Taco Bell Steps Up Breakfast War Against McDonald's

Yum Brands'  (NYSE: YUM  ) Taco Bell launched its national breakfast roll-out by targeting breakfast leader McDonald's  (NYSE: MCD  ) with a clever ad featuring men named Ronald McDonald extolling the virtues of the chain's new morning offerings.

Since those ads poking fun at its rival's signature clown were so well received and crossed over into pop culture -- bringing the chain an enormous amount of publicity -- Taco Bell has struck again. Its latest breakfast commercial "Get with the times" paints anyone who would get breakfast from the Golden Arches as stuck in the 1980s.

Set to the tune of "Old McDonald had a farm," the 30-second TV spot shows a man with an 1980's mullet-style haircut and an outfit reminiscent of something Don Johnson would wear on Miami Vice eating an Egg McMuffin while riding the bus. He then returns to his outdated apartment, which features a full-size Galaga arcade game, a poster for the movie Howard the Duck, and another for the band Loverboy. When he sees an ad for Taco Bell's Waffle Taco (on his old-school non-flat screen TV) he decides to modernize changing his clothes, haircut and the decor in his home.

The message of the ad is very clear -- eating breakfast at McDonald's is out of fashion and hip, modern people choose Taco Bell (and don't like Loverboy, which is sad because who doesn't like Working for the Weekend)? 

Taco Bell sees opportunity

McDonald's has long been the breakfast leader, commanding a 25% market share of the $50 billion fast food breakfast market, according to market researcher Technomic

Taco Bell, like many other fast food chains before it, believes it can grab some of that market by offering an alternative.

"Our customers have asked us to do breakfast because there's a sea of sameness in breakfast sandwiches," Taco Bell President Brian Niccol told USA Today.

The Taco Bell menu is certainly different, though perhaps not as radical as the company thinks. McDonald's has long had a variety of breakfast burritos and Taco Bell's Waffle Taco is not that different from the McGriddle, which is essentially a breakfast sandwich served on two pancake-like objects.

Breakfast is a growth opportunity

In December 2013, Technomic examined how major foodservice brands from restaurants to retailers were trying to use breakfast as a way to get customers in the door. The research company learned that the opportunity for growth in the segment was huge as only 20% of consumers told Technomic that they're eating breakfast away from home more often now than they were one year ago. The research found that customers had specific ideas about what would lure them in for breakfast: 

  • Limited-service breakfast customers place high importance on value menus, breakfast sandwiches and portability
  • Coffee is key: 64% of consumers drink coffee at breakfast; 54% of these consumers prefer a restaurant that offers free coffee refills, and 30% agree that they are loyal to concepts that serve their preferred brand of java
  • Consumers link breakfast with health: 63% of consumers feel it is unhealthy to skip breakfast; open-ended data shows that many consumers want more healthful breakfast options.

Both Taco Bell and McDonald's have prioritized portability and value. Only McDonald's has focused on coffee (Taco Bell has it but does not put anywhere near the effort into it that McDonald's does with its McCafe brand). And while neither can claim to be health-focused, McDonald's now offers an egg white option to appeal to health-conscious customers. 

In launching its breakfast Taco Bell clearly focused on bringing in its own customers first -- the ones maybe not as focused on health as evidenced by Taco Bell's ad campaign pushing "fourth meal," the idea the people should come in late for a second dinner.

Fast food sales are falling for burger chains 

McDonald's needs to protect its breakfast turf as its U.S. sales rose only .7% in 2013 to $35.9 billion, which Technomic described as weak in a report released April 9. The research described the burger business in general -- specifically the quick serve, or fast food segment -- as having reached maturity.

"Although the burger chains in the 2014 Technomic Top 500 Chain Restaurant Report tallied U.S. sales of more than $72 billion, they recorded nominal growth of only 1.2%. Adjusting for price inflation, the segment's sales declined," the researcher wrote.

Taco Bell has an opportunity

McDonald's may be vulnerable in the breakfast space, but as I wrote about in Is Taco Bell Breakfast a True Challenge to McDonald's, the company has to improve its execution and the quality of the food. Tweaking McDonald's to let people know Taco Bell is now in the breakfast game is a clever idea that obviously has a real dollar public relations value, but it's unlikely to sway many customers. It seems doubtful that any customers will actually decide that McDonald's is outdated and that they need a slightly different more in-your-face breakfast option.

Taco Bell should market its breakfast to its own customer base -- assuming it can find a way to wake them before 11 a.m. -- before it goes after anyone else's. Clearly the existing Taco Bell diner buys into the brand's attitude and is less concerned with food quality than it is with cheap quantity. Once it establishes a base for its breakfast business the company can then look at grabbing market share from McDonald's.

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