A Crain’s article reported yesterday that MCD’s Chicago-area restaurants are bringing the Dollar Menu to breakfast “as the fast food chain turns to discounts to revive slowing morning sales.” According to the article, the local deal, which will include six items priced at $1: sausage biscuit, sausage McMuffin, medium coffee, two hot cakes, two hash browns, and fruit-and-yogurt parfait, is similar to the breakfast value offerings that MCD has sold in other markets, such as Seattle. For reference, the sausage sandwiches previously sold for around $2.
MCD said on its last earnings call that outside of the benefit the company has gotten during the breakfast timeframe from advertising coffee, the rest of breakfast has slowed down some. This slowdown is not unique to MCD as the article states that morning meals at fast food restaurants fell 2% YOY during the spring, according to the NPD Group. It does signal, however, that MCD’s coffee and specialty beverage sales are not creating the much anticipated lift in sales during breakfast. MCD just launched its national advertising campaign behind the espresso-based beverages in May. Although MCD stated that it experienced some benefit during the breakfast daypart from the advertising, if there was a substantial pick up in coffee purchases (MCD has said that more than 50% of McCafe sales happen at breakfast), I would have expected that to translate into increased breakfast food purchases, which was not the case.
The article references a memo that Steve Plotkin, the head of McDonald’s Western Division, wrote to franchisees last month, in which he states, “Breakfast sales are declining, and the only growth that we have had in the last two years has been based on price and not demand.”
This slowdown in breakfast demand just increases my conviction that MCD’s specialty beverage launch will not prove to be the success that investors have anticipated for some time. U.S. same-store sales growth has come under pressure in recent months. If the company cannot drive incrementally more specialty beverage sales during the initial months of this national campaign (while offering giveaways) and in the summer months, it will become significantly more difficult going forward.
From a margin standpoint, this move to launch more value items at breakfast could prove to be detrimental. Historically, breakfast has generated a lower average check for MCD than the other dayparts but yielded a higher margin transaction. Increased dollar menu sales at breakfast will remove some of this margin favorability.