Giving breakfast a jolt was a key aim for McDonald’s before COVID as it faced lagging traffic in a daypart that historically generated 25 percent of total sales. Part of this stemmed from an increased level of competitive activity (it was the only daypart growing for restaurant pre-pandemic), including Wendy’s reentering the breakfast fray.
In more recent months, the category weathered heightened pressure from quarantine behavior and people working remote. CFO Kevin Ozan said in July breakfast was “disproportionately impacted by disruptions to commuting routines and, while weekend recovery is still lagging weekday recovery, the gap is narrowing.”
CEO Chris Kempczinski added some of McDonald’s other menu initiatives, like fresh beef for instance, “took on more time and energy and investment,” and the company lost focus around breakfast innovation.
“And so, as we emerge out of this, I think part of it is certainly going to be a rededication from a marketing and investment standpoint to go after breakfast,” Kempczinski said. “I think our ability through the drive thrus right now to be fast at breakfast is certainly an advantage that we're looking for going forward.”
“And then we will have innovation in breakfast as well,” he added. “If you look at how we've performed through the pandemic, even though breakfast is certainly in the U.S. still the most challenged daypart, we're actually growing our breakfast share. And so, while it is a drag from an overall standpoint, we're gaining share at breakfast.”
In other terms, McDonald’s comp was dragging as the overall market declined. Yet the company’s slice of that overall breakfast pie was actually growing.
McDonald’s limited menu during COVID has largely featured core offerings, which helped productively as well as margins. Kempczinski noted earlier it was a safe bet the brand would add items back as recovery continued, but an equally safe assumption it would not go all the way to where it was. “How that evolution looks is going to vary market to market in the U.S.,” he said. “I do know that there is innovation that is planned for later this year that's going to bring some menu items on. And then with U.S. operators, [the talk has been], let's just make sure every item that we add earns its way back onto the menu. And I think that mentality, that mindset is how not just the U.S. but every market is sort of looking at it.”
McDonald’s saw its net income sink 68 percent, year-over-year, in the second quarter to $483.8 million from $1.52 billion. Revenue dropped 30 percent to $3.8 billion from $5.4 billion as global same-store sales plunged 23.9 percent (8.7 percent in the U.S.) against a gain of 6.5 percent in the year-ago quarter. Before Q1's COVID-fueled slip, McDonald's reported positive gains for 19 consecutive periods.
In the U.S., the chain’s comps progressed into positive territory in July. Same-store sales declined 19.2 percent in April; 5.1 percent in May; and 2.3 percent in June.
“In a survey by GlobalData, nearly half [43 percent] of consumers plan to eat breakfast outside of the home less often or stop altogether. This represents a significant loss for budget operators such as McDonald’s, wherein the convenient, cheap and fast-served breakfast items have always been popular among morning commuters,” Carmen Bryan, Consumer Analyst at GlobalData shared in a statement. “That said, the fast-food giant is taking a sensible approach. Rather than reintroducing standard menu items to its breakfast offerings, which may be slightly more complicated and costly to make, the company is expanding with simple yet indulgent bakery treats that may spark consumers’ curiosity. This new bakery lineup will prove a vital testing point for McDonald’s in the coming months. Should it help revitalize the brand's breakfast occasions, we are likely to see further menu expansion across its stores.”
GlobalData’s survey also found, since COVID-19, 51 percent of consumers said they plan to only buy products from their favorite brands.