When Wendy’s announced plans to start serving breakfast last year, the popular view was that it would be bad news for McDonald’s, the market leader. Either that or McDonald’s would destroy Wendy’s breakfast with its marketing.
Neither has happened. In fact, Wendy’s breakfast appears to have been a bigger problem for Taco Bell and Burger King. McDonald’s apparently is doing just fine in the morning. Actually, it’s doing better.
Consider the numbers. Wendy’s generated 7% of its sales in the third quarter in the morning. That was on the low end of its expectations the company set last year—but probably pretty good given the overall weakness of the breakfast daypart. Indeed, that represents about a $700 million business annually, based on Wendy’s 2019 U.S. system sales.
“With mobility being down, morning routines completely disrupted, we’re very happy with how our breakfast business has been performing,” CEO Todd Penegor said last week, according to a transcript on the financial services site Sentieo.
It’s difficult to know exactly what customers ultimately choose when they opt to eat out, so it’s not always true that customers pick between McDonald’s and Wendy’s and Burger King. It’s just as likely that customers might be choosing between Wendy’s and their local gas station or a box of cereal in the cupboard.
It’s also entirely possible that Wendy’s generated its own demand for breakfast through marketing. Consumers were flush with cash and may have been ready to try a Breakfast Baconator because they heard about it on Twitter.
But conventional wisdom generally dictates that the business came from somewhere. The breakfast market is smaller now than before the pandemic. The entry into that market means there are even fewer customers for everyone else.
As the company with the largest share, by far, McDonald’s had the most to lose.
McDonald’s business is massive. Assuming that about 25% of its business comes in the morning, that makes the pre-COVID levels about a $10.1 billion business. By contrast, Burger King at 15% of sales in the morning makes its breakfast an estimated $1.5 billion business. Taco Bell would be just under $700 million.
But McDonald’s didn’t lose business in the morning.
McDonald’s breakfast recovered by September, generating same-store sales growth during the month. Executives said this week that the growth continued in October. The company’s breakfast sales had been declining before the pandemic. So its performance in the morning has actually improved.
So where is Wendy’s breakfast business coming from? Probably from several different sources, but it at least appears that it’s coming from Taco Bell and Burger King.
Taco Bell’s morning business was not that substantial going into the pandemic, only about 6% of sales—less than $700 million a year annualized, based on the chain’s U.S. system sales in 2019. That declined to 4% in the third quarter, or about $450 million annualized.
It’s less clear how much Burger King’s breakfast sales declined. “The pandemic disruption to morning routines and mobility contributed to our softer performance in the morning daypart,” Jose Cil, CEO of Burger King parent Restaurant Brands International, said last month, according to Sentieo.
But he also suggested that the chain can make improvements. “There are also clear areas for improvement in our breakfast offering at Burger King that we will actively address during the first part of 2021,” Cil said.
It remains to be seen whether Wendy’s keeps its business, or whether Taco Bell and Burger King can regain some morning mojo once people return to work and start eating fast-food breakfast again.
But it appears that rather than weaken McDonald’s, Wendy’s constant advertising of its morning business might have done the chain a favor.
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