WASHINGTON (February 23, 2010)—The nation's high unemployment rate has thrown millions of people out of work, scared shoppers away from stores and threatened the economic recovery. Now it's taking a bite out of breakfast.
By Ylan Q. Mui
The Washington Post
Breakfast sales had grown at a ravenous pace during the boom years as busy workers scarfed down sausage biscuits on the way to the office, fueling a $57 billion business and accounting for as much as a quarter of sales at some fast-food chains. Chains opened earlier and expanded their morning menus to accommodate the traffic as lunch and dinner sales flatlined.
But as the jobless rate hit 26-year highs fewer people headed to work, and even those who did worried about their spending. So they poured bowls of cereal at home or simply slept in, putting breakfast on the back burner.
"Typically, if you're unemployed, you're not getting up at six and not going through the drive-through," said Jeffrey Bernstein, an analyst at Barclays Capital. "There is a direct correlation between unemployment and breakfast sales."
In the five years before the recession hit, breakfast sales jumped 64 percent, according to NPD Group, a consumer-behavior research firm, making it one of the fastest-growing sectors in the industry. But traffic slowed as the economy tanked and the ranks of the jobless soared. By the time unemployment hit 10 percent in the fall, breakfast traffic was down 4 percent.
This month, executives at Burger King reported that traffic rose during every meal except breakfast in the most recent quarter. They blamed unemployment for the falloff.
McDonald's Chief Executive Jim Skinner has said that breakfast sales at its 14,000 U.S. restaurants were rocky in areas with high unemployment despite overall growth.
Wendy's jumped onto the breakfast bandwagon three years ago, only to end up scuttling its menu amid poor sales. It hopes to relaunch the menu next year.
"When people start feeling economic stress, they tend to trade down," said Dennis Lombardi, executive vice president at WD Partners, a food consulting firm. "When they lose their job, they trade out."
The decline is also part of the broader trend of Americans eating more meals at home because of tough economic times. Food consulting firm Technomic last month lowered its annual forecast for restaurant sales to a drop of 1.6 percent, driven in part by weaker fast-food sales.
But breakfast stands out because of its explosive growth before the recession. In addition, it is extremely profitable: Coffee is mostly water, and eggs are cheaper than beef. Bernstein estimated that breakfast sales at McDonald's accounted for about a quarter of its revenue but 35 percent of profit.
Kathy Hasty, senior director of hot foods at 7-Eleven, said breakfast at her chain traditionally held up well during recessions even as other meals suffered — but other downturns didn't come with double-digit unemployment. By late last year, sales of breakfast sandwiches were down 8 percent.
Cultural historian Barry Glassner said Americans have an unusually complex relationship with food, influenced by convenience and status. We want our food quick and easy, and at the same time we use it to show our rank in the pecking order. Fast-food breakfasts, he said, can fulfill both purposes.
"In America, it's considered a mark of our industriousness that we're very efficient in our meals," said Glassner, a professor at the University of Southern California. "In other times and places, you would be seen as a little crazy."
Restaurants are trying to reinvigorate breakfast sales with new menus, lower prices and even giveaways. 7-Eleven launched a sunny ad campaign to combat the morning-meal moratorium with a new product: a sausage, egg and cheese burrito rolled last month at two for $2 or $1.19 each. That's a deal compared with its cheapest breakfast sandwich, which cost $2.49. Hot-food sales jumped 6 percent after the launch, the company said.
McDonald's introduced a breakfast version of its popular dollar menu last month featuring five items: a sausage burrito, sausage McMuffin, sausage biscuit, hash browns and coffee. The $1 breakfast menu was designed to give the chain "a strong national voice" on the meal at a time when customers are concerned about value.
Restaurant chain Denny's gave away about 2 million Grand Slam breakfasts recently in a nod to the tough economy, particularly for the 44 percent of its customers who make less than $45,000. The company said breakfast sales held steady while dinner and late-night dining drove down sales at established locations by 7 percent in the third quarter.
"People are so thankful for having an opportunity to have a free meal," Denny's Chief Executive Nelson Marchioli said.