Article

Amidst sales slump, McDonald's shifts focus to breakfast

The QSR segment experienced a 4-percent increase in breakfast traffic within the past year.

March 11, 2014 by Alicia Kelso — Editor, QSRWeb.com

McDonald's is shining a brighter spotlight on its coffee/breakfast offerings, including a pastry test in the San Diego market, that some analysts believe is a direct shot at Starbucks. The company has also redesigned its coffee cups as part of this effort.

The Motley Fool reported that McDonald's executives have pointed to nontraditional competitors such as cafes and bakeries as big reason for its recently lagging sales. Bloomberg reported that the chain has acknowledged a "coffee war" with Starbucks, and has called on its operators to "protect" the breakfast segment.

During the company's most recent earnings call, CFO Pete Bensen said, "If we lose relevance in coffee, then we are going to lose the transaction which yields food purchase."

To complement the coffee urgency, McDonald's has started testing new breakfast pastries in the San Diego market, and is calling them McCafé Petite Pastries.

According to the McDonald's of San Diego County website, the New Petite Pastries are "freshly baked in restaurants' ovens ... They're made with real butter for tender flakiness with every bite, and you can enjoy Petite Pastries with either Raspberry or Cinnamon Cream Cheese filling."

Breakfast is certainly a sweet spot for the QSR segment and for McDonald's in particular, making up about 25 percent of the company's revenue. The NPD Group today reported that the daypart's visits have increased for the fourth consecutive year, while lunch and dinner visits have slowed.

More than 12.5 billion breakfast visits were made to U.S. foodservice outlets last year, a 3 percent gain over year ago, according to NPD. Quick-service, which accounts for about 80 percent of total restaurant morning meals, showed the strongest increase in breakfast visits of all restaurant segments with a 4 percent increase in the year ending December 2013 period compared to year ago, reports NPD Crest.

“Breakfast continues to be a bright spot for the restaurant industry as evidenced by the number of chains expanding their breakfast offerings and times,” Bonnie Riggs, NPD’s restaurant industry analyst, said in a news release.

Accordingly, the Associated Press reported in February that McDonald's could be considering longer breakfast hours. With Taco Bell's breakfast launch coming at the end of this month, the morning daypart competition will likely heat up even more.

New premium sandwich launch

McDonald's also launched a Bacon Clubhouse sandwich today, served with either a beef patty, crispy chicken or grilled chicken.

According to the company's website, the sandwich is served on an artisan roll and includes Applewood smoked bacon, caramelized grilled onions, white cheddar cheese, lettuce, tomato and Big Mac sauce.

A campaign, called "Casual Attire, Formal Flavor" was launched to promote the new premium offering.

Weather blamed for February sales drop

McDonald's initiatives and tests come as its U.S. system reports continued lagging sales for the month of February. Globally, comp sales were down 0.3 percent during the month, including the U.S. market's decrease of 1.4 percent.

The company blamed "challenging dynamics and severe winter weather" for the February results. In a news release, the company vowed to remain focused on building traffic through improved operations and customer service, relevant menu news and consistent value offerings.

"McDonald's global growth priorities — optimizing our menu, modernizing the customer experience and broadening accessibility to Brand McDonald's — are the foundation of our customer-centric approach to building our business for the long term," said Don Thompson, president and CEO. "We are intent on improving our business performance by thoughtfully evolving our approach to ensure that we are delivering the most compelling value, service and convenience to each of the approximately 70 million customers who choose McDonald's each day."

APMEA was also hit hard, down 2.6 percent, primarily due to weakness in Japan and a shift in timing of the Chinese New Year and negative results in Australia.

Europe's comp sales rose 0.6 percent in February as a result of continued strong performance in the U.K. and positive results in France largely offset by ongoing weakness in Germany, the company said. Local menu options and expanded convenience through breakfast and extended hours continue to support the segment's performance.

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