Why Taco Bell’s Breakfast Won’t Be a Hit

Yum! Brands (NYSE: YUM  ) gets an "A" for effort when it comes to the marketing campaign for its new breakfast aimed at McDonald's (NYSE: MCD  ) jugular. However, when Yum! Brands reports earnings on April 22, this Fool thinks investors may be disappointed by the company's initial comments.


Source:  Yum! Brands at tacobell.com

Think Mighty Wings
Remember when you first heard about McDonald's launch of Mighty Wings? Yeah, it raised your eyebrow. A burger joint like McDonald's selling Buffalo wings? It may have made you curious enough to give them a try if you are adventurous when it comes to food. But many people suspected going in the wings didn't stand a chance. It's just too much of a leap for McDonald's.

Now we have Taco Bell selling breakfast. Admit it. It's just weird. Chipotle Mexican Grill (NYSE: CMG  ) does serve breakfast at one location in an airport. It does OK. But Chipotle Mexican Grill insists it has no plans to expand breakfast to other locations. But why not? It's probably too odd for it to work outside of an airport.

If you fly as often as I do, you've probably seen all sorts of traditional lunch and dinner restaurants serve breakfast. At one airport I frequent, there is a pizza restaurant that serves really good bacon and eggs. But no matter how many times I eat there, I still somewhat cringe walking up to a pizza counter and ordering bacon and eggs. If it wasn't right in front of me, I wouldn't do it. Chipotle Mexican Grill probably knows that its breakfast-in-an-airport customers are only there for convenience.

Source: Chipotle Mexican Grill

The Chipotle Mexican Grill lesson
A lesson I learned from Chipotle Mexican Grill is the value of anecdotal experience. While far from perfect, nor scientific, doing some in-person observations of a new concept can go a long way. For example, ahead of Chipotle Mexican Grill's last blockbuster earnings report that shot the stock to the moon, I had been meaning to stop in and try the food for the first time. Every time I went to go to one, no matter what time of the day, the line was too long (often literally out the door) so I didn't bother. That alone should have given me a heads up that things were going well.

For Taco Bell, I refused to make the same mistake and went straight to work. Forget that my order when I sampled the food looked nothing like the picture; I've been driving by several Taco Bells in and near cities in my area at various morning times to observe the crowds...or lack thereof. These are Taco Bells that are busy during lunch and dinner and have nearby restaurants such as McDonald's that have decent crowds during breakfast. The short version of my observations: The "crowds" are so thin you'd have thought these Taco Bells were closed.

New ad from Taco Bell
The latest brilliant television commercial and viral Internet video from Taco Bell does a good job poking fun at McDonald's. It starts out with a bored-looking man with a 1980s mullet holding a McDonald's Egg McMuffin singing, "I've been eating an Egg McMuffin since 1984, but when I saw Taco Bell made a Waffle Taco, I figured I would get with the times."

Source: Burger King

The song goes on to name a bunch of out-of-style things that the man got rid of, such as the mullet haircut, his flip phone, and his Lazer Tag gear. The whole thing is sung to the tune of "Old MacDonald Had a Farm." It's cute, it's clever, it's catchy; but will it sell breakfast?

Source: McDonald's

The thing the ad misses is that reliable and consistent are what have kept McDonald's 30% breakfast market share. Ad campaigns centered around 'the same old-fashioned recipe' have usually found success. For example, back in Dec. 2012, Burger King had an ad campaign that said, "Celebrating 55 years of the whopper sandwich."  Then there's  "Billions and billions served," you've no doubt seen on McDonald's signs. McDonald's hasn't changed from pushing the Egg McMuffin because it works. And nostalgia sells.

It's not a surprise that Taco Bell's test marketing locations only saw a 4% rise in sales when breakfast was added. Compare that to 20% for McDonald's, and Taco Bell has some catching up to do. Typically in the restaurant business, there is a honeymoon period the first year where sales get a quick but not sustainable spike from curious diners looking to try something new;  so even that 4% may taper off.

