After Taking A Hit During The Pandemic, Restaurants’ Breakfast Business Is Coming Back ‘With Velocity’

Food & Drink

The restaurant industry’s recovery has somewhat stalled throughout the past several months, as the inflationary environment relentlessly lingers.

But it’s not all bad news. Consumer demand for eating out remains strong and restaurants remain well-positioned as grocery costs trend higher. For some parts of the business, recovery continues to be in full swing. That is especially clear during breakfast hours.

New data from The NPD Group finds that the breakfast daypart ended Q2 with flat traffic counts, compared to declines throughout the rest of the day. RMS data from July shows similar trends, with breakfast sales and traffic remaining flat compared to declines during the rest of the day.

“Flat” may not seem all that exciting on paper, but it is very much a success story as inflation-weary consumers rein in their discretionary spending at restaurants. “Flat” also provides solid ground for near-term growth, which is what several executives are anticipating.

“There’s no doubt the morning daypart is going to come roaring back. And it’s not a question of if, it’s a question of when,” Starbucks
SBUX
CEO Howard Schultz said during the company’s Q3 earnings call Aug. 2. To put a finer point on his enthusiasm, he said breakfast is coming back with “velocity.”

COO John Culver said morning business continues to grow and represented 51% of the chain’s sales on the quarter, “which is beginning to return to normal.”

“We’re optimistic those morning routines are coming back,” he said.

Mornings are also buzzing again at McDonald’s, where breakfast sales fell more than other parts of the business during the initial Covid-19 outbreak in the spring of 2020.

“Breakfast was the strongest performing daypart in the U.S. comp, which we feel good about. It’s a change. If you remember, a few years ago, there were a bunch of questions about breakfast,” CEO Chris Kempczinski said during the company’s Q2 call July 26. That U.S. comp was up 3.7%, by the way.

At Wendy’s, which launched its breakfast just before restrictions went into place in 2020, breakfast sales volumes have surpassed the breakeven mark of $2,000 a week and are generating profits for both the company and its franchisees, CEO Todd Penegor said during the company’s earnings call Aug. 10.

“We’re seeing some nice acceleration in our business,” he said.

There’s plenty of reason for the enthusiasm here. Breakfast tends to be the most profitable part of the restaurant business thanks to lower food costs, higher drink purchases and food attachment. In March, former McDonald’s CFO Kevin Ozan reiterated this point, adding that breakfast represents about 25% of the chain’s overall sales.

That said, some of the Q2 enthusiasm may also come from an element of surprise. The breakfast business was hit particularly hard by the pandemic as consumers hunkered down at home.

Yet, work-from-home numbers have remained remarkably high. A recent survey from Conference Board found that just 4% of business leaders are requiring all employees to return to the office full-time, while less than half (45%) said they’re requiring some workers to return five days a week. Less workers going into the office means less commuters on the road swinging through the drive-thru to pick up their habitual coffee and bacon, egg, cheese sandwich.

Breakfast’s comeback may be against the odds, in other words. Or not. Consumers may not be headed to the office every day like they used to, but they’re certainly more mobile than they’ve been in a couple of years. This is proving to be a benefit for limited-service restaurants that offer breakfast.

Restaurant Business International CEO Jose Cil alluded to this during his company’s Q2 earnings call Aug. 4, stating, “mobility is kind of upside here. The business is performing well across segments. We’re seeing strength in … our traditional core breakfast offering. We think there’s more to come.”

Penegor added that breakfast will likely gain more momentum as kids return to school.

“That should certainly help on our breakfast business. I think there would be more benefit to some of the seasonality as folks get back into routines later in the year that could potentially help support our accelerated sales growth,” he said.

Whatever the impetus behind the breakfast daypart comeback, it’s clear restaurant brands are taking advantage of the pendulum swing. McDonald’s recently brought back its popular breakfast bagels, for instance, while Wendy’s just launched French Toast Sticks–the chain’s first sweet offering on its two-year-old breakfast menu. Jack in the Box
JACK
brought back its French Toast Sticks with the help of Star Wars actor Mark Hamill.

Several executives noted the potential for a strong recovery in the months ahead. At Wendy’s, that optimism is being channeled through a $16 million global investment in marketing dollars toward the daypart throughout this year.

“We know there is a ton of upside ahead of us this year and over the long term as we look to capture our fair share of the massive (quick-service restaurant) breakfast business,” Penegor said.

For context on the potential for a return to pre-pandemic morning behaviors, and the “massive business,” the limited-service breakfast category was worth about $35 billion in sales during that unprecedented 2020.

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