McDonald's Don Thompson - A.M. Wars
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In the A.M., everyone seems to be eating an Egg McMuffin in their car and drinking Starbucks at their desk. But, according to Technonic’s “The Breakfast Consumer Trend Report,” the fast-food niche isn’t saturated and remains a growth area. In 2009, 33% of consumers ate fast food for breakfast. Now, 46% do.
That means there’s another 54% to get into the habit. When McDonald’s (NYSE: MCD) Don Thompson replaces Jim Skinner as Chief Executive Officer this June, he will make breakfast a priority he told the LOS ANGELES TIMES. He added that he recognizes that he’s not the only one chasing this opportunity. Recently, Taco Bell, Wendy’s and Subway have joined McDonald’s, Panera, Starbucks, and Dunkin’ Donuts in competing hard for the A.M. dollar.
All those competitors seem to have learned well from McDonald’s that product innovation and continuous aggressive promotion are the keys to not only bringing in the crowd but also having a shot at developing a cult item. The genuis of McDonald's is that it has created menu items such as the Egg McMuffin which have endured.
But, the Egg McMuffin’s iconic status could be matched, maybe even overshadowed, by Taco Bell, owned by Yum! Brands (NYSE: YUM). It first rolled out in the West, where burritos for breakfast are already familiar, the egg & sausage-based breakfast burrito. The hotness, pun intended, of Mexican food is obvious in Yum! Brands stock price of 70.81, with the 52-week range of 47.15 to 70.41. Will we all start doing burritos in the A.M.? That could happen. It's likely McDonald's has already anticipated that cult development.
Panera (NASDAQ: PNRA) is becoming the darling of the healthy eating foodies with its Mediterranean Egg White Breakfast Bread Sandwich. The chain promotes through detailing ingredients and distributing recipes. The Egg White Sandwich contains egg whites, roasted tomatoes, baby spinach, Vermont cheddar layered on top, freshly baked Ciabatta, and basil pesto. The stock is at 162.31, with the 52 range of 98.68 to 165.23. Although McDonald's is refurbishing its outlets to appear more upscale, what Panera has already created is that sense of a "third place," that is, where to hang in addition to home, work or school. In North Haven, Connecticut, the Panera has a fireplace blazing in the "front room."
Dunkin Donuts, owned by Dunkin’ Brands (NASDAQ: DNKN), has been meeting the competition toe-to-toe with its reputation in baking. Its Ham & Cheese Bakery Sandwich is made to order and housed in a croissant bagel or French roll. Its low price point gives it the advantage of impulse purchases to bring coffee and donuts into work. It is trying to overcome the post-2 P.M. drop in traffic by positioning the sandwich as all-day. The stock is at 30.95, with a 52-week range of 23.24 to 32.44. It still has a way to go before it provides the ambiance of a third place.
Starbucks (NASDAQ: SBUX), which reinvented cult with its cup design and packaging, has been developing a following with its classy breakfast items. They include Petites as with tiny cherry pies, Bagels to fit with a mood, and High Protein Breakfast Wraps. This is reinforced on the web with high quality photos of the menu. The last time I checked there were 25 comments, yeah, just on a menu page. Today, Starbucks is at 55.06, passing its 52-week high of 53.96. Starbucks had and still has the edge of a built-in market since studies show people buy breakfast at the same place they have their coffee. The two are never separated. The 21st century meme is Starbucks coffee.
Here in New England, McDonald’s is trying out breakfast pastries as a direct attack on Dunkin’ Donuts. They include vanilla scones, banana bread, and cheese Danishes, all made on the premises. This blunts the Dunkin' competitive edge of baking onsite. Thompson has work ahead in positioning and packaging the coffee as symbolic of something the marketplace craves to be or at least pretends to be. A cup of McDonald's coffee sitting on a desk transmits no transcendent message. As an African-American he could well develop breakfast menus for the inner cities and diverse racial and ethnic groups. The stock is at 96.02, with a range of 74.49 to 102.22.
The A.M. is a gateway meal. It could lead to making that particular spot the “home” away from home for other snacks and meals throughout the day. It’s also a deterrent. It could prevent customers from shifting up to casual dining, as the economy recovers for their other meals and snacks. For lunch, Olive Garden, popular in the casual dining category, is starting to look not beyond our budget. That kind of trend could hit fast foods hard.
Motley Fool newsletter services recommend McDonald's, Panera Bread, Starbucks and Yum! Brands. The Motley Fool owns shares of Panera Bread and Starbucks. janegenova has no positions in the stocks mentioned above. 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.