Foolish final thoughts
Any improvement in sales and profits from Taco Bell's breakfast certainly will be a good thing. But Fools shouldn't necessarily expect it to be a home run; it may even be a total flop. Sometimes test markets that are babysat and carefully watched over give misleading data that outperforms a national rollout.

Just look at the Mighty Wing launch. At the time, a McDonald's spokeswoman stated,

Mighty Wings were popular among all of our customers in the test markets and we anticipate that this new menu item will be well received across all multicultural audiences.

The same could happen with Taco Bell's breakfast. Pay close attention to the comments in the upcoming Yum! Brands conference call, especially during the question and answer session, as no doubt breakfast will be the primary topic.

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Read/Post Comments (10) | Recommend This Article (3)

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 April 19, 2014, at 4:37 PM, babyleg wrote:

    I saw the menu and some window posters at my local Taco Bell, unfortunately it did not look appetizing. I will pass with so many breakfast options out there. My local Blake's Lota Burger's breakfast burrito leaves these guys in the dust.

  • Report this Comment On April 19, 2014, at 5:07 PM, moopert wrote:

    Their breakfast is actually pretty good. Was in a test market before it went national. Liked it.

  • Report this Comment On April 20, 2014, at 9:34 AM, wareagle1971 wrote:

    The whole stigma of breakfast is odd. I suppose it should be a lighter meal for most, but why must eggs, sausage, and bacon be involved? Sometimes I like a few greasy burgers in the morning!

  • Report this Comment On April 20, 2014, at 11:18 AM, Kscott wrote:

    Sbarros at Logan airport is the pizza chain with great breakfast. The bacon is perfect. Taco bell's breakfast is weak. The bacon in the waffle taco is so small and dry it just falls out when you bite the taco which is only good if you pour a gallon of syrup on it. The sausage AM is just a wet soft taco shell with a sausage patty in the middle and the hash browns taste like they are cooked in the 7-11 pizza oven. A hash brown must be deep fried, sorry. Yum brands must have done no market research. I am willing to try new things, but the reason McDonalds puts sausage on a biscuit is because sausage is very salty and pungent and needs a buffer. Bacon bits are for salad, not breakfast. I would have gone for soft taco with huevos ranchero or turkey bacon and avocado. Be different don't just take McDonalds menu and shove it in a taco

  • Report this Comment On April 20, 2014, at 11:32 AM, KeriBear wrote:

    I live in a Taco Bell test market area. I love the breakfast burrito combo. The waffle taco, however was a flavorless bust. The breakfast crunch wrap is really big. I always order the bacon or sausage burrito combo followed by some Cinnabon holes-yummy. At first Taco Bell offered specialty coffees and I'd get the caramel one. They stopped doing that and just have regular coffee now. Everyone I know likes their breakfast, but I still crave me a Mc Donald's bacon egg biscuit now and then.

    Both Mc Donald's and Taco Bell are in the same plaza near me and yes there is always a drive thru line for Mc Donald's breakfast and not much line for Taco Bell breakfast. They did offer breakfast before a few years ago. Anyway I don't know how they'll generate more AM business. Maybe add a more varied menu? Get the green sauce on your burrito yum.

  • Report this Comment On April 20, 2014, at 1:30 PM, Schlomodeltoro wrote:

    I live near a McDonalds and a Mexican owned taco shop and I haven't eaten at McDs in years, but the taco shop is way better than any McDs or Taco Bell could ever imagine to be. They at least use real meat!

  • Report this Comment On April 20, 2014, at 5:21 PM, Catstandish wrote:

    I loved the Waffle Taco, and I love the breakfast taco. There is something that TB has that Mickey D's does not, and which will keep me interested in them for breakfast: REAL cheese, as opposed to "white cheddar" (aka: White American Cheese) I hate processed cheese food.

