal." Maybe it's kind of overdue to start serving the first one.

The breakfast table is getting crowded
Taco Bell may be one of the newest entrants to the morning food competition, but it's by no means the only player eyeing a bite of Mcdonald's breakfast business.

Burger King  (NYSE: BKW  )  has always had a menu of breakfast items available, yet it has had a hard time getting customers to quit their McDonald's morning habit. Still, it's been adding to its menu (it has 18 breakfast sandwiches and burritos) and recently has a gourmet coffee chaser to boot. A recent Burger King promotion was free coffee from Seattle's Best Coffee to customers who purchased one of the chain's breakfast sandwiches. 

Jack in the Box (NASDAQ: JACK  )  is another burger joint that has long served breakfast all day, usually 24 hours. Now the chain is getting more aggressive by adding new creative and healthy items such as its egg white and turkey breakfast sandwich.

Meanwhile, Subway -- the largest restaurant chain in the world, beating McDonald's by thousands of locations -- has launched all sorts of creative breakfast combination sandwiches with different price points. If nothing else, guests who normally frequent McDonald's may be curious.

Even the traditional coffee chains that were rarely to never seen as breakfast stops are jumping in for a piece of the action.

Dunkin' Donuts CEO Nigel Travis credited breakfast sandwiches with much of its growth last quarter, and President John Costello sees "opportunities to continue to expand the breakfast platform."

Starbucks (NASDAQ: SBUX  ) is perhaps the most interesting. I've always wondered if this is a huge potential opportunity for it as the morning crowds are usually thick, but few people are eating. Surely at least a decent portion of Starbucks guests would grab a bite to eat, too, if the right temptations are there. But the current offerings of food don't seem to be overly successful.

When pressed during Starbucks' most recent conference call, CEO Howard Schultz teased a bit. He said, "I have only some surprises out there. I'll tell you we've got some great new innovations coming both in that morning category around the savory items and warm items, as well as in lunch." Starbucks fans and investors should pay attention.

Source: Starbucks

There could be a bigger wave of growth heading for Starbucks, and if so, McDonald's isn't going to like it.

How serious is the threat?
With 25% of its sales coming from breakfast, and same-store sales in the U.S. showing signs of entering a negative tailspin, should McDonald's be worried by all this competition chomping at its heels?

Certainly the company can't afford to lose much more of its dominance if it wants to keep shareholders happy.

Still, it's hard to bet against McDonald's, the company. But cautious investors may want to wait on the sidelines for a little while and see how all this plays out.

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Read/Post Comments (8) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 15, 2014, at 11:50 AM, clutch58 wrote:

    Where's Tim Horton's?

  • Report this Comment On February 15, 2014, at 12:40 PM, Riggerwo wrote:

    If you eat any of these things for breakfast you are an idiot!..this is crap...high calorie crap....processed rubbish...high in fat, salt & chemicals....

  • Report this Comment On February 15, 2014, at 7:28 PM, morgaine wrote:

    The war will be brief. I've had one of Taco Bell's breakfast offerings, and it will be my last.

  • Report this Comment On February 15, 2014, at 7:36 PM, WallaceNDavis wrote:

    The rest of the world reported on Taco Bell's breakfast plans last August. Six months ago. Shouldn't you have something new to say if you're going this late to the party? You are wasting everyone's time.

  • Report this Comment On February 15, 2014, at 10:05 PM, imariot wrote:

    McDonald's is getting ridiculously expensive. I am glad that other chains are making an effort to provide alternatives. And Riggerwo, you need to calm down. As long as you don't make this a daily habit, you will be ok. Moderation in all things.

  • Report this Comment On February 15, 2014, at 11:37 PM, nickeyfriedman wrote:

    @ WallaceNDavis,

    Breakfast is only served in 120 Taco Bells so far, rising to 300 by year end. Since there are current 6,500 Taco Bells. Since only 1.8% of Taco Bells serve breakfast and still 98.2% of Taco Bells to go, not including new Taco Bells in the process of being opened, I would say the reporting of breakfast at Taco Bell, and especially it's financial and investment impact on McDonald's, is still well in its infancy.

    Thank you for the comment.

  • Report this Comment On February 16, 2014, at 1:55 AM, thedawg60 wrote:

    just give me a whopper/cheese or No.1 im happy or wait till 9a.m. give a couple tacos

  • Report this Comment On February 16, 2014, at 8:26 PM, gabalot wrote:

    Well when will they get to MN? NE is to far to drive just for Breakfast? Would at least like to give them a try!

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