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

The stigma of a taco place serving breakfast. Yuck! Here's why Yum! Brands' ambitions to unseat McDonald's at the breakfast table won't work.

Apr 19, 2014 at 6:56AM

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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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill and McDonald's. 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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