    Right now, TB's lobby is not open during breakfast hours, and that is a little unwelcoming. They need to open up the lobby so that people can sit, walk in, etc.

    Their breakfast is as good as McDonald's and the only reason I do not get it more frequently is location, location, location.

    Right now, people do not think of TB for breakfast automatically, and it will take a little time. I do not think it will fail.

  • Report this Comment On April 20, 2014, at 7:44 PM, GradyPhilpott wrote:

    The author seems to know nothing of Mexican food, if the author doesn't think that there are great Mexican breakfasts. Whether or not Taco Bell's breakfast will be a winner, I don't know, but it won't be because it can be bought at Taco Bell, or any other Mexican restaurant.

    If this sounds crazy, I suggest a visit to New Mexico, where you can buy a breakfast burrito or a plate of Huevos Rancheros any time of day.

  • Report this Comment On April 20, 2014, at 8:18 PM, nickeyfriedman wrote:

    @ GradyPhilpott,

    While I do not doubt the popularity of Mexican breakfast in New Mexico, I question how well it will sell in say Chicago while next to a McDonald's.

  • Report this Comment On April 21, 2014, at 6:06 AM, gavified wrote:

    This is why we are now dead at ages 40 and 50!

    Potatoes, Soybean Oil, Enriched Bleached Flour (Wheat Flour, Niacin, Reduced Iron, Thiamin Mononitrate, Riboflavin, Folic Acid), Tapioca Starch, Salt, Rice Flour, Dextrin, Spices, Leavening (Sodium Acid Pyrophosphate, Sodium Bicarbonate), Onion Powder, Garlic Powder, Natural Flavor, Potassium Chloride (A Salt Substitute), Food Starch-Modified, Guar Gum, Color (Oleoresin Paprika, Oleoresin Turmeric), Dextrose, Disodium Dihydrogren Pyrophosphate (To Maintain Color). Oil: High-Oleic Low-Linolenic Canola Oil, TBHQ (To Protect Flavor), Dimethylpolysiloxane (An Antifoaming Agent). CONTAINS: WHEAT

    Potatoes, Vegetable Oil (Contains One or More of the Following: Canola Oil, Corn Oil, Cottonseed Oil, Palm Oil, Soybean Oil, Sunflower Oil), Enriched Bleached Flour (Wheat Flour, Niacin, Reduced Iron, Thiamin Mononitrate, Riboflavin, Folic Acid), Tapioca, Starch, Salt, Rice Flour, Dextrin, Spices, Leavening (Sodium Acid Pyrophosphate, Sodium Bicarbonate), Onion Powder, Garlic Powder, Natural Flavor, Potassium Chloride, Food Starch - Modified, Guar Gum, Color (Oleoresin Paprika, Oleoresin Turmeric), Dextrose, Disodium Dihydrogen Pyrophosphate (to promote color retention). Oil: High-Oleic Low-Linolenic Canola Oil, TBHQ (To Protect Flavor), Dimethylpolysiloxane (An Antifoaming Agent). CONTAINS: WHEAT

    Potatoes, Soybean Oil, Enriched Bleached Flour (Wheat Flour, Niacin, Reduced Iron, Thiamin Mononitrate, Riboflavin, Folic Acid), Tapioca Starch, Salt, Rice Flour, Dextrin, Spices, Leavening (Sodium Acid Pyrophosphate, Sodium Bicarbonate), Onion Powder, Garlic Powder, Natural Flavor, Potassium Chloride, Food Starch Modified, Guar Gum, Color (Oleoresin Paprika, Oleoresin Turmeric), Dextrose, Disodium Dihydrogen Pyrophosphate (to Promote Color Retention). Oil: High-Oleic Low-Linolenic Canola Oil, TBHQ (To Protect Flavor), Dimethylpolysiloxane (An Antifoaming Agent).CONTAINS: WHEAT

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