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February 24, 2014

Taco Bell to take on McDonald's breakfast with eggs in waffles

Americans will soon be able to get their morning eggs wrapped in a waffle taco.

Yum Brands' Taco Bell chain will introduce breakfast foods such as waffle tacos, egg burritos and the bacon A.M. Crunchwrap nationwide on March 27. The move expands on a trial run that began in some locations in 2012, bringing a breakfast menu to 5,500 of Taco Bell's more than 5,700 U.S. restaurants.

 In pursuing morning diners, the chain is going up against McDonald's, the maker of the Egg McMuffin and the industry's top breakfast seller, said Bob Goldin, an executive vice president at Chicago-based industry research firm Technomic. McDonald's accounts for 31 percent of all fast-food sales in the morning, according to Technomic data.

"No one has come up with an Egg McMuffin killer," Goldin said in an interview. "It's an iconic product; it's hard to compete against."

For Taco Bell and other chains, breakfast represents a bright spot in an industry battered by competition and slumping consumer confidence. At fast-food and fast-casual restaurants, revenue from breakfast items grew 4.8 percent annually on average from 2007 to 2012, climbing to $31.7 billion, according to Technomic. That outpaced total sales growth of about 2.5 percent a year during that time.

As chains struggle to attract diners and boost same-stores sales, McDonald's and Burger King Worldwide have said they're focused on improving and advertising their morning menus. Starbucks also plans to revamp its breakfast sandwiches next month.

Taco Bell began testing breakfast foods in some locations about two years ago, offering items such as scrambled egg- stuffed waffles. Taco Bell's test items, which will now be offered nationally, include the $2.49 bacon A.M. Crunchwrap, which packs 650 calories, and a $1.79 coffee. That's pricier than the fare at McDonald's, which sells sausage burritos, sausage biscuits and cups of coffee for $1 each in its 14,100 U.S. restaurants.

Most Americans aren't willing to spend more than $3 on a fast-food breakfast, Goldin said. It's hard to challenge McDonald's, where "you can get breakfast really cheap."

Past attempts at selling breakfast food haven't gone well. Wendy's tested morning foods such as home-style potatoes and chicken biscuits in certain U.S. markets from 2010 to 2012. The company said last year that it was discontinuing breakfast because it wasn't satisfied with its financial performance.

Shares of Louisville, Ky.-based Yum, which also owns KFC and Pizza Hut, have decreased 3.7 percent this year through the close of trading last week. McDonald's, based in Oak Brook, Ill., is little changed this year, while Burger King has gained 14 percent.

Like Taco Bell, Burger King is trying to boost sales by appealing to consumers in the morning. In January, the Miami- based company gave away free cups of Seattle's Best coffee when customers bought one of their 18 different breakfast sandwiches. They also sell French toast sticks, sausage burritos and fruit smoothies.

"Breakfast is an opportunity," Alexandre Macedo, president of Burger King's North American unit, said during an earnings call earlier this month. "We started to work in breakfast in January, and we expect to continue to do that by the end of the year."

Burger King posted a 0.2 percent fourth-quarter gain in same-store sales in the U.S. and Canada, a better performance than McDonald's and Yum, which both reported declines.

"Doing breakfast right is very difficult," said Gary Stibel, founder and chief executive officer of the Norwalk, Conn.-based New England Consulting Group, which has advised restaurants such as McDonald's and Taco Bell in the past. It's not just about the menu, he said. Speed is critical.

"You've got to be able to get people in and out," he said.

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