Yum! Brands' (NYSE:YUM) Taco Bell could well be cutting into McDonald's (NYSE:MCD) stranglehold on the breakfast market. McDonald's is seeing a slowdown in U.S. sales, and Taco Bell could be partially responsible. The value proposition related to McDonald's cheap food doesn't seem to be resonating with customers, but Taco Bell's new breakfast choices could be a "refresh" for the consumer market and spur a change in individual breakfast preferences.

Yum!'s continued push in China
Yum! is seeing growth from China. Last quarter, sales in China were up 17% year-over-year, while company-wide revenues were up 4%. There's still struggles for KFC outside of China, though. Same-store U.S. and International sales at KFC were up 1%, but were down 2% for Pizza Hut, while at Taco Bell they fell 1%. Yum! plans to open some 1,250 international stores this year, increasing its exposure to China by opening over half its planned stores (around 700) in the country.

By all accounts, the strategy that the company implemented earlier this year appears to be working. It announced plans to rework its menu for KFC China while also collaborating with Chinese celebrities to strengthen its brand image. These are positive steps considering that Yum! gets over half of its revenues from China.

McDonald's weakness is a Yum! opportunity
McDonald's saw a 1% decline in same-store sales last month in the U.S., which was the seventh straight monthly decline. The company is not only seeing pressures related to the macro environment, but its latest promotions also don't seem to be resonating with consumers. The company is now facing an innovation and an operational problem. McDonald's has the brand image and marketing dollars to orchestrate a brand reinvention, but it has to undertake a strategy that embraces the shift away from traditional fast food.

The industry dark horse
Starbucks (NASDAQ:SBUX) is another force to be reckoned with. It also has a strong presence in China. It has not only made a push into the breakfast market with its sandwiches, but it could also be ready to take the lunch/dinner market by storm.

The key here is that Starbucks will soon start to leverage its 2012 acquisition of La Boulange bakery. La Boulange products are expected to be in all U.S. stores by the end of the year. It's also testing La Boulange lunch items, which are expected to come to market in 2015. Starbucks' evening program was recently rolled out as well, and includes food and alcohol offerings. The ultimate goal is to roll this program out into 1,000 stores.

How shares stack up
Shares of Yum! trade at a P/E ratio of 19 based on next year's earnings estimates. That's a bit above McDonald's 16.3 forward P/E ratio. Taking into account Wall Street's earnings estimates, Yum! has a P/E to growth (PEG) ratio of 2.3, while the McDonald's PEG ratio is 2.4. Starbucks trades at a forward P/E of 32. As far as income goes, McDonald's offers a 3.2% dividend yield, well above Yum! and Starbucks (which yield 1.8% and 1.4%, respectively).

Bottom line
Yum! still has plenty of room to grow its revenues in China. The company's shares are back above its 2012 levels, which was prior to the chicken crisis in China. The company is slowly rebuilding its brand. Despite rising competition from Starbucks and the still dominant presence of McDonald's in the breakfast market, Yum! is still a growth story when it comes to diffusing its KFC brand in international markets and expanding the influence of Pizza Hut and Taco Bell in the U.S. For investors looking for a long-term play in the fast food industry, Yum! is worth a closer look.