Breakfast Has Big Potential For Taco Bell
I was a bit dumbfounded when word first came out that Taco Bell was considering breakfast. This is a Tex-Mex chain, after all, one known mostly for creating the late-night daypart known as "fourthmeal." Do its customers even get up on time for breakfast?
And I was hardly alone in my doubts. Plenty of people, including some franchisees, were skeptical.
In reality, Taco Bell breakfast is a no-brainer. At the very least, the chain needs to make a go of it. That's because breakfast could provide a substantial boost to the company's revenue while increasing customer loyalty, and franchisee profits.
For one thing, breakfast is the only growing daypart. According to NPD Group, breakfast traffic grew 3 percent last year. But traffic fell at both lunch and dinner. The market research firm also predicts that breakfast traffic will grow 9 percent at quick-service restaurants over the next nine years. In other words: The pool of potential customers is growing in the morning and falling in the afternoon and evening. It doesn't take a rocket surgeon to figure out why Taco Bell is so eager to go after this daypart.
The growing customer pool would in theory make it easier to break into the daypart at a profitable level. And Taco Bell already has a strong position in the market for young males looking for low-cost food options. Taco Bell's breakfast options are all $2.99 or less. And consumers demand low-cost food in the morning, so breakfast is right in Taco Bell's wheelhouse. "That appeals right to their core customer," said Steve Crichlow, a consultant who works with franchisees of restaurants in numerous brands. "They've got a built-in loyalty factor with millennials."
Breakfast could provide a substantial revenue boost for Taco Bell and its parent company Yum Brands. Based on our estimates, if Taco Bell can just get 10 percent of sales from 7 a.m. to 11 a.m. daily, it would increase the corporation's revenue by $186 million a year, including increased sales at company-owned stores and increased royalty revenue from franchisees. That's not counting the increase in marketing revenue. And 10 percent would be quite profitable for franchisees, improving average earnings by at least $46,000 per store, based on our estimates.
Is 10 percent doable? Yes. McDonald's gets 22-25 percent of its sales at breakfast, according to Crichlow. Burger King gets 15-18 percent of its sales at breakfast. According to NPD, breakfast traffic at restaurants is 21 percent.
But the sales improvement wouldn't just come at breakfast. The meal tends to have a "halo effect" that can improve sales at the restaurant later in the day, too. Breakfast is more dependent on consumer habit than other parts of the day, and has fewer impulse diners. So consumers tend to be more loyal to certain brands in the morning, Crichlow said. That loyalty can remain later in the day.
One key element is the products themselves. Taco Bell is giving the daypart a big boost with a heavy dose of innovative marketing and advertisements. But ultimately, the products will get customers to come back. Reviews of some of the products, notably the highly portable A.M. Crunchwrap, have been good (though reviews for the more well-known Waffle Taco have been a bit mixed). Personally, we liked both, and I was impressed by how easy it was to eat that Crunchwrap.
Of course, it's really early. And it's difficult for chains to start serving breakfast. "It's a difficult thing to do if you're not already doing it," said Eric Newman, executive vice president at the chicken chain Bojangles, which does 40 percent of its business in the morning. He was speaking at the Franchise Times Franchise Finance & Growth Conference.
The loyalty of the daypart makes it difficult for new entrants to gain a foothold—thus Wendy's tried multiple times, and failed each time, to break into breakfast before finally giving up, at least for now. And McDonald's isn't exactly giving up its breakfast dominance lightly: It was no coincidence that the chain announced plans to give away coffee for two full weeks on the same day Taco Bell started serving its breakfast burritos.