- Wendy’s is rolling out breakfast in 2020, reigniting a brutal war between fast-food rivals.
- Wendy’s will need to capture at least $US1 billion in breakfast sales from fast-food competitors to break even, according to BTIG.
- The last time Wendy’s attempted to launch breakfast, McDonald’s countered with aggressive advertising and deals in test markets, strangling the launch before it went national.
- Analysts are split on Wendy’s chances of beating breakfast rivals in 2020.
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As Wendy’s enters the battle for breakfast, analysts say that competitors – lead by McDonald’s – will have their knives out.
In September, Wendy’s announced plans to relaunch breakfast nationally in 2020.
The chain said that it plans to invest $US20 million in the relaunch and will hire 20,000 new workers to open locations earlier for breakfast. Cowen analyst Andrew Charles estimates that the company will spend an additional $US250 million to promote its breakfast in ads over the next two years.
For Wendy’s to break even, it will need to capture “at least $US1 billion of breakfast sales from its quick service peers, whom we expect will fight back vigorously with discounts, innovation and advertising,” BTIG’s Peter Saleh wrote in a note to investors last week.
McDonald’s is expected to lead the assault against Wendy’s
Nine years ago, Wendy’s tried to launch a breakfast menu by rolling out breakfast in hundreds of locations. McDonald’s purchased advertising in test markets and aggressively discounted breakfast locally to keep potential customers away from Wendy’s. In 2013, Wendy’s admitted defeated and shelved plans to roll out breakfast across the US.
In a note stating that the “breakfast battleground” is “not for the faint of heart,” Gordon Haskett’s Jeff Farmer argues that Wendy’s has learned from this past failure and adapted its game plan for the 2020 launch.
Instead of launching in test markets, where rivals can spend big to kill the test before it goes national, Wendy’s locations across the US will all roll out breakfast at the same time. Wendy’s has also simplified its breakfast menu, which will use fewer ingredients and won’t require major changes in locations’ kitchens – unlike in 2010, when locations had to install $US25,000 in new kitchen equipment.
If Wendy’s succeeds, it could have a big impact on the chain and the fast-food breakfast battleground more generally. BTIG estimates that breakfast sales could make up more than 10% of locations’ sales; Cowen estimates that breakfast will boost same-store sales by 5% in 2020.
Analysts are split on if Wendy’s can win the breakfast war
Cowen’s Charles isn’t optimistic about Wendy’s breakfast.
“Breakfast does not provide Wendy’s a competitive advantage, and thus does not lend visibility on either enduring sales growth or a growth plan with lower investment needs,” Charles wrote in a note on Monday. “We compare this to McDonald’s aim to create a holistic, digital drive-thru experience in a proprietary fashion through recent digital acquisitions, and Burger King’s lead with plant-based proteins.”
Gordon Haskett’s Farmer has a more optimistic view of Wendy’s return to the breakfast battleground.
“Wendy’s, in making another run at the breakfast daypart, is walking into arguably the most challenging market share battleground in the restaurant sector – but with critical lessons learned from past attempts and what we believe is a more resolute franchise group,” Farmer wrote last week.
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