McDonald's is inching closer to the long-awaited decision to offer its breakfast menu all day, a move that will allow it to make a play for a growing market that could help the struggling burger giant staunch its profit losses.
According to a memo sent to franchisees and obtained by the Wall Street Journal, McDonald's is preparing to have its restaurants offer some items from the company's breakfast menu all day long beginning as early as this fall. The company has been testing the idea of extending breakfast hours past the traditional 10:30 a.m. cutoff time in a few locations throughout the US.
McDonald's, in response to the report, said that "serving all-day breakfast is likely the number one request we hear from McDonald's customers. We're testing it out in a few markets to learn more about this possibility. We know your mouth is watering, but there's no news on this yet."
The all-day breakfast move is the latest strategy to try and boost profits amid slumping sales and increasing consumer demand for healthier, higher-quality foods, according to industry watcher Andrew Alvarez, who's with the market research firm IBISWorld. Alvarez said that over the past five years McDonald's has struggled to compete with restaurant chains like Chipotle that have placed an emphasis on humanely raised, healthy, GMO-free food in a hip setting. In response, McDonald's has begun testing touchscreen ordering menus and customizable menu items, and said it will begin serving antibiotic-free chicken. It has also focused on growing its international market since the domestic one is so saturated, he said.
The expansion into breakfast would allow McDonald's to try and eke out extra earnings on high-profit items like coffee, which are cheap to make but can be marked up for consumer sales, Alvarez said. But it also represents a wider trend among many fast food and fast casual restaurants looking to get into the breakfast market, which isn't as saturated as lunch and dinner.
"Breakfast in general within the fast food industry has become crucial to win over and the reason for this is basically it's the only time of day where a lot of these companies have experienced steady growth during recent years," Alvarez said, noting that Millenials have primarily driven the growth in the breakfast category by demanding breakfast options later in the day. "There isn't much competition yet. It's still a place where you can get some market share and consumer loyalty."
According to the Journal, many franchisees are unhappy with some of the changes, especially the costly ones, after having to incur debt to remodel their restaurants. Alvarez said that McDonald's is moving more toward franchise-owned locations than it has in the past, and franchisees have become disillusioned with McDonald's hands-off approach to helping them respond to market changes.
"A lot of this results from top-down pressure. Among the franchisees there is a large amount of discontent with the lack of support the company itself offers to the franchises. That started to become a little more obvious to everybody in the media once the company decided they were going to raise minimum wage in all the company-owned stores but basically stopped short of forcing franchisees to do that," Alvarez said.
"These are basically modest changes. It's a start for the company that has a lot to do and a long way to go in terms of fixing its brand image and bringing people back through the door, and to be able to build confidence in its ability to source high-quality natural ingredients to match consumer preferences that are not waning anytime soon it seems," he said.
Saru Jayaraman, director of the Food Labor Research Center at University of California, Berkeley, said that McDonald's play for breakfast won't save it amid a widespread consensus among consumers that cheap food isn't worth the costs to quality food and fair labor.
"McDonald's is suffering because the 'value meal' idea is not working anymore," she told VICE News today. "Even Walmart is experiencing this. Cheap everything at the cost of so much has had its time, and it's come to an end. This is the wholesale rejection by the public of this idea that you can have very very very cheap things and not expect any external costs."
She said that a majority of consumers now support raising the minimum wage, as do bipartisan legislators in many states, and that McDonald's will have to prove it is committed to treating workers fairly as well as increasing food quality. The national campaign Fight for $15, arguing that minimum wage should be raised to $15 an hour, has focused much of its argument against McDonald's and other fast food chains. Members of both the Senate and the House said they introduced legislation Wednesday to raise the minimum wage to $15.
Jayaraman said she is convinced consumers are willing to pay higher prices for better quality, and that UCLA's research into the price difference shows it would only cost around 40 cents more per meal for McDonald's to pay higher wages and buy better ingredients.
Jayaraman and Alvarez said unless McDonald's can completely revamp its image to convey that it serves quality food, it won't be able to bounce back in the current consumer climate.
"It isn't just about making breakfast food available all day. Their whole business model is at stake," she said. "Just look at the extraordinary success of Chipotle in all ways -- that it has done so well in the shareholder world, that it is all about quality food and what's going into your body and the quality treatment of people and animals. They really market the hell out of that and it's working for them, it's really working for them."
"In contrast I don't think anything about what McDonald's is marketing, the McBudget or breakfast all day, is working," she said.
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