McDonald’s Wants to Win Breakfast by Selling the Best Part of the Muffin
(Bloomberg) -- After McDonald’s Corp. announced all-day breakfasts three years ago, it gradually forgot about mornings.
Overall sales have weakened in the U.S., market share has shrunk, and McDonald’s has identified lost breakfast customers as the main culprit. Now the world’s biggest restaurant company plans to fight back with discounts, breakfast catering and a ploy lifted straight from a 1997 “Seinfeld” episode -- selling only the tops of muffins.
“We took our eye off the ball on breakfast,” Chief Financial Officer Kevin Ozan said at a May investor conference. “With everything else going on, we just lost a little focus on that breakfast day part.”
For McDonald’s, breakfast has long been a stronghold, according to Linda VanGosen, vice president of menu innovation for the U.S. It accounts for 25 percent of domestic sales, and mornings are the most profitable part of the day.
But rivals are advertising cheap eats and some of them are moving to sell breakfast all day, too, taking the shine off McDonald’s 2015 announcement. After reaching an all-time high in January, McDonald’s shares are down more than 10 percent.
“It had been a while, I think, before we had really focused in on talking to customers about that morning day part,” VanGosen said in an interview.
In the Baltimore area, McDonald’s tried offering coffee cake and 160-calorie blueberry muffin tops. Selling only the upper part of the muffin was an idea hatched by Elaine Benes, the hapless “Seinfeld” character played by Julia Louis-Dreyfus. The problem on the episode, credited to writer Spike Feresten, was what to do with the remainder of the muffins. Elaine tried donating them to a soup kitchen, which rejected them because they were “just stumps” that were missing the best parts -- the tops.
McDonald’s focus on reviving morning business also includes an experiment with breakfast catering at 195 restaurants in Florida. The boxed coffee and food can be picked up or delivered. The “Weekend Warrior” package, which serves six, comes with three Egg McMuffins, three hotcake-and-sausage platters and six hash browns. On June 13, the chain began selling $2 cold-brew coffees for a limited time.
“There’s a new renewed, intense focus on breakfast,” Ozan said.
McDonald’s U.S. fast-food market share has eroded. Last year’s 14.7 percent was down from 17.4 percent five years ago, according to researcher Euromonitor. Meanwhile, Yum! Brands Inc.’s Taco Bell, which began selling breakfast in 2014, has been gaining share with $1 hash browns, Cinnabon doughnut bites and egg tacos.
Tim Hortons is experimenting with all-day breakfast in some locations in Canada, and may expand it to others if the trial goes well. Jack in the Box Inc. also has breakfast all day. It includes a “Brunchfast” menu with a croissant burger and country scrambler plate with sausage, potatoes and eggs.
“It’s sort of unusual to hear McDonald’s talk about not executing,” said Sara Senatore, a Sanford C. Bernstein & Co. analyst. “This is a big company that’s always been known as an operating company.”
TV-inspired enticements alone aren’t enough to lure McDonald’s regular Randy Lee in Irvine, California. He says he just wants his Sausage Egg McMuffin -- and a deal.
“That’s what brings me in,” said the 62-year-old. Lee, who’s retired, says he eats there more when the chain is running a discount, like its recent 2-for-$4 breakfast sandwich deal.
“Go back to basics,” he said. “I need something fast and quick, and I love eggs and I love my sausage.”
McDonald’s has had plenty of distractions from the business of breakfast. They’ve undergone restaurant remodels, switched to fresh, not frozen, Quarter Pounder burgers, cut personnel and expanded delivery, which is now an option in about one-third of its 37,000 stores globally. The company recently relocated its headquarters to downtown Chicago from the suburb of Oak Brook, Illinois.
“Maybe they were bound to drop a ball,” said Senatore, the Bernstein analyst.
Still, she’s optimistic they can revive the morning.
“Now, with that focus, I don’t see any reason to believe they can’t compete, and win back some of that lost share.”
©2018 Bloomberg L.P.