Just about everyone is telling McDonald's (NYSE:MCD), "It's about time. What took you so long?"
Of course, they're referring to the announcement that after a limited trial in just a few markets, the fast-food burger joint is rolling out an all-day breakfast menu nationally. Considering breakfast has arguably been one of the strongest draws for McDonald's, with the industry analysts at Technomic having pegged its dominance of this daypart at a greater than 30% market share, generating some 20% of its $28.1 billion annual worldwide revenue, it's more remarkable the restaurant didn't begin serving breakfast all day long sooner, particularly as it's been fighting a years-long sales slide.
But with McDonald's facing stiffer competition from the morning-hours commuter looking for a quick grab-and-go solution, the burger shop realized it needed to lead with its strength. Not only are coffee shops such as Starbucks and Dunkin' Donuts adding more breakfast food options, but rival burger chains were doing so, too.
White Castle, most famous for its bite-sized sliders, added to its menu waffles, eggs, bacon, sausage, and chicken, and recently began offering them all day as well in an initiative it calls "Anything, Anytime." Taco Bell notably added Waffle Tacos and its a.m. Crunchwrap (there were actually 14 breakfast items added).
Although offering up McMuffins for dinner seems like a no-brainer concept, especially as McDonald's customers have pleaded for years for the chain to make it happen, there were a lot of logistical reasons you couldn't get a hash brown with your Big Mac.
First, the thinking behind fast food is, well, it should be fast. When a company adds more items to its menu, it increases the complexity and slows down delivery. McDonald's already has one of the biggest, most complex menus of any burger chain when taking into consideration flavors and sizes. The Golden Arches has more than 160 total items, compared with just over 140 for Burger King and just 114 for Wendy's.
Although McDonald's pays lip service to trimming its menu -- it made a big show of slicing a handful of items earlier this year -- it immediately added a bunch more, such as its sirloin burgers. Even the franchisees complain about all the options that are available, and with its new Create Your Own Taste sandwich personalization push, the complexity has just increased exponentially.
Another reason McDonald's didn't add an all-day breakfast option before was cost. Its stovetops weren't big enough to cook both breakfast and other menu items all at the same time. As The Wall Street Journal pointed out, they have to be big enough so that things like raw eggs don't touch the burgers, and the new ovens come at a cost of between $500 to $5,000 per restaurant, an additional cost tacked on for the franchisees.
Despite these hurdles, McDonald's believes it has come to a crossroads and can no longer afford to deny what its customers have been clamoring for. But even if it seems like this could be one of the few positive things the burger chain has done that could actually make a dent in its long-running streak of falling sales, it may turn out that all-day breakfast will be just as ineffectual as the other efforts CEO Steve Easterbrook is taking to turn McDonald's into a "modern, progressive burger company." The reason? It waited too long.
As noted, the competition has figured out just how lucrative a daypart breakfast really is. Yum! Brands (NYSE: YUM) reported that after adding the breakfast items to Taco Bell's morning menu, they now account for about 6% of the Mexican food chain's overall sales. When Starbucks reported its second-quarter results in July, it said its expanded breakfast menu "delivered 30% net revenue growth with half of that growth coming from increased attach," which would be the amount of food being added to a customer's check that used to only contain coffee.
In addition to more traditional rivals serving breakfast, unconventional outlets like convenience stores are also adding breakfast items. Technomic says almost 40% of consumers surveyed would buy a made-to-order breakfast sandwich or wrap from a convenience store if they offered one.
And consumers may just be disappointed to learn McDonald's all-day breakfast menu is not the full breakfast menu, but just a select sampling of the most popular items. But at least this was something the franchisees could get behind, as the Journal said an "extremely high" percentage of them voted in favor of the change.
When McDonald's was the undisputed king of the morning routine, it believed it could ignore its customers' wishes, with a burger joint take on Henry Ford's apocryphal declaration that car buyers could get a Model T in any color they wanted "so long as it's black." The Golden Arches essentially said its customers could get breakfast anytime they wanted, so long as it was before 10:30 a.m.
Come Oct. 6, that's going to change as it rolls out all-day breakfast nationally. While many customers will welcome the change, it may be too late to change McDonald's declining fortunes.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns and recommends Starbucks. Try any of our Foolish newsletter services free for 30 days. 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.