- Restaurants have lost breakfast sales as far fewer people make a morning commute and need fast food options during the pandemic.
- At the same time, big food companies, like cereal maker Post Holdings, have benefited as more consumers eat at home.
- As society hopefully opens up again in 2021, restaurants will be competing against many big food companies for consumers' daily breakfast budgets.
- While restaurants are eager to bring back full breakfast menus and spend to promote them, food companies say they have new products in the pipeline to cater to on-the-go consumers and retain the customers they've won during the pandemic.
- Visit Business Insider's homepage for more stories.
The US's largest restaurant chains have been trying to one-up each other with their breakfast offerings in recent years.
But thanks to the pandemic, another group of contenders has entered the battle for breakfast: Makers of cereal, oatmeal, and frozen sausages.
Breakfast sales at quick-service restaurants like McDonald's and Wendy's cratered in 2020 as far fewer consumers made morning commutes. Instead, many stayed at home to work, which led to more purchases of packaged foods that are easily prepared at home.
Read more: The pandemic caused the restaurant industry to radically reinvent itself in less than a year. Experts say these 4 trends will remain even after COVID-19 recedes.
Going into the new year, restaurants will try to claw back at least some of those lost sales, particularly if vaccinations against coronavirus become widely available and consumers feel comfortable being in public places again, said RJ Hottovy, an analyst at Aaron Allen & Associates, a restaurant consultancy.
"Competition for breakfast is probably going to be pretty intense coming out of COVID," Hottovy said. He pointed to "competition among restaurants, but also competition among those players taking share in this environment," including major food manufacturers.
The most profitable meal of the day
For restaurants, breakfast items play a key role. Coffee, egg-based sandwiches, and similar items tend to be the most profitable on the menu, Hottovy said. That's a big part of the reason many quick-serve chains were expanding their breakfast lineups before the pandemic: Wendy's, for instance, launched a breakfast menu in the US in March, just as COVID-19 was emerging.
"It's been a disproportionate hit because these are higher-margin products," he said. "It's not only hurting the top line but certainly hurting the bottom line as well."
Coffee also serves as a way to draw customers to quick-serve restaurants, then restaurants aim to entice them to order food to go along with it. Ian Frederick Borden, McDonald's President of International, called coffee "the greens fee to get customers into the restaurants or into the breakfast channel" during a presentation in November.
But the pandemic has thrown a wrench in that strategy, forcing many chains to rethink their offerings, at least temporarily. McDonald's has suspended its all-day breakfast menu since March in an effort to streamline operations at its restaurants and focus on the rest of its menu, which has been selling better over the past several months. And restaurants like Panera Bread and Starbucks have emphasized specialty beverages and mid-afternoon snacks in a bid to make up for lost breakfast sales.
Packaged food makers, on the other hand, have benefited as restaurants have suffered. US sales of cereal and granola at retailers were up 7.2% for the 52 weeks through December 12, an improvement over the 1% decline for the same period one year earlier, according to data from Nielsen. At $12.5 billion, the category was the largest group of breakfast foods by sales.
Retail sales of other breakfast foods, such as eggs, bacon, breakfast sausage, and English muffins also grew significantly during the year-long period.
Food companies are trying to keep the sales they've gained
Those results have been welcome at companies like Post Holdings, the consumer division which makes cereal brands from Grape Nuts to Malt-O-Meal and Raisin Bran. It reported that its consumer sales grew 4% during the fiscal year that ended in September. Those sales were also were profitable than the year before thanks to manufacturing efficiencies.
While modest, those gains mark an improvement from the recent past, when Post and other cereal makers were dealing with declining cereal sales as consumers looked for more on-the-go options like granola bars.
This year, Post's results have benefited from more people eating breakfast at home, said TD Dixon, the chief growth officer at Post Consumer Brands. But the company is planning for habits to change again in 2021 as people start commuting again.
"That was one of the issues that created the downward spiral of cereal in the first place," he told Business Insider in an interview. "Breakfast became forgotten because in our hustle-and-bustle lives, and we don't really think about breakfast until nine o'clock."
"Folks are actually sitting down again and having breakfast together," Dixon said. "What we are preparing for now, though, is that, when life gets back to normal, folks will be back out of the house." Post is considering new product launches for next year that will be more portable, he added.
PepsiCo's Quaker Oats introduced new flavors of its instant oatmeal during the pandemic, hoping to keep the attention of customers who purchased the brand for the first time as they searched for at-home breakfast options. Robert Rietbroek, the brand's top executive, told Business Insider that Quaker is betting that at-home breakfast consumption will remain higher than it was before the pandemic as more people work from home permanently, even after it's safe to be in offices again.
Whether the food companies can hold their gains will depend on whether people resume their pre-pandemic habits once vaccines are widely available. Hottovy said he expects diners to return to restaurants once that happens.
That rebound may already be occurring. Operators including McDonald's reported fall breakfast sales have improved over the spring and summer.
But restaurants will need a clearer reversion to pre-pandemic normalcy to succeed in breakfast, NPD Industry Advisor David Portalatin said in October at a conference hosted by Sanderson Farms, which supplies chicken to fast-food restaurants.
"You need people to go back to work, and we need to be dropping off kids at school and all of those things," he said. "Those are the things that help foodservice breakfast recover."
Source: Read Full Article