Why management is focusing on the breakfast menu for Taco Bell



Breakfast menu as a catalyst

Many restaurant chains in U.S. are desperately looking for ways to grow same store sales and revenues. The U.S. market is developed and the room for growth is limited. Big players, like Burger King (BKW), are revamping their whole brand. In contrast, McDonald’s (MCD) and Yum! Brands (YUM) have introduced a breakfast menu to generate incremental revenues.

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The breakfast menu was introduced in a Taco Bell in March, 2014. As the quarter ended in June, 2014, the breakfast menu was introduced in 20% of the locations, which was 229 restaurants. Taco Bell’s ad for the breakfast menu  shows a person by the name of Ronald McDonald’s. According to The New Yorker, the fine print reads “These Ronald McDonald’s aren’t affiliated with McDonald’s Corporation and were individually selected as paid endorsers of Taco Bell breakfast, but man, they sure did love it.”

Operating leverage

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With a location and staff that serves food during peak hours such as lunch and dinner, it makes a lot of sense to use this resource to increase customer visits during non-peak hours as well. In turn, this would generate incremental revenue without having to incur the costs of new locations and hiring new staff. The breakfast menu is a result of this ideology. Yum! Brands (YUM) recently introduced the breakfast menu to Taco Bell. McDonald’s (MCD) has had a breakfast menu for the past eight years. An investor can gain exposure to the entire restaurant industry by investing in exchange-traded funds (or ETFs) like the PowerShares Dynamic Leisure and Entertainment ETF (PEJ) and the PowerShares Dynamic Food and Beverage ETF (PBJ).

Potential revenues

With the breakfast menu expected to use the existing resources, management expects $70,000–$120,000 annualized revenues per unit. Before the launch of the breakfast menu, per unit revenue for Taco Bell as of 1Q14 was $438,000 and after launch it was $491,000 as if 2Q14 end. This was a total increase of 12% in sales. With that increase it would be interesting to watch how the breakfast menu performs in the coming years.


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