Competition for breakfast business expected to heat up

The fast-food industry is aiming to grow its breakfast business, a development that bodes increased competition for convenience-store operators, many of whom also target that trade.

McDonald's Egg McMuffin has been around for decades, but now other quick-serve restaurants are trying to get similar items into consumers’ hands and stomachs.

Tim Hortons, Burger King, Wendy's, Taco Bell and Starbucks are coming up with their own breakfast sandwiches, according to a Jan. 1 report by Maclean’s magazine.

Many c-store operators, especially those who also sell fuel, view breakfast sandwiches and other ready-to-eat breakfast items, along with coffee, as fundamental to their business. Customers on their way to work can stop to fuel their cars – and themselves, operators reason.

Among convenience stores that offer a range of breakfast items are: 7-Eleven, Dallas, Texas; Family Express, Valparaiso, Ind.; Rutter’s Farm, York, Pa.; Sheetz, Altoona, Pa.; and Wawa, Wawa, Pa.

Breakfast accounts for an estimated $40 billion in annual sales in the United States, according to Technomic, a market research firm in Chicago, and "60 percent of the business has been cornered by fast-food companies," the firm’s president, Ron Paul, told Maclean’s. Paul predicts up to 8-percent annual growth.

Historically, fast-food chains focused on lunch and dinner, and coffee shops were stuck on serving doughnuts and muffins, Mclean’s noted. McDonald's grabbed its big share of the morning market on the strength of a handful of hot and savory options. Breakfast has become an even bigger part of its strategy to boost revenue over the last three years with the introduction of new items such as bagels, McGriddles and premium coffee. Sales have jumped 33 percent to $20 billion since 2002 – and breakfast is driving that growth, according to Mclean’s.

Starbucks is introducing breakfast sandwiches – with fontina cheese, peppered bacon and cholesterol-free egg – which it estimates will bring in an additional $35,000 in revenue to each of its stores. Taco Bell has a Breakfast Burrito. Burger King has the Enormous Omelet Sandwich. Wendy's, which in the 1980s failed at breakfast, is trying again with Omelettos in the hopes of reaping added sales of $225,000 per store. Tim Hortons, which holds about 75 percent of the coffee and baked goods market in Canada, is banking on breakfast sandwiches to boost sales by 5 percent.

Breakfast could, however, prove the toughest meal for these chains to pull off, Maclean’s pointed out, because while people enjoy trying new restaurants and foods for lunch and dinner, the morning is all about habit.

A recent study by research firm NPD Group shows 48 percent of people say their breakfast choices are driven by routine. That means customers devoted to one chain's menu won't be easily persuaded to try a competitor's offering.

Increasingly, people are grabbing their first meal of the day after they leave the house in the morning, according to the NPD study, which showed, for example, that toast consumption at home declined from 26 percent to 13 percent over the last two decades. Time-pressed commuters take advantage of the convenience of drive-throughs to pick up their breakfast on the way to work.

The businesses that do breakfast sandwiches well run another risk, Maclean’s pointed out: eating into the sales of other menu options such as bagels and muffins. But judging by the success of McDonald's, that is a risk worth taking. At a recent investment conference, chief executive Jim Skinner announced that within a few years "we could be serving breakfast all day."