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Taco Bell’s $100,000 Breakfast Hedge

Will Taco Bell’s breakfast program be a success? Well, yes, if the standard it uses is Woody Allen’s quip that “80% of success is showing up.”

“We’re not in it to be in breakfast; we’re in to win at breakfast,” Yum Brands Chairman- CEO David Novak told analysts last week. But what does Taco Bell mean by “winning”? Not much, apparently. The chain has set the bar low enough to guarantee success. But there’s a difference between “success” and “winning.” Taco Bell may well succeed, but is it going to be winning anything?

Breakfast_ShareBreakfast represents about 25% of the average McDonald’s sales and 45% for Hardee’s. What is Yum Brands’ target for Taco Bell’s breakfast? About 7%. Novak told analysts this week that Taco Bell stores could see about $100,000 in incremental business as a result of breakfast. There’s nothing wrong with incremental business, to be sure. But given that the average Taco Bell does annual sales of about $1.4 million, $100,000 represents about 7%. That’s a terrific gain for Taco Bell operators in a slow-growth market, but it hardly adds up to “winning.” Not when the average McDonald’s is taking in $650,000 from morning business.

Said Yum CFO Pat Grismer: “With respect to our expectations around breakfast and what we’re seeing today, we’ve been targeting mid to high single-digit mix for breakfast that’s generally what we saw in the test.”

TacoBell_Breakfast400Mid-to-high-single digit? Yes, about 7%, which is what it says it needs “in order to make the economics work for us.” But even Carl’s Jr., which didn’t even push hard on breakfast until it adopted sibling Hardee’s Made From Scratch Biscuits platform a few years ago, can muster better than double Taco Bell’s breakfast sales target.

Wendy’s decided to suspend its efforts to launch a breakfast program because it couldn’t make mornings work profitably and its target was $140,000 to $150,000 in breakfast sales per store. Taco Bell ought to be able hit $100,000, or $274 a day, from breakfast.

When Subway added a breakfast menu in 2010, it didn’t make any grandstanding claims about “winning.” It just built itself a solid breakfast business—estimated to be about 9% of sales—and everyone else in the category survived just fine.

A few questions remain unasked. One is how well Taco Bell’s breakfast will do—once the initial novelty of Waffle Tacos wears off—against chains such as Jack in the Box (very strong in California, where Taco Bell is weighted) that make breakfast available all day?

Another question is why nutrition watchdogs aren’t scrutinizing Taco Bell as closely as they do the burger chains. Taco Bell’s A.M. Crunchwrap with sausage’s 710 calories are about equal to McDonald’s Bacon Clubhouse burger. And where are Taco Bell’s “healthy foods,” the fruit slices and oatmeal and egg-white sandwiches that other QSRs have been prodded into menuing?

Taco Bell is likely to get the 7% bump it expects. Maybe even 8% so management can crow that breakfast “has exceeded our expectations.” Breakfast will be a success. It will get a good bit of “buzz” on social media. But a winner? Of what? Will it become the No. 1 QSR breakfast choice? Not a chance. Another of Woody Allen’s great lines is, “Confidence is what you have before you understand the problem.”

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