Restaurants

Wendy's does not need to beat McDonald's for its breakfast to succeed, analyst says

Key Points
  • Wendy's nationwide breakfast can be a success without swiping considerable market share from McDonald's, Barclays' analyst Jeffrey Bernstein said.
  • "I don't think they necessarily need to beat McDonald's," Bernstein told CNBC.
  • Wendy's is fighting a whole lot of players besides McDonald's, so we think the two of them can survive together," he said.
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Why this analyst says Wendy's breakfast menu could work this time

Wendy's foray back into breakfast can be a success without swiping considerable market share from McDonald's, Barclays' analyst Jeffrey Bernstein told CNBC on Friday.

"I don't think they necessarily need to beat McDonald's," Bernstein said on "Power Lunch."

"Wendy's is fighting a whole lot of players besides McDonald's, so we think the two of them can survive together," he added.

Wendy's is launching its breakfast menu in the coming months, investing about $20 million to do so.

The Dublin, Ohio-based fast-food company has tried to serve breakfast nationwide three times, but Bernstein believes success is more likely on this attempt.

"I think importantly this go-around, they're rolling it out national," Bernstein said. "Whatever day they ultimately choose to roll it out, it will be at all stores on the same day, whereas the last time around they went with a more regional approach."

The regional approach allowed rivals — McDonald's and Burger King, for example — to counter Wendy's encroachment with competitive offers of their own, "making it very difficult for Wendy's to succeed," Bernstein said.

Wendy's currently offers breakfast in around 300 of its restaurants. There were 5,810 Wendy's in the United States at the end of 2018, according to regulatory filings.

Another lesson Wendy's took from its past attempts is the value in a more limited menu, according to Bernstein. Before, there were more than 40 breakfast-focused items, he said. It's less than 20 options this time, he said.

Wendy's breakfast menu items
Source: Wendy's

The breakfast menu includes the Breakfast Baconator, Frosty-ccino and Honey Butter Chicken Biscuit.

Even so, Wendy's is entering a crowded breakfast market, and investors, at first, were wary of its decision. Its stock fell around 10% the day after the September announcement but has since worked its way back into the low $20s.

Shares of Wendy's closed Friday's trading session down .5% at $22.09.

Over the last few years the competition for breakfast customers has intensified. McDonald's, Burger King and Taco Bell have put an emphasis on their breakfast menus. But it is not an easy task to persuade customers to switch from their favorite place for breakfast.

To compete with the likes of McDonald's and Dunkin', Burger King, for example, has launched a coffee subscription program and a cafe brand, reminiscent of McDonald's McCafe.

Bernstein said he believes McDonald's will respond accordingly to Wendy's offerings.

"It's 25% of McDonald's sales. It's close to 40% of McDonald's profits. They will likely do enough to defend their breakfast share," he said.

— CNBC's Amelia Lucas contributed to this report.