24 Hour Profits at McDonald's, Wendy's, and Taco Bell
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Mark this day in history. McDonald's (NYSE: MCD) has, at long last, begun offering its breakfast menu outside of "traditional" breakfast hours, avoiding blowups like these wherever possible. McDonald's hopes that maybe this will translate to higher sales, as breakfast already accounts for nearly 30% of total sales. Just thinking about a Big Mac with a side of Egg McMuffin gets me drooling. Though the promotion is fairly limited in scope, if successful it could possibly translate into other markets. The "Nocturnivore" campaign is helping to draw attention to Mcdonalds' gradual increase of 24 hour locations, which currently stands at about 40% of US locations. The conversion makes economic sense as, according to the Wall Street Journal, 24 hour stores generate about 10% more in sales than those with regular hours. McDonald's attributed their 8.9% US sales growth in Q2 in part to their initiative of expanded hours. Although Q2 was fairly disappointing for most analysts, MCD has latched onto a winning strategy. In Q1, MCD found that the hours of 12am-5am were their fastest growing time segment.
Is it a surprise that the extended hour sales growth occurred in tandem with dollar menu sales growth? The extended hours aren't just for drunk college students. A security guard interviewed by WSJ at the McDonald's said "[late night] customers usually consist of bar hoppers and homeless people, but also a steady stream of police officers, transit workers, parking attendants and construction workers." The blue collar workers on the night shift have to eat, and McDonald's is usually one of the few places open late enough to cater to them. Offering a menu at a price point that works for the clientèle is obvious, but the extension of hours to recognize a fairly untapped market is pretty clever.
Other QSRs are jumping on this as well. Yum's Taco Bell (NYSE: YUM) and its "fourthmeal" concept (along with the unexpected success of the Doritos Taco) have helped deliver some great growth: 13% same store sales increase in the US in Q2. Although Wendy's (NASDAQ: WEN) does bill itself as being a night owl, few are open 24 hours, and if they are it is only the drive-thru. Wendy's expanded breakfast menu and re-positioning as more of a premium restaurant will take time to fully implement. Incidentally, Wendy's Q1 missed analyst expectations by more than 60%.
So are an extended breakfast and extended hours the key to fast food growth in North America? Maybe not the key, but it definitely helps. Let's just hope Mayor Bloomberg doesn't find out.
TheLaowai has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend McDonald's and Yum! Brands. 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.If you have questions about this post or the Fool’s blog network, click here for information.
