McDonalds has been slowly reinventing itself over the last few years. Big menu changes and and healthier items have been a major part of that shift. Now the restaurant chain is doubling down on one its recent focus areas—breakfast. A few years ago McDonalds decided to make a handful of breakfast items available all day. The change was a hit with customers and investors and helped grow sales for the year. However, recently, McDonalds has blamed it for slowing sales as its morning business has actually weakened because consumers can get breakfast items all day. Now it is changing its tact by offering breakfast sandwiches starting at just a Dollar and offering extra-meat breakfast sandwiches all day.
FINSUM: It seems all day breakfast has cannibalized some sales for old Mickey D’s. The dollar menu approach in the morning should help.
McDonalds was understood to be in a bad position just a couple years ago. The company brought in a new CEO to try to revamp the business, bringing with him what was seen as a risky development plan. Well, that plan has worked splendidly judging by the company’s recent results. New measures included drink promotions, more options on sizing (e.g. with the Big Mac), and all-day breakfast, all of which have worked to boost sales. Same store sales were up 4% globally from last year in the first quarter, a big gain in what is a cutthroat restaurant environment. Analysts had expected only a 1.3% rise.
FINSUM: The strategy seems to be working and McDonalds looks like it is thriving.
This interesting article, published in the New York Times, chronicles both the long-term decline of the breakfast cereals business, and how the sector’s demise has hastened of late. Overall, cereal consumption has dropped 10% over the last decade, and some segments, like sugary cereals, have been hit even harder. The trend has been driven by a multitude of factors, particularly Millennials’ embrace of healthier foods and their like of snacking-on-the-go, the “paleo” movement, which involves the consumption of high levels of protein and unprocessed foods, and the desire of parents to have their children eat more nutritious foods in the morning. Additionally, business people have opted for foods they can eat while traveling, like protein shakes, smoothies, and myriad creations from local delis or fast food establishments. Cereal makers have responded with a rash of adjustments, including making gluten-free offerings, increasing protein content, and overhauling their marketing campaigns to appeal to the child-like nostalgia that might connect adult with their childhood cereals—50% of Cinnamon Toast Crunch eaters are adults, after all.
FINSUM: This is an interesting story about changing eating habits, but investors should be wary as the decline has really started to hurt the big cereal companies’ businesses. General Mills has managed to maintain sales by supplementing in other products, like yogurt, but Post Holdings and Kellogg have both seen their sales drop almost five percent.