Breakfast: The Incredible Eggspanding Market
The American Egg Board recently presented a webinar in partnership with QSR magazine titled, "Breakfast: The Incredible Eggspanding Market." Despite a lackluster performance from other dayparts, breakfast sales continue to climb and remain the major growth driver in foodservice.
Information presented and discussed by Warren Solochek, VP Client Development, The NPD Group/CREST®, and Maeve Webster, Director of Research & Consulting, Datassential Research, focused on consumer, economic, and menu trends, growth strategies, new competition, and some surprising insights into breakfast innovation.
The following are the top ten points made during the discussions and the participants' thoughts on each subject.
- QSRs gained two share points of morning meal visits between 2006 and 2011 at the expense of mid-scale outlets, which is a trend NPD expects to continue.
Warren Solochek from The NPD Group/CREST® states: Quick service restaurants now account for more than three out of every four visits to the industry and have picked up two share points of all morning meal visits. The other thing is there seems to have been a lot more innovation in both food and beverage at quick service which is bringing in more people.
The key thing is that while lunch and supper have not been strong, morning meal has continued to grow not only in visits, but also in dollars. I think that’s a huge positive and I expect there to be continued growth. In fact, we believe that morning meal will be the top growing daypart pretty much through the end of this current decade that we’re in.
- Penetration (percent) of restaurants currently menuing breakfast in the U.S. has been steadily rising, resulting in breakfast being more available now than it has ever been in the history of foodservice.
Maeve Webster of Datassential says: Practically all of this growth has been driven by QSR operators. The penetration of breakfast at QSR has risen from 37% in 2007 to 48% in 2011. (Note: this number includes fast casual). Nearly half of all QSR operators now offer breakfast, across a wide array of QSR and fast casual operators: hamburger, donut, bakery, coffee house. And one important thing to note is that some of the non-traditional QSRs are now getting into breakfast, which is in part driving this growth. Subway is a great example - some sandwich shops have not been in breakfast. So these new participants are driving the availability of breakfast up in the industry.
- Despite a very high penetration rate in total operations that serve breakfast, breakfast sandwiches have also enjoyed the fastest growth rate of any breakfast food item.
Maeve Webster of Datassential reports: Breakfast sandwiches have an extremely high penetration. About 61% of all operators menuing breakfast offer some type of breakfast sandwich. Despite that very high penetration rate, these items also have seen the fastest growth rate over the last four years, growing at about 102%. Given their penetration rate, that's enormous growth. So despite being nearly ubiquitous at breakfast they continue to grow. They offer a lot of different ways to incorporate proteins, flavor, sauces, and a lot of different ingredients. There’s a lot that you can do with the product, so there’s really no end to how many breakfast sandwiches can be offered.
- Breakfast patronage is very habitual, and innovation is the key driver to developing the loyalty that creates the habit.
Warren Solochek from The NPD Group/CREST® states: The first driver for people to go out for breakfast is loyalty, which you can translate as habit. Once I visit you and you interest me, I return over and over again. Number two is to get something that I either can't or won't make at home. I could make my own breakfast sandwich, but I have to have all the ingredients and be willing to wake up earlier to make it. And the third is convenience. I need to be able get in and out and back on my way. So these are what drive us to return repeatedly to a specific location in the morning.
If you want to get into morning meal or expand an existing program, the key is building loyalty and the way to do that is innovation. Innovation can be food, beverage, or unique promotions, but that's what's going to attract and keep a person coming back.
- Whereas lunch and dinner innovation tends to trickle down from fine dining, breakfast innovation may soon come from a new and agile competitive segment: food trucks.
