A Dow Jones story is detailing how the two burger giants are rolling out dollar menus with many popular breakfast items going for a buck.
Is it a preemptive strike against those who are gearing up to wake up a little earlier to feed the hungry next year? You bet. Just check out some of the events that were announced earlier this year but will really start to shape the fast-food breakfast industry come 2007:
- Wendy's (NYSE:WEN) has been testing its breakfast menu in limited markets, with a full rollout planned for early next year.
- Yum Brands' (NYSE:YUM) Taco Bell is exploring a breakfast menu.
- Starbucks (NASDAQ:SBUX) has ordered TurboChef (NASDAQ:OVEN) Speedcook ovens as it tests hot breakfast sandwiches.
BK and Mickey D's have every reason to go on the attack. By this time next year, way too many fast-food chains will be jockeying for your crispy dawn dollars. There is too much at stake at this point to give up those Croissan'wiches and McGriddles without a fight.
However, if I can be the voice of reason: Let's be smart about these dollar menus. I don't think that the same dynamics that have made the strategy pay off in the lunch and dinner hours apply here. Fast-food chains don't turn much of a profit in selling you cheeseburgers or fried chicken sandwiches for a buck. The real money there is because consumers often pad those orders by paying a buck for fries and another buck for a soda. That is where the gravy glows. A medium serving of fries, before cooking, will run the Golden Arches about a dime. Soda syrup? Yes, that's pretty cheap, too.
Unfortunately, the same razor and blades kind of thinking doesn't always work for breakfast. Hash browns aren't a natural add-on. Orange juice prices have gone through the roof over the past year. Yes, coffee is still cheap as beans, but folks still skimp there to get their premium coffee elsewhere.
In other words, marking down the morning razors may prove to be a rude awakening if the thrifty aren't going for the marked-up blades.
We'll see how this all plays out. As a consumer, I applaud the variety that we are likely to see next year. As an investor, I would be very nervous about this pre-emptive price war just as the burger chains were doing so well by moving into higher-priced premium offerings later in the day.
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Longtime Fool contributor Rick Munarriz enjoys those healthy Apple Dipper slices at McDonald's -- but only because they come with those caramel dipping sauce cups. He does not own shares in any of the companies in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has a disclosure policy.
