The Business of Breakfast

Businesses are vying to sell you breakfast, but not all of them will succeed.

Jun 24, 2014 at 9:14AM

You can microwave a Pop Tart...Listen, if you need to zap-fry your Pop Tarts before you head out the door, you might want to loosen up your schedule.

-Comedian Brian Regan

While it makes for good comedy, the truth is Americans have a paltry 12 minutes allotted for breakfast according to an NPD Group report. With that time squeeze, it's understandable why some companies struggle to sell you breakfast, and why others are more apt to succeed. 

America's favorite breakfast
Breakfast cereal is America's No. 2 breakfast food. Cereal burst onto the breakfast scene over 100 years ago when the general public became interested in the health benefits of whole grains -- a shift from the meat-centric breakfast at the time. Kellogg (NYSE:K) enjoyed success by being an early mover with its Granola. . 

Coffee is No. 1. This comes as no surprise, and explains why companies that make the coffee prep process easier -- like Keurig Green Mountain (NASDAQ:GMCR) -- have enjoyed success in recent years.

The shift continues
American commutes to work have steadily lengthened. In 1990 the average travel time to work was 22 minutes. From 2006-2010 it was 26 minutes -- a 17% increase. Long commutes are also on the rise, as 5% of the workforce now travels over 50 miles to work. This factor is one reason why Americans have only a dozen minutes for breakfast, and why a top motivator for choosing breakfast food is convenience.

Just as people shifted to cereal a century ago, they are now leaving cereal for convenience sake. Kellogg's morning food segment declined 1.9% last year, yet this was completely due to lagging cereal sales. Pop Tarts and morning beverages like Kellogg's To Go had strong sales. In order to stay relevant into the future, Kellogg will need to keep looking for ways to make cereal more convenient and/or replace cereal sales with more innovative products.

While cereal continues to decline, coffee consumption keeps rising. According to Euromonitor, home brewing grew 4% last year, compared to 2% outside the home. This trend is why Keurig sold 20 million brewers from 2012-2013. People like coffee at home and flock to the convenience of the Keurig brewer. 

Keurig has experienced phenomenal growth, but it looks to be positioned to snatch more market share with the release of Keurig 2.0. This brewer will replace the first model, though K-Cups will be completely compatible with both systems. And it will bring in a coffee crowd that it hasn't before: the pot drinkers. 

The top breakfast trends, then, are coffee and convenience. Keurig naturally goes with both trends, which is why it'll keep winning. Kellogg, on the other hand, needs to keep adapting to stay relevant.

The new kid
Breakfast has arrived at Yum! Brand's (NYSE:YUM) Taco Bell, and it's sure to be a long-term success because it adequately addresses the predominant breakfast trends we just discussed.

Have you seen the humorous commercial of an elderly man in a wheelchair joyously eating his "one-handed breakfast"? This ad isn't just meant to be funny--it subtly champions the convenience of Taco Bell's breakfast menu. Each item on the menu is a one-hander, which will surely be a hit with the drive-through crowd.

And while coffee snobs may clobber this statement, Taco Bell made a good choice to partner with Seattle's Best Coffee of Starbucks. Instead of developing its own java blend like McDonald's, the taco chain played it safe and teamed up with America's fourth-favorite coffee brand according to the 2014 Harris Poll EquiTrend Rankings. While the coffee likely won't be a draw in and of itself, it'll be satisfying enough for the masses on their way to work.

A potential player
We found out in September that Chipotle Mexican Grill (NYSE:CMG) is testing coffee at two locations in Washington D.C. The burrito chain has partnered with La Colombe Coffee, a small coffee shop chain renowned for its good brew. You may have seen its founder Todd Carmichael on the Travel Channel's (of Discovery) Dangerous Grounds as he searches the world for the best coffee beans.

Seven months have passed with no word from Chipotle on the coffee test run. But I stand by my statements from back when it started: it's likely that Chipotle is dreaming up a coffee-shop concept. The Chipotle concept would have a hard time drawing in the morning crowd. As we've seen, people are in a hurry and not looking to sit down to eat a massive breakfast burrito. But a coffee chain with a drive-through is a different story. I expect the company to soon fully outline its hopes for this.

On the go
Hey, it may only be 12 minutes of your time, but breakfast is a big deal for business. Americans want coffee and they want convenience, and the companies that give them both are positioned to excel. 

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Jon Quast has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Keurig Green Mountain, McDonald's, and Starbucks. The Motley Fool owns shares of Chipotle Mexican Grill 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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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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