Consumers are lovin' McDonald's all-day breakfast, to the tune of surging sales for the brand, but how long can the party last?
The effort, which included a social media-themed ad campaign by Leo Burnett, launched to much fanfare in October and so far has helped reverse the fast-food chain's sagging fortunes. This week, McDonald's announced that its fourth quarter comparable U.S. sales increased 5.7 percent due, in large part, to the launch of all-day breakfast.
According to research firm NPD Group, the percentage of McDonald's customers who ordered breakfast at the chain grew from 39 percent prior to the launch to 47 percent afterward. And over the past two years, breakfast has been the strongest growth segment for QSR brands overall, with sales rising in the 3 percent to 4 percent range.
"Taco Bell and Subway entered the breakfast market, and there have been a lot of specialty innovations that have driven morning meal growth. Everyone wants to take advantage of that opportunity because it's such a huge part of market share," said Bonnie Riggs, restaurant industry analyst at NPD.
McDonald's president and CEO Steve Easterbrook, who took the helm in March 2015, has executed a turnaround plan for the company that includes a simpler menu and faster service. In May, the chain pared down menu items to speed up order times. The brand's focus on value, in the form of offerings such as its McPick 2 menu, which allows customers to choose two menu items (McChicken sandwich, double cheeseburger, small fries or mozzarella sticks) for $2, also was credited for increased sales in this week's earnings call.
The fast-food chain's vision in the U.S. is "to become a modern and progressive burger and breakfast restaurant focused on our food, the customer experience and value," a McDonald's spokeswoman said. "Simplifying our menu and operations procedure has made things easier for our customers and our crew and helped contribute to the rise in earnings."
Will the momentum continue?
But after consecutive sales declines, McDonald's latest results actually aren't much to celebrate, says Darren Tristano, president of restaurant industry research firm Technomic. (The company's U.S. sales rose for the first time in two years in October.)
"Strong results after a few years of sales declines can still be considered a rebound. They haven't gotten back to where they were three years ago," he said. "They've done a nice job with all-day breakfast, and aggressively advertised it, but all-day breakfast isn't new. Jack in the Box, White Castle, other brands are rolling it out. [McDonald's] out-performed the market in the recent session, but they've recently struggled to keep up, so it'll be good to watch."
On Jan. 7, McDonald's U.S. restaurants also launched new packaging, with a sleeker, simpler design than previous iterations. Paul Pendola, foodservice analyst at Mintel, gave the change mixed reviews. "Saying they're going to be a contemporary, modern burger place is too vague, and it doesn't communicate to consumers what it is that makes them different, unique or better," he said. "They could communicate that on the packaging. It's super simple and lovely, but there's no messaging on it about what makes them better or unique."
Tristano was optimistic about McDonald's fortunes, overall. "They're focusing on the millennials with breakfast, the lower-income groups with value, and they're innovating with some of the regional burgers they're offering," he said. "As long as they continue to focus on fundamentals and not over-complicate things on the menu level, they'll have some momentum."