Starbucks vs. McDonald’s: A Fair Fight for Breakfast Dollars?

By Joe Skupinsky

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“It was the best of times, it was the worst of times. It was the age of breakfast, it was the age of dicsovering if premium works better over value in a crowded industry.” How do you like my intro for “The Tale of Two Retailers”? I’m no Dickens, but I can’t help but compare McDonald’s All-Day Breakfast with Starbucks recently announced brunch test.

If you missed the latter news, Starbucks is testing a “Weekend Brunch” menu in select markets. As you may have guessed, the menu is offered only on weekends. The program began in late August in 78 Starbucks stores in the greater Portland and Seattle area. Brunch foods, including Belgian waffles, baked French toast, and quiche made from cage-free eggs, can be ordered from about 8 a.m. to 2 p.m. or until the food supply runs out.

Testing brunch is yet another way Starbucks is trying to move past its just-a-coffeehouse image. Starbucks has also experimented with selling wine and beer to attract diners during the evening hours. Recently, the company also made separate commitments to stock Megpies artisan tarts and Bantam mini stuffed bagels, which appeared on the hit TV show “Shark Tank,” across thousands of locations. What do all of these items have in common? They’re premium upsells intended not only to drive customer traffic but drive profit margins.

And then there was the McDonald’s strategy…

Can Value Still Save McDonald’s?

In late July, McDonald’s Corp. reported weaker-than-expected same-store sales growth in its second quarter. All-Day Breakfast has been credited with driving sales earlier this year, so this was a sign that the menu could be losing some momentum. Business Insider also reported on unintended consequences of the All-Day Breakfast menu and McPick 2 menu, which allows customers to choose two items for $5. According to one analyst, customers may be “exploiting” the promotions to trade down to cheaper menu items, causing average values for lunch and dinner to fall and therefore dampening overall sales growth.

It’s not just analysts being critical of McDonald’s strategy. Franchisees have expressed their disapproval in a recent survey. "I am very alarmed about the discounting push. I have never seen the corporation be so aggressive with discounts,” one franchisee wrote. “The regional marketing teams are adding numerous other discounts to the McPick 2, primarily breakfast items. They are encouraging, quite literally, everything being on sale. This is a very hard cultural adjustment for me."

What’s the solution so that discounts don’t cannibalize sales growth? According to the same analyst, McDonald’s must lower labor costs and turn to automation. We already see that happening with the gradual rollout of self-ordering kiosks with premium offerings at some McDonald’s locations. It shouldn’t be about replacing employees with machines. Rather, automation should be about freeing up current employees to do other tasks, including properly executing menu items and ensuring accuracy of orders.

The Takeaway

There are many changes happening in both the quick-service and fast-casual restaurant segments. As the industry moves forward with technology and innovation, companies will need to have a solid grasp of restaurant-level insights as they pertain to basic operations. For instance, if a fresh beef patty is introduced to more McDonald’s stores (it’s being tested), are the right sanitation protocols being followed? Are fresh ingredients stored at the right temperatures? And as McDonald’s works to expand the All-Day Breakfast menu, franchisees must remember customer service is still crucial, especially for a financially fragile company.

Zenput is a mobile software solution that creates a chain of accountability within organizations, allows senior managers to gain insights on basic store operations, and enables real-time communication to address challenges as they arise. To learn more about Zenput for restaurant operations, click here.

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