Maeve Webster of Datassential mentions: When we look at innovation, we're talking about how unique an item is and traditionally for other menu categories innovation begins in the fine dining segment. For breakfast it's much different because fine dining operators do not represent a large share of operators currently playing in breakfast. The area where we’re beginning to see more of that uniqueness is actually among food trucks. Despite the unbelievable growth of food trucks in this country, very few currently are offering breakfast, so their growth potential for the breakfast day part is significant. I would absolutely anticipate in 2012 that we're going to see more and more food trucks adopting the breakfast daypart to one degree or another. So I think that a lot of that innovation that we typically see from fine dining operators is actually going to happen at the food truck level.
- Although increasing competition from fast casual operators adds pressure on QSRs to keep/grow their sales, it also boosts consumer attention given to the daypart.
Warren Solochek from The NPD Group/CREST® responds: Fast casual today accounts for about 5% of all visits to quick service and that number continues to grow. Now interestingly, if you think about fast casual restaurants, not a lot of them focus yet on morning meal. A lot of them are much more focused on lunch and supper, not so much on morning meal. It's an opportunity for them and I think a number of them are looking more closely at that daypart which will only make morning meal more competitive. That's the bad news. The good news is there will be more news and noise in the industry about morning meal, which should make morning meal as a whole, increase.
- The erosion of traditional dayparts makes expansion of hours in which breakfast foods can be ordered a profitable option for many operators.
Maeve Webster of Datassential states: I absolutely think that more and more operators will begin to have breakfast items available all day, or if not their entire breakfast menu, certainly a share of that menu available all-day. And there are two reasons for that. One is that these items are extremely profitable and are at a fairly lower price point so they can appeal to consumers regardless of what time of day, while also appealing to the operator because they make a larger profit on most of those items. The other thing with breakfast is that a lot of items work very well as snacks and that allows you to have a snack menu without creating whole new items that are snack-specific.
- Limited time offers (LTOs) will play a major role in making important leaps forward in breakfast menu development.
Maeve Webster of Datassential mentions: One of the ways operators are increasingly experimenting with items that may be different from what they currently menu, is they're turning to LTOs. LTOs are playing a greater and greater role in the industry overall, and what we're going to see with the QSRs is a significantly increased LTO activity at breakfast. Breakfast is going to play an increasingly larger role for the QSR/fast casual segment, so we expect their LTO activity to pick up significantly, particularly with those who are just beginning to dive into breakfast or are beginning to experiment with the daypart.
Warren Solochek from The NPD Group/CREST® says: LTOs are door openers. If you’re introducing a new item or a new variation, you want to put it in - at least temporarily - at a lower price point to get people to come in and try it out. So it helps drive trial.
- Prices in the morning daypart have been rising significantly faster than prices on the lunch and dinner menus in both quick service and mid-scale operations.
Maeve Webster of Datassential reports: Certainly a major appeal of the breakfast daypart is the profit margins that are available, which is what is driving operators that have not been playing in the breakfast daypart to get into it. Interestingly, increasing competition has not driven prices down here, but rather, in both the QSR and mid-scale segments the price of breakfast items has grown far faster than the price of entrees in lunch and dinner. In fact, for QSR breakfast entrees the price has grown by about 28% over the last six years versus 18% in other day parts. So those items that are available at breakfast tend to have far higher profit margins than are available to operators in other dayparts, and that makes the breakfast daypart extremely appealing.
- The fact that the two groups hardest hit by the economy today are young - those under the age of 25 and those aged 25 to 34 - may result in “echo” sales repercussions into the future.
Warren Solochek from The NPD Group/CREST® mentions: Those under the age of 25 have been hit hard by unemployment. These are the most frequent users, meaning more visits per capita than older age groups. But without jobs, it’s difficult to continue that high level of frequency. The other group that’s been hit hard is those between 25 and 34. Those are the people who start to bring young kids to restaurants, so we’ve seen parties with kids become less of a factor within the restaurant industry.
Looking at this trend, it’s clear to see why the group that has cut back the most are under 35. The biggest thing of concern to me is that once the economy turns around, will these individuals go back to using restaurants more often or will they (and their children) continue to eat a greater percentage of their meals at home? I think that’s the issue.