Launching a national breakfast platform at Taco Bell this year has become a big success story for parent company Yum! Brands, Inc. In just over six months, the day part generates 6% of the chain’s sales mix.
“I would go so far as to say we are one of the very few companies in the history of the Q.S.R. industry to launch breakfast successfully and profitably in year one,” said David Novak, chairman and chief executive officer, during an Oct. 8 call with financial analysts to discuss third-quarter earnings. “Not only are breakfast sales largely incremental, but we are making money and sustaining it with margins of nearly 21% in the quarter.”
Negative publicity over a food safety scare in China weighed on third-quarter performance during what Yum! had previously called its comeback year. Net income in the quarter ended Sept. 6 increased 166% to $404 million, equal to 91c per share on the common stock, which compared with $152 million, or 33c per share, in the prior-year period. But revenues fell 3.2% to $3,354 million from $3,466 million in the comparable quarter.
While U.S. results were flat at KFC and declined at Pizza Hut, Taco Bell outpaced quick-service industry performance with a 3% increase in U.S. same-store sales. The morning meal platform has added “muscle” to the Mexican fast-food chain, Mr. Novak said.
“It has killed me for years driving by all those McDonald’s that are full and before we even open up our doors,” he said. “So I think this is like taking our awareness and taking our usage of breakfast up over time; it is like the biggest new product we could have ever introduced to grow the base business. The trade-off, the margin trade-off between lunch and dinner, isn’t that significant for us. So we are able to leverage the box, and that is the name of the game.”
Taco Bell also recently introduced its Dollar Cravings value menu with early positive results, and is set to launch mobile and digital ordering in the fourth quarter.
And recently the chain announced plans to expand its breakfast menu, which debuted in March with the Waffle Taco and A.M. Crunchwrap, by adding higher-protein items, including a Greek yogurt parfait, a steak and egg bowl and a steak and egg burrito.
“Everybody thinks Taco Bell has a great late-night business, Fourth Meal,” Mr. Novak said. “Our Sunday, Monday, Tuesday breakfast is higher than our late-night business. So, we are building a pretty damn good business that is only going to get better as we go forward, and I am glad that we have it in our arsenal.”