Wendy's breakfast launches nationwide. Here's how it's trying to steal McDonald's customers - CNBC

A customer exits a Wendy's Co. fast food restaurant in San Antonio, Texas.

Callaghan O'Hare | Bloomberg | Getty Images

DUBLIN, OHIO -- In a crowded field of competition, Wendy's strategy to win over breakfast customers includes spending big on advertising and poking fun at rivals.

Within the fast-food industry, breakfast is the only meal that is seeing more customers return to restaurants compared to a year ago. For chains like McDonald's and Dunkin', the early morning meal plays an important role in their overall business. Breakfast accounted for 16% of fast-food chains' traffic in the 12 months ended Nov. 2019, according to data from the NPD Group.

"As restaurants, and especially when you talk about a breakfast war, you tend to be competing for consumers that are already breakfast consumers. The challenge is to expand that pie," Technomic senior principal David Henkes said.

Wendy's is betting that breakfast will eventually account for 10% of its U.S. sales. To drive those sales, Wendy's will use national advertising campaigns to promote the meal for the first time, starting Monday to coincide with the nationwide launch. Its past attempts at breakfast never expanded beyond regional tests, which meant it could only use local advertising to draw in customers.

Wendy's CFO Gunther Plosch told analysts on Wednesday that the chain plans to spend between $70 million to $80 million in 2020 on advertising for breakfast, increasing its total media spend by about 30%. The company will contribute between $40 million to $50 million. The chain is not planning on pulling any advertising dollars for lunch or dinner.

Other fast-food chains that serve breakfast are expected to step up their own marketing to compete with Wendy's.

"There's clearly a renewed vigor in defending each restaurant chain's turf," Henkes said.

McDonald's, which has been trying to reverse weak breakfast traffic trends, started offering a national 2 for $4 promotion Feb. 24 on several of its breakfast sandwiches. The Chicago-based company has declared Monday "National Egg McMuffin Day" and plans to give away free Egg McMuffins.

"We have to win at breakfast," McDonald's CEO Chris Kempczinski told analysts in late January. "There's obviously a lot of focus and attention that we're going to be putting on that in 2020."

Wendy's anticipates that more breakfast rivals will discount their food and coffee to stave off competition from the new entry.

Kurt Kane, Wendy's U.S. President and Chief Commercial Officer, in the Wendy's Innovation Center.

Source: CNBC

"We fully expect our competitors to start discounting," Wendy's U.S. President and Chief Commercial Officer Kurt Kane said in an interview. "The good thing for us is that every discount they offer takes profitability out of their franchisees' pockets and out of their own restaurants."

Henkes said that McDonald's price promotions will put certain limitations on what Wendy's or other breakfast players will be able to charge for their items.

"If things turn into a price war, McDonald's is able to compete on price better than anybody," he said.

Competition from newcomer Wendy's could also spur on more new breakfast items from other chains.

Wendy's own plan to win over consumers includes stealing away customers from other fast-food chains. Earlier in February, the chain tweeted several videos that featured McDonald's former corporate chef Mike Haracz trying — and raving about — new Wendy's breakfast items. Wendy's began running a TV commercial this week featuring Haracz.

"We love whenever we get a convert from McDonald's that comes over to support our food because they know it's so much better than what the Frozen Arches might be selling everyday," Kane said.

Wendy's is using its cheeky social media presence to promote breakfast in other ways. The company's Twitter account went private on Wednesday. Followers gained access to an exclusive deal for a free Breakfast Baconator delivered by DoorDash with any $5 order.

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2020-03-02 13:25:00Z
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