DNKN Dunkin Brands Group Inc

By Julie Wernau 

The pandemic is sinking one of the fast-food industry's biggest bets: breakfast.

Once the best hope for increasing sales, mornings are now the slowest time of day at fast-food restaurants, as many Americans work and attend school from home. Even as fast-food sales have recovered in recent weeks from the early months of the coronavirus pandemic, breakfast has trailed behind.

Breakfast-dependent chains including Dine Brands Global Inc.'s IHOP and Dunkin' Brands Group Inc. are closing hundreds of restaurants. McDonald's Corp. and Restaurant Brands International Inc.'s Burger King have said sales of breakfast items remain weak. The operator of Friendly's, an East Coast diner chain, has filed for bankruptcy protection.

The trouble at breakfast is one of the most significant problems for a fast-food industry designed to cater to consumers on the go. With Covid-19 cases climbing again across much of the U.S., many consumers are likely to keep eating breakfast at home--and they are finding plenty of options.

Sales of packaged breakfast items including cereal and ground coffee have risen in recent months after years of tepid sales. Some food manufacturers said they are trying to capitalize on the trend.

"We are in a position to own breakfast," said Carlos Abrams-Rivera, U.S. president at Kraft Heinz Co., which makes Oscar Mayer bacon, Maxwell House coffee and Philadelphia cream cheese.

For years, fast-food chains poured money and resources into breakfast. IHOP planned to introduce a fast-casual brand called Flip'd to serve pancakes to people on the go. And other chains were focused on menu items that could conveniently fit in cup holders.

Vinald Francis, a 38-year-old medical-illustration and visual-design specialist in Rhode Island, said he used to stop for breakfast at McDonald's or Burger King multiple times a week on his morning commute. Now he eats toast or yogurt at home. "My whole diet has kind of changed, " he said.

Chris Kempczinski, chief executive of McDonald's, said in July on an earnings call that breakfast has been the biggest drag on sales during the pandemic. New offerings from competitors betting on breakfast were adding to the pressure, he said.

Some of those bets appeared to be working before the pandemic closed dining rooms across the country. In early March, Wendy's Co. introduced a breakfast menu nationally, emphasizing sandwiches with real eggs, including the Breakfast Baconator. McDonald's and Burger King were investing in new menu items and marketing focused on breakfast, including Burger King's Croissan'wich. Breakfast transactions for fast food during one week in March were up 5% from a year earlier, according to the market-research firm NPD Group, a big increase from recent years' pace.

Then came widespread lockdown orders, and millions of Americans stopped commuting as they shifted to remote work. By mid-April, breakfast transactions were down 54% from a year earlier, worse than the 42% drop for restaurant transactions overall. Breakfast transactions have since recovered some, running 10% below last year's levels for the week ending Oct. 25, according to NPD Group. That trails improvement in fast-food transactions overall.

Fast-food chains said some of the commuters they planned to serve may never come back. Some, including McDonald's, are hoping to sell to families picking up breakfast at the drive-through. The company is offering a deal this week on its new breakfast pastries to draw consumers away from the breakfast table. Dunkin' and IHOP said that even as they close some stores, they hope to open others in places where breakfast sales can take off.

Other chains are looking beyond breakfast. Operators have added back breakfast items--such as the Cheesy Toasted Breakfast Burrito and Cinnabon Delights--at only about half of Yum Brands Inc.'s 7,000 Taco Bell restaurants in the U.S. Restaurant Brands said it is improving the quality of the food on the lunch menu as well as breakfast at its Tim Hortons chain. IHOP introduced an "IHOPPY hour" in September, the first time it has used discounts to draw customers in the afternoon. The menu includes traditional breakfast items such as eggs and pancakes as well as the usual burgers and fried chicken.

Luigi Ricchio, 47, a senior webcast producer in the Chicago area who used to grab McDonald's breakfast by his office, said he has been going out to get breakfast food at irregular times of day just for a break from being at home. "You can go get soup at 11 a.m. and you can get an egg-and-cheese sandwich at 3 p.m.," he said.

Wendy's stuck with its breakfast rollout during the pandemic. Breakfast now represents about 7% of its sales, in the range of what the company expected before the pandemic began. The company said it is planning more advertising about its breakfast menu to gain ground after competitors have pulled back.

Todd Penegor, president and chief executive, said on an earnings call this week: "We are confident that we can continue to grow this business into the future as more and more people fall back into their daily routines."

Annie Gasparro contributed to this article.

Write to Julie Wernau at Julie.Wernau@wsj.com

(END) Dow Jones Newswires

November 05, 2020 05:44 ET (10:44 GMT)

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