McDonald’s Feasts on All-Day Breakfast, But Causes Indigestion for Some Franchisees

After stagnant sales and earnings during a long non-growth period, McDonald’s Corporation hit things into high gear with its decision to offer breakfast all day. However, there may be a dark cloud behind the silver lining.

The 4^th Quarter 2015 numbers showed a 5.7% jump in some store sales — a major increase especially in the light of a prolonged period of sales and profit stagnation prior to the all-day breakfast decision. The price of McDonald’s stock also has surged 13.6% over the three-month period.

In announcing the 4^th Quarter 2015 earnings, McDonald’s CEO Steve Esterbrook also attributed mild weather as a factor.

McDonald’s stores started serving all-day breakfast on Oct. 6, 2015. In making the announcement for the new menu Esterbrook said, “For years, customers told us they want to breakfast all day. All-day breakfast is bringing customers into restaurants, lifting guest counts and creating a more positive mood around the brand.”

According to CBS Marketwatch, “…the changing nature of Americans’ schedules has also created an environment in which there are fewer rules about what to eat and when. Diners now expect bigger menus for longer hours, according to Denny’s Chief Marketing Officer John Dillon. And seven of ten people said they would like the restaurants to serve all-day breakfast, according to a 2014 National Restaurant Association survey.”

The company pioneered breakfast fast food with the introduction of the Egg McMuffin in 1972, when market research indicated that consumers would welcome a quick breakfast. Five years later McDonald’s added a full breakfast line to the menu and by 1987 one-fourth of all breakfasts eaten out in the United States came from McDonald’s restaurants.

But all is not so rosy in McDonaldland. According to Bloomberg Business, the all-day breakfast has created some meaningful initial problems for franchisees. Soon after the all-day breakfast policy was initiated, Bloomberg Business pointed out “Four Reasons McDonald’s All-Day Breakfast is a Headache for Franchisees.”

1. “It’s hard to make hash browns and fries at the same time with the same  number of vats.” Some stores have to invest $5,000 in new vats; others   must choose between fries and hash browns in the afternoon and evening.

2. “After years of waiting, all-day breakfast arrived very fast.” The decision    caught some franchisees unprepared. “Egg sandwiches sell for less than burgers.” The breakfast foods carry  lower prices than the hamburger sandwiches and fries.

4. “Hello breakfast, goodbye to some McWraps.” The addition of breakfast means the trimming of other items such as McWraps, which take longer to make than eggs and pancakes. Sales, profit and stock value growth can all serve as a tonic for these early ailments.