Article
Forecasting: Epic battles at the breakfast table
Subway and Burger King have actively upped the ante in the highly competitive and lucrative breakfast daypart.
April 7, 2010
Subway's new breakfast initiative begins in earnest this week throughout all 23,000-plus domestic locations. Subway's breakfast program will require all competing restaurant brands to re-tool their breakfast strategies in order to diminish the damage of declining transaction counts. The 'Breakfast Wars' are on!
Burger King's introduction of the $1 BK Breakfast Muffin Sandwich and Breakfast Bowls amounts to a salvo shot designed to defend and protect its share of breakfast transactions.
Each of these brand's strategies suggests that the breakfast daypart remains a wide-open frontier for garnering incremental transactions and profitability.
The coming weeks will re-distribute, if not re-define, the quick-service breakfast category — and the clear winner will be the consumer...and Subway.
Subway's 'new' breakfast initiative
Only a few years ago, Subway was most noted for surpassing McDonald's for a time in total number of restaurants, both in the United States and worldwide. Although this accomplishment was noteworthy, it hardly registered interest due to their fairly puny annual unit volumes hovering around $300,000.
However, this relative anonymity changed forever with the arrival of Jared and, more importantly, the advent of the $5 Footlong promotion that careened into a permanent brand strategy.
Jared provided the brand with a 'healthy' halo, and the $5 Footlong provided the value proposition. Health and Value sold unimaginable quantities of sandwiches and the Subway brand became much bigger than a footnote.
Following the introduction of the $5 Footlong sandwich, Subway enjoyed 12 months of runaway same-store sales growth. The problem with strategies that generate +20 percent same-store sales growth is what to do 12 months later when year-over-year positive comps become staggeringly difficult. In Subway's case, they continued a focus on Jared and $5 Footlong.
Certainly, protecting their brand with these two iconic strategies is necessary maintenance. However, it is not a campaign that has or will move Subway to the next sales plateau (measured as a strategic breakthrough that garners at least a 10 percent same-store sales increase).
Offering a systemwide breakfast menu that piggybacks off Subway's strength of health and value should catapult annual unit volumes to that next sales milestone. And the revenue momentum begins this week with Subway's official unveiling of their 'new' breakfast menu and advertising campaign.
Subway has been serving some form of breakfast entrees for many years in thousands of locations (including nearly 2,000 stores in Canada), but its efforts were off the radar screen for consumers and competitors alike.Now, with all domestic Subway franchisees offering the same breakfast menu (with some regional variations), Subway will flex its considerable advertising muscle and accentuate the positive competitive differences a breakfast made at Subway has vs. other quick-service and casual dining restaurants.
Subway empowers guests to participate in the customization of each order, which ensures order accuracy and heightens the guest's experience. Subway guests love to add unique flavor combinations and Subway's prep table with its myriad ingredient options will be the ticket to getting guests thinking breakfast at Subway ... "build your better breakfast at Subway."
An added benefit will be Subway's ability to boost the breakfast guest check by promoting a concurrent lunch purchase. Subway has a unique menu that can better retain its product integrity long after assembly. It's common for Footlong purchases to be eaten in 6-inch increments — once at lunch and the remaining portion at dinner.
Subway can be the one-stop shop for breakfast guests by providing breakfast and offering a convenient 'Take and Refrigerate' 6- or 12-inch sandwich for lunch. In the hyper-competitive restaurant arena, you press whatever advantages your brand has — and Subway has quite a few.
Burger King's $1 BK Breakfast Muffin Sandwich
Subway's more than 23,000 domestic locations will punish (to some extent) transactions at all competitive brand's breakfast dayparts. Subway is the 800-pound gorilla that no one can ignore.Burger King's current promotion for the $1 BK Breakfast Muffin Sandwich (bacon, sausage or ham) could not have been timed any better.
Although no competitive brand enjoys seeing Subway take the breakfast plunge, Burger King does find itself in a fortuitous position of bringing to market a low-priced high value menu item that should minimize the lost transaction damage Subway's aggressive breakfast campaign will inflict.
In the process, Burger King gets to tweak McDonald's by profiling their $1 BK Breakfast Muffin Sandwich as a perfectly simple, 'not that original' substitute for the iconic McMuffin sandwich. If you're going to steal market share, targeting and taking share from the industry leader seems like a plausible strategy. Additionally, Burger King is launching its muffin breakfast sandwich with a clever 'Sneaky King' ad that should offend no one other than McDonald's.
Burger King is doing exactly what it should do and pings the consumer's radar screen with (1) new product, (2) great value, (3) recognizable breakfast menu item and (4) humorous unoffensive advertising. Offering a low-price BK Breakfast Muffin Sandwich with a high margin Seattle's Best coffee purchase goes a long way toward paying the rent.
Somewhat under the radar screen, Burger King has also launched BK Breakfast Bowls priced at $2.79. The BK Breakfast Bowl produces higher breakfast margins. The profit on a Breakfast Bowl is likely three to four times the profit of the new BK Breakfast Muffin Sandwich. — hook the guest into the restaurant on the $1 Menu Item (which is virtually impossible to find on the menu board) and 'display and trade' to a Breakfast Bowl purchase (which has great visibility vis a vis ceiling danglers, etc).
The BK Breakfast Bowls will never be a top-seller, but the profits it can deliver — even on low sales mix — is worthy of prominent display on the breakfast menu.
Breakfast winners
So who will come out on top in the Breakfast Wars? Subway wins!
Subway has a distinct competitive difference that will resonate with guests who enjoy the perception of healthy menu combined with value, specialization and empowerment. Their massive advertising budget and distribution of restaurants will guarantee Subway's breakfast will hit the radar screen of nearly everyone.
The breakfast consumer also wins! More breakfast choices generally means heightened promotional activity and increased brand focus on Value Menus which translates to great Menu Value for guests. Subway's breakfast offensive nearly guarantees all other breakfast serving restaurant brands will vigorously defend their breakfast franchise. Burger King and McDonald's (dusting off their Breakfast Value Menu commercials) are fighting the fight. Those brands that don't compete will certainly lose significant transactions.
No brand management team wants to be accused of falling asleep at the wheel during the apparent apocalyptic breakfast battle. Can we expect new breakfast promotional activity from Carl's Jr./Hardee's, Jack in the Box, Sonic and others? Bet on it!
Stuart Morris owns and operates QSR Consulting Group Inc., which assists brands by creating profit-driven strategies that leverage core competencies.
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