Breakfast Battles

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Breakfast Battles

You know a product is successful when a mere six weeks after its rollout, a sidekick on "The Howard Stern Show" throws a plate of them at a nude woman.

This new star of morning drive-time is McDonald's McGriddle. The latest salvo in the battle for the on-the-go breakfast customer, the hot breakfast sandwich has been credited by the company for helping boost comparable-store sales by 7 percent in June, the month it was introduced, and nearly 10 percent in July.

"Products like McGriddles and Krispy Kreme donuts are definitely an encroachment into a daypart that is vital to many c-stores, in an industry whose primary dayparts are breakfast and lunch — with breakfast probably the most important," noted David Bishop, of Bishop Consulting Inc., of Barrington, Ill.

If the a.m. customer continues to be diverted, c-store operators will soon be moanin' in the morning. Hot dispensed beverages represent approximately one-third of all c-store foodservice, he noted. What's more, 75 percent of all coffee unit volume is consumed in the morning hours, generally 5 a.m. to 8 a.m.

"Breaking that down, 27 percent of all c-store foodservice business is being driven in three hours in the morning," he said.

Who's after that mobile breakfast customer? Who isn't? The hot fast-casual segment, for instance, has a growing line of breakfast offerings, many new to the on-the-go breakfast customer. Breakfast panini sandwiches anyone? (For more on the fast-casual segment, see "A New World at Breakfast," Page 70.) On the other end of the spectrum, Home Depot is selling Dunkin' Donuts in some locations and testing small McDonald's units in others.

"Our competition is everyone from a mid-scale diner to 7-Eleven to Starbucks or a grocery store — anywhere people are fitting into their morning to stop and eat something," said Lisa Frick, director of concept development, menu management, for McDonald's, based in Oak Brook, Ill. "The difference, in many cases, is convenience. Convenience is inherent in anything on our menu and you can find a McDonald's pretty quickly."

The McGriddle's real strength, however, is its "value offer in serving up a hot breakfast, the best substitute for people who would stay home and make a pancake breakfast themselves," Frick told CSNews. "There is a personal touch to it."

Also driving sales, she said, is taste. "We have a lot of combination meat-and-egg sandwiches, but we were missing the sweet component in the breakfast lineup," she noted. "Donuts or cinnamon rolls are not a key business for us. Our biggest concern is to making sure we give our customers good tasting food."

McDonald's executives had high expectations for the new breakfast entry; so far, all of their sales goals have been "met or exceeded," Frick said, declining to be more specific. "But the bigger measure is we've had nothing but positive feedback from our customers. People are coming to McDonald's specifically for the McGriddle — that is truer for this product than other products we have. It's having a positive impact on our overall breakfast business."

All in the A.M.

Alongside McDonald's, whose restaurants now do 25 to 33 percent of their business from the breakfast menu, other fast feeders are coming on strong in the morning. Last January, Burger King Corp. promoted its Croissan'wich for 99 cents for a limited time, down from the suggested price of $1.59. (Don't be surprised to see a new breakfast item from Burger King, too.)

Krispy Kreme Doughnuts Inc. bought a coffee roasting company, built a state-of-the-art roasting factory in Winston-Salem, N.C., where the company is based, and upgraded its proprietary program with four new drip blends a year ago. Coffee beans are sent to the stores each week, using the same infrastructure used to deliver the chain's dough mix.

"We consider ourselves competing against anyone in the breakfast business, whether it be biscuits, bagel or Danish," said Stan Parker, Krispy Kreme's senior vice president, marketing, noting coffee sales are up since the new coffee rollout.

"We wanted everything to be as good as the original glazed donut, and our beverage offering wasn't. The new line has been positive in terms of quality and what it means for the brand long-term."

What's more, espresso drinks will be introduced after Krispy Kreme's introduction of frozen coffee drinks, now in 40 stores, early next Spring. Today, beverages account for 15 to 20 percent of Krispy Kreme's sales.

The company also plans to add new doughnut varieties to its line — making a few of its best-selling limited-time varieties, such as pumpkin spice, permanent additions. But don't expect the chain to add bagels, hot sandwiches or other breakfast items to the menu.

"We are constantly looking at new products, but our core strength is donuts and coffee and that will be our platform," Parker explained. "We tried [other breakfast items] in the '80s and they didn't do well.

"We've been able to grow our comparable store sales by double-digits every quarter since we went public in April 2000 and are focusing on elevating the customer experience with donuts and coffee."

Krispy Kreme is not alone. Competitor Dunkin' Donuts Inc., part of Allied Domecq Quick Service Restaurants, expanded its beverage line with espresso beverages last month. ("See You Latte: Espresso Beverages the Dunkin' Donuts Way," Page 62.) Dunkin' Donuts, which posts 55 percent of its sales between 5 a.m. and 11 a.m., captures 10 percent of the morning QSR daypart, according to Catherine Zuffante, a spokesperson for the Randolph, Mass.-based chain. It's morning business is bigger than greater than Starbucks, Burger King's and Hardees' share.

With more than 3,700 U.S. locations, the chain sells more doughnuts, bagels, muffins and cups of coffee than any other retailer in the country, she said. Friday and Saturday are the chain's biggest breakfast sales day of the week.

