For most of us, what has followed has been tremendously entertaining and even profitable, as the rivals have scrambled to offer better deals and even freebies, like the occasional cup of coffee. In one corner is the veteran, McDonald's, whose Egg McMuffins have been fueling some early risers and travelers for decades. In the other, upstart Yum! Brands, whose restaurants thus far have had almost no presence in the breakfast market. It is now trying to make a virtue of a combination of an established brand name and fresh and unusual menu items, resulting in high drama in advertising primetime.
For the chains themselves, it's serious business. That's because their corner of the fast food business has been stuck in slow-growth mode for some time. Both Yum's network of chains — which includes not only Taco Bell but also Pizza Hut and KFC's fried chicken restaurants — and McDonald's have to do battle with each other but also with upstarts intent on siphoning away their business. Many of these offer newer concepts — think Chipotle Mexican Grill or Noodles & Co.
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The two chains certainly have great slogans to offer. In its corner, McDonald's is brandishing "Wake up and taste the free coffee!" Meanwhile, Yum! Brands and Taco Bell insist that "there will be breakfast envy…" But spending on costly television campaigns promoting low-priced items like a $1.99 breakfast waffle or a $1.39 Egg McMuffin is going to have to pay off big in order to boost Taco Bell and McDonald's businesses. There's little evidence so far that either Taco Bell or McDonald's will emerge victorious.
The earnings figures for both companies suggest that the loser in the breakfast wars, so far, may be the shareholders. Overall, competition is eating into McDonald's revenues and profits — and not just at breakfast time — with the result being that the company posted not only disappointing same-store sales figures but disappointing earnings.
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Same-store sales in the U.S. have fallen short of expectations for eight months in a row, and posted a 0.6 percent decline in March, the fifth consecutive month in which the chain witnessed a year-over-year drop in sales. (True, the March figures were the smallest drop in those five months.) First quarter profits slipped from $1.26 a share a year ago to $1.21 a share for the just-ended quarter.
McDonald's CEO Don Thompson told analysts last week that the Golden Arches hadn't seen any impact from the "most recent competitor" in the breakfast fight, but he pledged his firm will embark on a new marketing initiative. And yes, it will revolve around breakfast. They don't just microwave, the CEO would like the world to know: "we crack fresh eggs, grill sausage and bacon."