Already facing declining sales at its restaurants, McDonald's (NYSE:MCD) must now confront rivals moving into a daypart that traditionally hasn't been their primary focus, creating even more pressure for the slipping burger giant.
The battle for the $50 billion breakfast market is ready to simmer over as Yum! Brands (NYSE:YUM) makes a big push into the daypart with 14 Taco Bell breakfast offerings, including the Waffle Taco and A.M. Crunchwrap. A new advertising campaign is rolling out right to its rival's doorstep, running a commercial featuring dozens of people named Ronald McDonald claiming they love Taco Bell's new food.
In response, McDonald's tweeted a picture of its namesake clown crouching down next to a chihuahua and stating, "Imitation is the sincerest form of flattery," followed by "Breaking! Mayor McCheese confirms: Ronald, in fact, still prefers McDonald's."
Same-store sales at the burger palace fell 1.4% in the fourth quarter last year and were virtually flat for the full year despite higher average check values as guest counts fell. In contrast, Yum! reported that Taco Bell delivered its eighth consecutive quarter of same-store sales growth, with total sales rising 3% for the year. The encroachment into the breakfast daypart shouldn't have been unexpected, as the Mexican fast-food chain expanded beyond the confines of traditional mealtimes with its "fourth meal" campaign, the late-night after bar closing time when you're looking to cure the munchies, so expanding into "first meal" isn't such a stretch.
McDonald's is estimated to have a 31% share of the breakfast market, according to the researchers at Technomic, and it's a meal that's estimated to generate 20% of the chain's $28.1 billion in annual worldwide revenue.
Aside from traditional rivals such as Burger King Worldwide and pancake house IHOP, McDonald's also faces a squeeze from Starbucks (NASDAQ:SBUX), which is adding more food items to its menu, and coffee and doughnut shop Dunkin Brands (NASDAQ:DNKN), which is going beyond just glazed confections and putting out new sandwiches, such as its recent Eggs Benedict addition.
Certainly there are more options for consumers to choose from in the morning, and though it may be popular to beat up on McDonald's at the moment because of slowing sales, remember that Wendy's (NASDAQ:WEN) had entered the breakfast market several years ago and quickly left it because its rival had the business down cold. Taco Bell may be giving it a bit of a twist with its unique sandwiches, but there are no guarantees it'll be able to pull this off, either.
And just to make sure its customers don't wander too far (while also blunting its rival's appeal), McDonald's is making a limited-time offer for free coffee, leading once again with one of its strongest advantages. It launched its McCafe line to be able to go up against Starbucks and even tested grocery-store sales of its blends, so as it once again toys with the idea of extending breakfast hours beyond their usual cutoff time -- maybe even serve the meal all day long -- McDonald's is showing Taco Bell and others it won't be so easy to eat its lunch.