Here’s How McDonald’s Is Ensuring That “All Day Breakfast” Remains A Winner

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After it was launched in October last year, McDonald’s (NYSE:MCD) “All Day Breakfast” has been a critical piece in its turnaround strategy. It has helped significantly in improving the company’s top line and comparable store sales in the U.S., which increased nearly 6% in Q1 2016 after McDonald’s starting serving breakfast menu items throughout the day. The company is now expanding its All Day Breakfast menu by adding Biscuit Sandwiches, McMuffin Sandwiches and McGriddles to its national menu, starting September this year. McDonald’s will now have one national All Day Breakfast menu with a wider variety of menu items which should attract more consumers. The company is also working on other improvements such as moving from margarine to real butter and transitioning to cage-free eggs.  McDonald’s is addressing concerns around All Day Breakfast waning by including popular menu items such as McGriddles and we believe a wider choice of breakfast items available all day should positively impact its top line and profitability.

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Inclusion Of Popular Menu Items to Ensure Strong Demand

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While “All Day Breakfast” was introduced due to a strong consumer demand, concerns around demand for breakfast items reducing post breakfast hours remain. This initiative is still at an early stage and the company has to ensure that its popularity does not fade away with the passage of time. Expanding the breakfast menu and ensuring that popular breakfast items are available throughout the day can ensure that the demand remains strong and this strategy continues to drive revenues for McDonalds.  McGriddles which is now being added to the All Day Breakfast menu is one of McDonald’s most popular breakfast items and accounted for nearly 40% of the company’s same store sales growth in the U.S. when it was launched in 2003. A limited all day breakfast menu, especially the absence of biscuit sandwiches and McGriddles had led to disappointment among several customers, when this initiative was launched in October last year.  Inclusion of these menu items should now please some more customers and attract them to McDonald’s restaurants, throughout the day.

We expect annual customers per McDonald’s restaurant to increase gradually from around 650,000 in 2016 to nearly 675,000 by the end of our forecast period.

If the company is able to attract more consumers through an expanded and popular All Day Breakfast menu, a faster pace of increase in this metric can lead to an upside in our price estimate.

McDonald’s is working on a dual strategy of introducing high priced gourmet/healthy menu items such as burgers with fresh patties and salads to attract health conscious customers and improve profitability. At the same time the company is also ensuring that its low priced breakfast menu items are available throughout the day to compete with players such as Wendy’s who offer value meals. While the low priced items can impact the bottom line of the company negatively, attracting more customers to its restaurants can drive sales of other high priced items as well. It is McDonald’s strategy to ensure that consumers are attracted to its restaurants through both menu innovations and insuring the availability of popular menu items throughout the day.  Both moves, in our view, will continue to drive revenues for the company.

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