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Taco Bell Breakfast Aims to Take on McDonald’s

By Daniel B. Kline – Feb 25, 2014 at 7:45AM

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Is the world ready for another fast food breakfast option? Taco Bell is ready to find out.

The hungover and those who have yet to go to bed from the night before should rejoice. Yum! Brands' (YUM 0.48%) Taco Bell plans to roll out a non-traditional breakfast menu across the country beginning March 27.

The move is clearly an attempt to win morning market share from fast-food leader McDonald's (MCD 0.63%). Powered by its McMuffin line as well as its Hotakes and the odd (but delicious) McGriddle, McDonald's breakfast accounts for roughly 20% of the company's U.S. sales. McDonald's, which has not released its 2013 annual report, had nearly $9 billion in U.S. sales so the piece of the pie Taco Bell is going after is worth almost $2 billion.

"We can turn the breakfast conversation into a two-horse race," Taco Bell President Brian Niccol said in an interview, noting that Taco Bell intends to be a "strong No. 2" after McDonald's.

Not the first time

Taco Bell has been down the breakfast road before. In 2012 the company introduced what it called "FirstMeal," a breakfast promotion consisting of something called the A.M. Crunchwrap  and Mtn Dew A.M., a combination of Mountain Dew and Tropicana Orange Juice mixed in-store.

"FirstMeal, Taco Bell's breakfast menu that combines great value and innovation with classic breakfast tastes, is available at more than 815 participating restaurants in 10 Western states, including California, Arizona and Colorado," the company said via press release.

That introduction has turned out to be a test for the national roll-out.

What will taco Bell be selling?

Taco Bell, which plans to offer breakfast until 11 a.m. (a half hour later than many McDonald's) plans to sell items that follow its model of being handheld. Apparently the chain's core customer-base of millennials has no time to actually sit and eat anything with a knife and fork, so all food must be portable.

For that reason, the company will offer the aforementioned A.M. Crunchwrap, which is a tortilla filled with eggs, hash browns, cheese, and bacon or sausage. They are also introducing the Waffle Taco, which is a waffle wrapped around sausage or bacon, scrambled eggs, cheese, and syrup.The menu also includes another item introduced selectively in 2012, Cinnabon Delights -- handheld versions of the popular pastry with the gooey topping on the inside rather than on top.

Taco Bell faces a bigger breakfast problem than errant syrup, according to Ron Paul, president of restaurant consulting firm Technomic, in an interview with USA Today. "So far, no one has been able to compete with McDonald's for breakfast."

Taco Bell's boss is not worried about challenging the clear market leader.

"We're going to reinvent breakfast," Niccol told USA Today. 'We don't use buns or burgers or circular things at breakfast – that's not who we are."

Breakfast is a crowded space

In addition to McDonald's, Taco Bell enters a crowded space with Burger King (BKW.DL), Subway, Starbucks (SBUX 0.04%), and many smaller players competing. 

McDonald's, which has been fending off breakfast challengers for years, does not seem concerned about yet another competitor jumping in.

"I think they're going to find that going into the breakfast business is not like what they're accustomed to, in terms of marketing," Kevin Newell, U.S. brand and strategy officer for McDonald's, told The Washington Post.

Taco Bell can make it work

In a conference call with analysts last month, Yum! President Richard Carucci said that breakfast has accounted for about 4% of sales in restaurants where it's been available, the Associated Press reported.

"But this is before we've now dialed it up," he said.

Unlike Burger King, which as it does with its main menu, has competed with McDonald's by offering variants of its competitor's menu, Taco Bell is trying something entirely new. That strategy has worked for Starbucks, which has not so much competed with McDonald's and other fast food breakfasts, but created its own new audience.

There is likely more overlap between Starbucks and McDonald's customers as both are similar value propositions, but Taco Bell has been successful by portraying its products as having more edge than its competitors. Taco Bell has marketed itself as different through its "Think outside the bun" campaign and the new breakfast offering plays into that idea.

Waffles and crunchy tortillas stuffed with eggs washed down with Mountain Dew are decidedly different than another take on the Sausage McMuffin. That should appeal to Taco Bell's core customers and drive sales ... assuming they wake up in time for breakfast.

Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide, McDonald's, and Starbucks. The Motley Fool owns shares of McDonald's and Starbucks. 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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McDonald's Stock Quote
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Restaurant Brands International Inc.
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