McDonald's (MCD 1.57%) and Yum Brands' (YUM 0.47%) Taco Bell have been engaged in an all out war over breakfast.
The Mexican chain has been the aggressor in this fight as it's the new player in the morning. Taco Bell has aggressively attacked its rival doing everything from running ads where people actually named Ronald McDonald said they preferred the Bell's breakfast items to its latest not-so-subtle commercials. These ads, and the accompanying short film seen below, extol the message "Escape from the Routine Republic's boring breakfast routine and defect to the next generation of breakfast at Taco Bell."
McDonald's has fired back with its own commercials touting its breakfast offering, though its ads make no mention of its rival. That makes sense because McDonald's is the clear market leader and Taco Bell is chasing it. Acknowledging that is has competition would be a mistake and The Golden Arches is correct to remind people of its well-loved morning favorites while also pointing out its new coffee options and other additions.
Both side are heavily invested with McDonald's trying to protect its turf at a time when its overall business is faltering and Taco Bell trying to win a piece of a lucrative market. We're only a few rounds into what's going to be a long fight, but some trends are starting to emerge.
What are they fighting for?
To make the obvious pun, breakfast sales are no small potatoes. In 2014 fast food breakfast accounted for $34.5 billion with McDonald's scoring about a third of that, according to Technomic.
"Breakfast is a very routine purchase," Allen Adamson, North American chairman at brand consultancy Landor told AdWeek. "Most people get their coffee in the same place; they start their day with a ritual. If you can get them to start their day with you, it's a real strong business because they're coming back every morning."
Breaking that ritual is the task facing Taco Bell, which is trying to win customers with an unconventional menu featuring eggs, hash browns, and bacon or sausage wrapped in a tortilla and taco-like biscuits filled with the same as well as a fried chicken version.
Is it working?
Taco Bell has worked its way into the breakfast conversation but its actual sales impact is still small. The company's breakfast menu now accounts for about 6% of Taco Bell's overall sales, Bloomberg reported. The company's biggest challenge may not be McDonald's or any of its other morning rivals, it might be letting its customers know that it actually serves breakfast.
"We have a lot of Taco Bell users who are already eating breakfast in the food-food industry," Taco Bell CEO Brian Niccol told the financial news service. "We still have a big opportunity on getting people aware that Taco Bell is open for breakfast."
Though McDonald's does not break out its breakfast sales specifically on its quarterly earning report, Bloomberg estimates that they account for "about 25 percent of the company's sales." Though the company has faced increased competition in the morning, items like the Egg McMuffin have remained a strength at at time when the company has been reporting declining U.S. sales.
As part of its turnaround the company has been leaning on breakfast items and has tested expanded breakfast hours in some of its stores. This is a direct attempt to give customers something they have asked for which McDonald's has always said it could not deliver for technical reasons.
Why don't we serve breakfast all day? Our grills just aren't big enough for breakfast and lunch. pic.twitter.com/Oyser4lnbw
— McDonald's (@McDonalds) February 23, 2015
It's a long battle
Taco Bell may have added a little breakfast market share, but it's probably not being open an extra four-five hours depending upon the store for a 6% increase in sales. It's hard to see how that limited volume justifies the employee and utility cost of adding the extra hours, but the chain has only been in the morning market for a little over a year so, at the moment, breakfast is still in the investment stage.
The efforts of Taco Bell, along with increased competition from Starbucks, Dunkin' Donuts, Burger King, and others, clearly has McDonald's stepping up its game. The company pointed to breakfast as a key growth area at its annual investors meeting in December, The Wall Street Journal reported. At the event, Mike Andres, the company's U.S president, was not concerned that increased competition from anyone, including Taco Bell, would stop its growth.
"The competition today—there's very few of those folks that crack an egg, that have a kitchen, that actually make breakfast. What they do is they reheat breakfast or they reheat a bakery product," he told the Journal. "We're going to start to tell the story about what you're getting at McDonald's, and it's a great story. And it goes to real and fresh."
Taco Bell has so far proved little more than an annoyance, which may have actually awakened a sleeping giant. McDonald's no longer takes breakfast sales for granted and that may be bad news for not just Yum Brands, but all the rivals seeking to Hamburgle a share of the breakfast market.