Is Taco Bell Breakfast a True Challenge to McDonald’s?

The first weekend of Taco Bell's national breakfast rollout showed that its product line has some promise and some problems as well.

Mar 31, 2014 at 10:29AM

Taco Bell has started a breakfast war.

If there was any question as to what company the Yum Brands' (NYSE:YUM) chain has targeted, those questions were answered when Taco Bell began running ads in support of its new breakfast offerings. The commercials feature numerous men, all of whom happened to be named "Ronald McDonald," extolling the virtues of the Mexican chain's morning menu.

McDoanld's (NYSE:MCD) has a 25% market share of the $50 billion fast food breakfast market, according to market researcher Technomic. The company plans to aggressively defend its turf against Taco Bell. McDonald's is offering a free cup of coffee for two weeks starting on March 31, and the chain has made noise about increasing the hours it serves breakfast.

"We know that breakfast on the weekend cut off at 10:30 doesn't go very well," Jeff Stratton, the chain's U.S. head told CNN Money. He said the company is "just beginning" to reconsider how to best serve up the meal.

McDonald's generally stop serving breakfast at 10:30 a.m., while the new Taco Bell breakfast is being offered until 11 a.m.

Taco Bell's breakfast menu


Source: author's photo.

Instead of just offering a breakfast burrito, Taco Bell's breakfast menu includes an array of creative choices. There is, of course, a breakfast burrito and a breakfast taco, but the company is also offering the A.M. Crunchwrap, which is a tortilla stuffed with eggs, cheese, meat, some sort of vaguely cheese-like sauce, and a hash brown. Breakfast customers can also pick the Waffle Taco, which is a waffle wrapped around your choice of meat and eggs with the same cheese sauce, or Cinnabon Delights, which look like Dunkin Donuts (NASDAQ:DNKN) Munchkins (but which are stuffed with Cinnabon icing).

The drink choices are unconventional as well. Though coffee appears on some of the signs and orange juice is available, Sierra Mist and other soft drinks appear alongside the breakfast items on some of the chain's signage.

How is Taco Bell breakfast doing?
In a less-than-scientific study, I spent Sunday morning from about 8:45 a.m. until 9:45 a.m. embedded in a Taco Bell with my 10-year-old son. We visited one of the chain's locations on a busy turnpike in Central Connecticut within sight of a Starbucks (NASDAQ:SBUX), less than a mile from a thriving McDonald's, and with at least three Dunkin' Donuts stores within a two-mile radius.

We drove by the other chains on our way to Taco Bell and on our way out. McDonald's had a full parking lot and its dual drive-through windows were busy. The Dunkin' Donuts closest to Taco Bell had a backed-up drive-through and a full (albeit very small) parking lot. Starbucks, which we could monitor from our Taco Bell window, did a steady drive-up business and appeared moderately but not excessively busy.

The Taco Bell was essentially empty, however, and saw fewer than 10 customers during the hour we were there. The chain had signs outside touting breakfast (as well as significant window signage) but customers -- at least during this hour on the first weekend of the Taco Bell breakfast -- were not coming.


Source: author's photo. 

The Taco Bell breakfast experience
If my hour-long visit is indicative of the Taco Bell breakfast experience in general, the chain has some glitches to work out. The staff in my particular store was eager and friendly, but seemed poorly trained on the new menu. They could describe the products, but were unsure how the various combination deals worked -- especially when a few of the scant group of customers we saw wanted to make substitutions.

Our order -- which consisted of a sausage A.M. Crunchwrap and a four-piece Cinnabon Delights  -- somehow resulted in us getting (and paying for) two orders of six of the mini treats. (This may have been my ordering mistake, but I specified wanting four pieces.) My son was delighted, as he was quite enamored with the little pastries.

The Crunchwrap was less pleasant, as the sausage and hash brown were skimpy -- seemingly thinner than what McDonald's serves -- and the cheese sauce was unpleasant and not even vaguely reminiscent of cheese.

It also took about 10 minutes to get our food, which seemed odd given that there were no other customers and the Cinnabon treats at most had to be warmed up -- they certainly are not baked fresh.

Can Taco Bell become a breakfast player?
Taco Bell is attempting to offer a morning alternative to McDonald's and the other fast food purveyors. The products are interesting -- different but recognizable. The quality may not be great, but this is a company that has had great success without making high-quality ingredients part of its pitch to customers.

If Taco Bell is going to become a breakfast player -- assuming that the store I went to is typical -- the staff needs better training. In general, the pace of filling orders needs to be much faster and the employees must know what they are selling and how the various combination deals work.

Taco Bell should also consider amping up its morning beverage selection. This is a chain that markets itself to the energy drink generation, but there was no sign of the Mountain Dew and orange juice beverage the company tested in 2012. The store wasn't even selling Mountain Dew A.M., which is available nationwide, or any other morning-appropriate energy drink (though a full array of soda was offered, including Mountain Dew). The only coffee choice was basic coffee, which places it behind not only Starbucks but McDonald's and Dunkin' Donuts.

If Taco Bell wants customers to run for the breakfast border instead of heading to the Golden Arches it needs to do better, improve service, and tweak its product line.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Starbucks. The Motley Fool owns shares of McDonald's and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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