Feb. 9 (Bloomberg) — Wendy’s/Arby’s Group Inc. is trading French toast sticks for breakfast wraps. Starbucks Corp. is introducing its first value meals. Panera Corp. spent two years developing a new coffee blend.
The restaurant chains are taking another run at more profitable morning meals as customers trim spending on lunch and dinner. Across the industry, sales during early hours have grown faster than other segments in the past five years, according to data from NPD Group, a consumer-research company.
Starbucks is “clearly in catch-up mode,” said Jeffrey Bernstein, a restaurant analyst with Barclays Capital in New York. “People weren’t happy with their breakfast. They do not want to lose significant morning traffic.”
Starbucks Chief Executive Officer Howard Schultz is introducing a $3.95 combination meal as the world’s largest chain of coffee shops competes with breakfast value menus at other restaurants. The Seattle-based company said today it will offer coffee and a choice of egg sandwiches or a caffe latte and coffee cake or oatmeal. Wendy’s is revisiting its breakfast menu ahead of a 2011 national roll-out after past offerings failed to win favor with customers.
Panera, which operates 1,300 bakery cafes, introduced a new coffee blend last month and added a yogurt parfait. Burger King Holdings Inc. added miniature breakfast sandwiches last week.
Starbucks declined 21 cents to $10.33 at 9:56 a.m. in Nasdaq Stock Market composite trading, and Panera dropped 66 cents to $46.88. Wendy’s fell 11 cents to $5.39 on the New York Stock Exchange, and Burger King lost 45 cents to $19.46.
Wendy’s may need six to nine months before the new menu gains traction with buyers, Bernstein said. The fast-food chain may lift its morning sales to as much as 10 percent of its total revenue within five years, he said, from 2.2 percent now. David Palmer, an analyst with UBS AG in New York, projects the new menu could account for 15 percent of revenue.
“You need to have longevity in the breakfast business because people don’t immediately notice,” Bernstein said.
Breakfast foods are about 25 percent more profitable than lunch and dinner items, based on the cost of ingredients, said Bob Goldin, an executive vice president with Technomic Inc., a restaurant consulting firm in Chicago.
After a failed attempt in the 1980s that centered on fresh- made omelets, Wendy’s focused its efforts on growing late-night sales instead, said spokesman Bob Bertini.
“We’re not in breakfast in a big way,” Bertini said. “This is a significant opportunity for us. We’re looking to grab more of that market.”
Starbucks’ Schultz told cafe employees today that value meals were “the right thing to do” for customers, about six months after he vowed not to offer bundled meals. The “pairings” will be available starting March 3, and add two new egg sandwiches to the line-up. Last year, the company added oatmeal and reworked its egg offerings because their aroma overpowered the scent of coffee in stores.
Burger King said on Feb. 4 it will add mini-breakfast sandwiches to its menu. The BK Breakfast Shots, which feature eggs, cheese and a choice of ham, sausage or bacon, will be available for $1.49 for two or $2.39 for four. The Miami-based company gets about 15 percent of sales from breakfast.
“Breakfast has been a standout” for growth as customers look for ways to make mornings easier, said Malcolm Knapp, a New York-based restaurant consultant. “It’s an area that’s still under-penetrated and still the most skipped meal of the day.”
McDonald’s Corp., the world’s largest restaurant chain, credits orders for Egg McMuffins, coffee and hash browns with lifting sales at stores open at least 13 months, and last year started opening some stores an hour earlier to attract more customers. The Oak Brook, Illinois-based company gets about 25 percent of sales and 40 percent of profit from breakfast sales, Bernstein said.
Panera offered free coffee to customers a couple of weeks ago to debut its new blend and yogurt parfaits. Stores are brewing pots every hour, twice as fast as before, to maintain freshness.
Last year, breakfast traffic climbed 2 percent, compared with traffic in the restaurant industry during other times of the day that was little changed, said Harry Balzer, vice president at Port Washington, New York-based NPD. Restaurants accounted for 8.2 percent of all breakfast options in 2008, up from 6.2 percent in 1996, while about three-quarters of all morning meals are still eaten at home, he said.
“It’s a structural change, not just a fad,” Balzer said. “For years, a hearty bowl of cereal was the most convenient food, but with drive-thrus and restaurant meals increasingly available, that’s not the case anymore.”
Without providing a specific forecast, Balzer said he expects breakfast growth to continue.
Creatures of Habit
Declining spending may crimp growth as job losses limit the number of commuters looking for a quick breakfast and pinch consumers’ wallets, Palmer and Bernstein said. Consumers who are already loyal to a particular chain are less likely to spend money to try a new product, especially during a recession, Palmer said.
“The per capita growth of breakfast is largely gone for the near-term,” Palmer said in a Jan. 30 phone interview. “It would be an awkward time to get the consumer to try something new.”
Evelyn Cortez, 47, a Manhattan video-store clerk, has been eating at the same McDonald’s on the Lower East Side nearly every weekday for the past 10 years.
“I always get the pancakes, the same thing every day,” Cortez said as she swirled her fork in leftover syrup. “I usually think about going somewhere else, but I end up coming back here.”