First it was Yum! Brands' (NYSE:YUM) entering the fray by announcing a breakfast menu at Taco Bell. Now, fast-food giant McDonald's (NYSE:MCD) made news by filing a trademark for "McBrunch," perhaps looking to boost its sagging U.S. sales with a late-morning brunch menu. While the company has been close-lipped about its plans, should customers and investors feast on this idea's potential -- or will it be a famine for stakeholders?
Breakfast as a battleground
Breakfast is quickly becoming the battleground among restaurants, with Taco Bell's entrance into the first meal of the day, Starbucks' recent sandwich additions, and Chick-fil-A experimenting with new coffee and menu items. There's a reason for that: breakfast is the quickest-growing time of day for fast-food sales. That makes sense, as the average American breakfast is generally one of the more time-constrained meals.
McDonald's is the fast-food king of the morning. A 2012 study by research firm Scarborough found of adults who had eaten at a fast-food restaurant in the preceding month, 48% ate at McDonald's. And roughly 25% of McDonald's sales come from breakfast.
If the recent federal trademark application for "McBrunch" is any indication, McDonald's is intent on keeping -- and expanding -- its breakfast market share by expanding its hours. Brunch, for those who have been living under a rock for decades, is a portmanteau of the words breakfast and lunch.
This would be a smarter expansion than rolling out all-day breakfast: Prodded by shareholders and lunch fans who fail to understand the increased demands and processes a simultaneous breakfast and lunch presents, McDonald's appears to want to take a reasonable middle road to address the balance between incremental revenue and slower services and productivity.
This would also be smart from a marketing standpoint. Although brunch is typically thought of as a family style restaurant offering more than a fast-food meal, the moniker adds a level of sophistication to a mere extension of breakfast hours and items. Or could it be more than that?
This could be a smart move, but problems remain
We don't know if the company's plans, perhaps this is merely an extension of breakfast or a potential do a full-fledged brunch with some breakfast and some lunch items. However, the possibilities are intriguing.
The "McBrunch" campaign has the potential to combine the more popular items from the Golden Arches' breakfast menu (say, the Egg McMuffin) with popular items from its lunch menu (think Big Mac). In addition, the possible campaign would give the company the ability to tailor a menu that derives more revenue but is pared down from a simultaneous lunch and dinner rollout in order to preserve productivity and profit.
However, that's easier said than done: Adding and modifying menus and items is difficult. Take Yum! Brands as an example; although the company rolled out its Taco Bell breakfast menu recently, it appears the strategy isn't as successful as management would like. When compared to last year's pre-breakfast service second quarter, Taco Bell-specific sales and total revenue were down 5% and 3%, respectively. The company specifically mentioned higher labor costs from breakfast being a drag on restaurant-specific profits.
And that's what McDonald's faces. Each restaurant is famously designed for productivity in a small space; for example, one grill is used for both breakfast and lunch and the temperatures are different. The processes will be hard to combine in the short term and could encounter pushback from overworked employees, time-sensitive customers, and franchisees who are already upset about recent menu additions.
Let's not get ahead of ourselves; this is only a trademark filing and we don't know if they will roll out McBrunch or in what capacity. However, it shows McDonald's is looking to reverse sluggish revenue that only grew 1.95% in its last fiscal year on a year-over-year basis. Will this be a game changer for the company? Probably not, but it's good the see the company's thinking of ways to satisfy both customers and shareholders.