Once again, convenience is key to the chain's success. "More than 1,700 locations are equipped with a drive-through," Zuffante said. "Dunkin' Donuts is the most conveniently located quick service restaurant in New England, with a shop density in the region greater than any other QSR anywhere in America." Indeed, in the Providence, R.I., market, there is one Dunkin' Donuts shop per 6,750 people.

Destination: Breakfast

Offering a "destination driver" — such as Dunkin Donut's coffee — is key when serving up breakfast, Bishop noted. For one study, Bishop Consulting looked at purchase intent of c-store shoppers. The results: the percentage of coffee buyers who knew they were going to buy coffee when entering the c-store — 94 percent — was nearly as high as the percentage of cigarette buyers who planned their tobacco purchase.

"Putting up signage to trigger a coffee purchase isn't going to make as big an impact as, say, candy signage," Bishop pointed out. "But about one-third of the coffee buyers knew they were buying coffee, but didn't know ahead which size — so there are opportunities for merchandising when it comes to size."

The number-one item purchased with coffee in a c-store: a packaged sweet snack. A bit more than one-third of c-store customers bought them, Bishop noted. Second to the sweets: cigarettes. (Of course, since cigarettes are the predominant purchase in the channel, they are often bought with many other c-store items too.) The third-most purchased item with coffee was mints.

"This is a very routine, habitual [morning purchase] pattern developed by the consumer," he said. "A large majority of these customers are male, and working class. They need breakfast on the go and the caffeine to get them started."

Still, few c-store operators are emphasizing the cross-merchandising opportunities presented by the packaged sweets and mints. "There aren't that many stores merchandising them adjacent to the coffee or going with a shelf or countertop rack of nutritional or breakfast bars," Bishop said.

A number of operators, especially foodservice powerhouses like Sheetz Inc. and Wawa Inc., are battling quick-serve and quick-casual breakfast specialists head on. Sheetz Inc. Dotz Bakery items include cinnamon twists, Danishes, muffins, turnovers and more. Its Coffeez program includes four varieties of brewed coffee, plus a featured flavor, and Cupo'cinno, including a fat-free French vanilla and almond amaretto, among others.

Wawa Inc. sells more than 125 million cups of coffee each year at it 500-plus stores. Brewed fresh every 20 minutes, the coffee is available in 12- and 20-ounces sizes, in a variety of flavors, including a dark roast, Irish cream, chocolate macadamia nut, vanilla cream, caramel and others. The chain also sells a variety of cappuccinos, caramel steamers and, new to the menu, Cafe Latte steamers.

Wawa's hot breakfast program features Sizzli hot sandwiches, served on English muffins, bagels or biscuits, and hash browns. An extensive bakery line, made fresh and delivered daily to more than 540 Wawa Food Markets in Pennsylvania, New Jersey, Delaware, Maryland and Virginia, includes nine types of bagels, nearly a dozen different donuts, filled croissants, muffins, cookies and more.

"People are seeking convenience and speed in every aspect of their lives and the channels are blurring in terms of competition," said Lori Bruce, a spokesperson for the Wawa, Pa.-based chain. "Everyone wants to provide convenience. Our customers come to Wawa because they're seeking solutions and we fulfill that need in a unique way. Customers can get their morning paper, coffee, breakfast item, and fill up their tank or use the surcharge-free ATM."

Morning customers at BP Connect stores can visit the Wild Bean Café, which offers affordable, fresh foods like hot breakfast sandwiches, pastries and other baked goods, made in the store. A Wild Bean Café baker arrives every morning at 2:30 a.m. and early-shift café staff arrives at 5 a.m. to prepare the morning's fresh menu items. Baked goods are made twice daily at a minimum and replaced every four to six hours.

Beverages include a gourmet blend of Wild Bean Coffee, made fresh every hour, and cappuccino. Approximately 80 percent of the food offerings typically found at a dedicated quick-service bakery-style restaurant are offered at a Wild Bean Café, the company said. In fact, Au Bon Pain employees are consultants for Wild Bean Café's menu development, product sourcing, equipment design and on-going support.

At smaller operations, retailers with less ambitious programs are leveraging their locations and product variety to nab the breakfast customer. For example, at Prairie Mobil, in Prairie du Sac, Wis., approximately half of the breakfast customers are gasoline customers "who come for coffee and a donut, which they can get here for less than $1," said manager Sue Jaedike.

Jaedike estimates 40 percent of the stores' sales are made during the morning hours. A number of regulars come in for coffee and buy lunch to take with them, she noted.

Prairie Mobil's coffee program includes a few flavors of cappuccino, and syrups such as chocolate, Irish crème, vanilla, cinnamon and hazelnut. Along with 12-, 16- and 20-ounce cups, the store offers Mobil mugs for $1.99 and $2.99. "Most of our morning customers have a mug, because refills are only 25 cents," Jaedike said.

Doughnuts, which employees frost and display after thawing and serving, sell for 45 cents and 65 cents. The store also carries packaged banana and carrot cake, banana bread and other baked goods, selling at $1.10 each

"The muffins we cooked all looked the same, and you couldn't tell the blueberry from the cherry cheesecake," she said. "Now, the muffins have a good color and they're big — they catch the eye. We date them and they are always fresh."

Microwavable breakfast sandwiches also sell well, the store manager said. Employees preheat a few for the morning crowd.

"We constantly strive for the extra customer by trying new things. Sometimes they work, sometimes they don't."