HALIFAX, N.S. May 4, 2016/ Troy Media/ – Breakfast may be the most important meal of the day – particularly for the fast-food industry.
In the business world, breakfast has traditionally been seen as a low-margin, low-revenue market. But now it’s giving some food chains a new life. McDonald’s most recent financial results show that its all-day breakfast strategy in the U.S. is paying off.
Given the breakfast market’s transformation in recent years, it’s just a question of time before Canadians can order their favourite McMuffin any time of the day.
McDonald’s breakfast expansion has created a significant turnaround for the fast-food giant. Some store sales are up more than five per cent for the third quarter in a row. Just a few years ago, McDonald’s was closing a significant number of restaurants as it tried to redefine its growth strategy, focusing on contemporary market inclinations.
It would seem that McDonald’s has gotten its groove back with its all-day breakfast menu, a strategy that mirrored other food chains such as Taco Bell in the U.S.
In general, the lines between meals are blurring and breakfast’s reach is going way beyond the traditional 7 to 11 a.m. slot. More consumers are looking for breakfast options due to busy social lives and unpredictable work schedules.
With less time, people are slowly moving away from breakfast cereals served with milk and buying more ready-to-eat cereal products such as bars, yogurts and drinks. In fact, close to 20 per cent of breakfasts are now eaten on the go. In addition, breakfast is dirt cheap compared to lunch or dinner at a restaurant.
Essentially, breakfast has become the most transferrable meal of the day, and McDonald’s is capitalizing on this trend.
Changing demographics help. Millennials, who are known to save money and generally dislike breakfast cereals, now outnumber baby boomers. That massive change in the marketplace leverages McDonald’s position.
Of course, once they have kids of their own, millennials may end up in a different place breakfast-wise. Only time will tell.
In Canada, McDonald’s perspective on all-day breakfasts may be a little different. For one, McDonald’s Canada has performed well despite woes south of the border. Still, growing the business hasn’t been easy.
McDonald’s Canada is a $4-billion business with more than 1,400 stores. But the leading chain in Canada, Tim Hortons, continues to control the breakfast market. Starbucks is also serving a good portion of the morning coffee market and exceeds $1 billion in sales.
While Starbucks is exploring the idea of growing the after-hours business by selling alcohol beverages, Tim Hortons remains committed to its current strategy.
McDonald’s Canada, however, can easily capitalize on its aggressive coffee campaign and jazzier stores. The extension of the McCafé menu to include baked goods makes its breakfast portfolio more appealing to a broader palate.
So the potential for a change here is ripe, but McDonald’s is aware that in order to sell products it needs supplies.
Some reports suggest that McDonald’s Canada faces major challenges in its plan to convert to cage-free chickens for its eggs. Costs and the schedule to execute changes at the farm level may have been underestimated. The chain has given itself 10 years, until 2025, to offer cage-free chicken eggs to consumers. Other chains, such as Tim Hortons, have committed to do the same, so the pressure on the farm system to enact change is enormous.
McDonald’s now buys more than 120 million eggs a year in Canada. Moving to all-day breakfasts could increase that number to 150 million or more. But with Canada’s quota-based egg supply system, that kind of growth would be complicated. The system in Canada is very different than in the U.S., where cage-free eggs are already available.
However, once McDonald’s figures out how to move beyond the supply management paradigm, it is just a matter of time before we get our version of breakfast wars in Canada.
Troy Media columnist Sylvain Charlebois is Dean of the Faculty of Management and Professor in the Faculty of Agriculture at Dalhousie University. Sylvain is included in Troy Media’s Unlimited Access subscription plan.
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