Fast-Food Industry Goes After Breakfast

This article was originally published in Maclean’s magazine on January 1, 2007. Partner content is not updated.

The fast-food industry has finally awakened to what everyone else has known since McDonald's invented the Egg McMuffin: breakfast is the most important meal of the day.

Fast-Food Industry Goes After Breakfast

The fast-food industry has finally awakened to what everyone else has known since McDonald's invented the Egg McMuffin: breakfast is the most important meal of the day. Tim Hortons, Burger King, Wendy's, even Taco Bell and Starbucks, are coming up with their own renditions of the decades-long champion of breakfast sandwiches. "There's money to be made," says Marvin Greenberg, a Toronto-based food industry consultant. A lot of money.

Breakfast accounts for an estimated US$40 billion in annual sales in the U.S., according to Technomic, a market research firm in Chicago, and "60 per cent of the business has been cornered by fast-food companies," says president Ron Paul. He predicts up to eight per cent annual growth, which amounts to a whopping $3 billion a year in new business as more players realize the value of adding breakfast options to the menu. "They're paying all their capital costs, anyway. An egg is only 15 or 17 cents cost," explains Greenberg. "Now they see that there's an opportunity to create sales."

Until recently, most fast-food chains were focused on lunch and dinner, and coffee shops were stuck on serving doughnuts and muffins. McDonald's, on the other hand, has dominated the morning market for more than three decades with only a handful of hot and savoury options. And breakfast has become an even bigger part of its strategy to boost revenue over the last three years with the introduction of new items such as bagels, McGriddles and premium coffee. Sales have jumped 33 per cent to US$20 billion since 2002 - and breakfast is driving that growth.

To replicate such success, Starbucks is introducing upscale breakfast sandwiches - with fontina cheese, peppered bacon and cholesterol-free egg - which it estimates will bring in an additional US$35,000 in revenue to each of its stores. Taco Bell has a Breakfast Burrito. Burger King has the Enormous Omelet Sandwich. Wendy's, which in the 1980s failed at breakfast, is trying again with Omelettos in the hopes of reaping added sales of US$225,000 per store. And Tim Hortons, which holds about 75 per cent of the coffee and baked goods market in Canada, is banking on breakfast sandwiches to boost sales by five per cent.

Part of the appeal is that customers get the biggest bang for their buck in the morning compared to what they'd pay for other meals, says Greenberg. "Some of these places are giving tremendous bargains: getting bacon and eggs on toast for $2.99!" Breakfast could, however, prove the toughest meal for these chains to pull off because while people enjoy trying new restaurants and foods for lunch and dinner, the morning is all about habit. A recent study by research firm NPD Group shows 48 per cent of people say their breakfast choices are driven by routine. That means customers devoted to one chain's menu won't be easily persuaded to try a competitor's offering. "People are pretty ritualistic. They think of comfort and time. A lot of people eat the same thing for breakfast every day - religiously," says Greenberg. And he's skeptical that all breakfast customers are created equal, suggesting that McMuffin eaters won't necessarily find the Starbucks fare enticing.

The good news is that there are more and more breakfast customers to go around. Increasingly, people are grabbing their first meal of the day after they leave the house in the morning, according to the NPD study, which showed, for example, that toast consumption at home declined from 26 per cent to 13 per cent over the last two decades. Time-crunched commuters take advantage of the convenience of drive-throughs to pick up their breakfast on the way to work. And the proliferation of fast-food stores and coffee shops means that a breakfast sandwich is usually only a quick walk from the office. "Time is a major factor for breakfast," says Greenberg, adding that customers are also at their most temperamental in the morning. "They become vociferous. They want it fast and they want it fresh," he says.

The businesses that do breakfast sandwiches well run another risk: eating into the sales of other menu options such as bagels and muffins. But judging by the success of McDonald's, that is a risk worth taking. At a recent investment conference, chief executive Jim Skinner announced that within a few years "we could be serving breakfast all day." An online petition supporting the move was signed by one McMuffin lover: "If you served [breakfast] all the time, I'd go to McD's all the time." If that's any indication, the battle over breakfast has just begun.

See also FOOD AND BEVERAGE INDUSTRIES.

Maclean's January 1, 2007