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Sunday, July 27, 2014

Breakfast is now a war zone

Tony Paradiso

Not long ago, I was in the food service business.

I owned a small cafe that at one time served breakfast to the grab-and-go crowd. Our breakfast sandwiches were far superior to anything served at Dunkin’ Donuts or McDonald’s. But without a drive-thru, we ultimately couldn’t compete against the ubiquitous deals and convenience offered by the fast-food giants. ...

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Not long ago, I was in the food service business.

I owned a small cafe that at one time served breakfast to the grab-and-go crowd. Our breakfast sandwiches were far superior to anything served at Dunkin’ Donuts or McDonald’s. But without a drive-thru, we ultimately couldn’t compete against the ubiquitous deals and convenience offered by the fast-food giants.

Although I’m incredibly happy to be out of that business – and have no particular desire to stroll down memory lane – in Pavlovian fashion, the recent series in the Wall Street Journal on food and breakfast piqued my curiosity.

The breakfast wars have become intense, and with good reason: Breakfast food has the highest profit margins. And with the lunch and dinner segments unable to satiate the growth a public company requires, the pang for profits makes the pursuit of breakfast irresistible.

It doesn’t cost much to make a sausage, egg and cheese sandwich. As a mom-and-pop business, my total cost was 55 cents, and that included a foil bag that cost a nickel. Imagine how little it costs McDonald’s to produce that same item.

And the margins on coffee are even better.

According to brokerage firm Sanford C. Bernstein & Co., the fast-food piece of the breakfast business totals $47 billion. Unlike the calorie count for the average breakfast item, that’s a healthy revenue number.

But to capture a portion of the breakfast business, you’d better be quick. Gone are the days of reading the newspaper while slowly sipping your coffee. According to the research firm NPD Group, nowadays the average breakfast eater allocates only 12 minutes to the task. That’s about half the time spent for lunch or dinner.

Having cooked up the Egg McMuffin in 1971, McDonald’s is the undisputed leader of the breakfast bunch. Again according to Bernstein & Co., last year breakfast accounted for 25 percent of the company’s revenue and 40 percent of its pre-tax profit. (Refer to summary of the cost of a breakfast sandwich.)

Starbucks and Dunkin’ Donuts are holding their own in the second and third positions. Dunkin’ gets nearly 80 percent of its sales from breakfast and is moving toward healthier offerings. Well, healthier than a doughnut.

The chain is also taking steps to shave valuable seconds off each order.

“People don’t want to sit in the drive-thru lane and wait for their breakfast,” Dunkin’ CEO Nigel Travis said.

Hey, Nigel – here’s a tip for your customers: Try parking and getting out of your car instead of waiting in a drive-thru line 10 cars deep. You might even burn off a calorie or two in the process.

As for everyone else –
including Burger King – they are distant also-rans. Wendy’s has given up chasing breakfast on a national level.

Grocery stores are not conceding breakfast to the fast-food players. If you watch any television, you’ve undoubtedly seen a Jimmy Dean or Hot Pockets commercial. In the breakfast grocery game, what sells is what’s fast to prepare.

According to research firm IRI, sales of hand-held breakfast items surged 29 percent in the last two years and now total $1 billion. Yogurt sales have also gone bananas as consumers seek healthier options. The losers include breakfast bars and ready-to-eat cereals. The cereal industry still boasts $9 billion in revenues, but it isn’t sowing its oats like it once did. Kellogg Co. estimates consumption could decline 4 percent this year.

While I’m on a roll …

I love it when politicians attempt to legislate healthy conduct. If politicians were truly concerned with our health, they would all resign. I can guarantee the general health of the country would improve.

Former New York City Mayor Michael Bloomberg once tried to ban the Big Gulp. I believe some foolishness known as the Constitution got in the way of that worthy goal.

Years ago, San Francisco enacted the Healthy Food Incentive Ordinance, more commonly referred to as the “toy ordinance.” The goal was to prohibit fast-food companies from enticing children to consume unhealthy meals by bundling a toy. Under the ordinance, to qualify for a free trinket, the host meal had to contain fewer than 600 calories and 640 mg of sodium.

How did the fast-food companies react? Since the ordinance only prohibited giving away a toy, the chains started charging for them. I’m guessing that wasn’t what San Fran’s finest had in mind.

A new Stanford University study analyzed two nationwide chains in the Bay Area to determine the ordinance’s impact. The results were slightly more fruitful than Bloomberg’s.

According to the study published by the Centers for Disease Control, after the ordinance was passed, 88 percent of those surveyed plunked down the extra dime to buy the toy with the meal.

And you’ll never guess how many children’s meals met the ordinance’s nutritional criteria before or afterward. That would be zero.

However, the law did perhaps prompt the reduction of 110 calories in a McDonald’s happy meal that resulted when the chain reduced the portion size for fries and substituted apple slices.

That was a small win, but it beats the average for politicians, which usually equals the number of children’s meals that complied with the toy ordinance.

Tony Paradiso is an author, professor, entrepreneur, radio and TV commentator, and marketing and management expert. His website is www.tonyparadiso.com.