Subway Joins Breakfast Battle Of Titans

Subway Breakfast sandwichesThe already intense competition for the declining but high-margin breakfast market is about to be pushed up several notches, as the nation's second-largest restaurant chain, Subway, joins the fray.  


Subway, which has been testing a breakfast menu in some U.S. cities and debuted the options in its approximately 2,000 Canadian units March 1, announced that it will roll out the menu in nearly all of its 23,000 U.S. locations as of April 5.

In line with its sandwich positioning, the chain's breakfast menu offers customizable omelet sandwiches featuring eggs or egg whites (reportedly cage-free eggs, pleasing animal rights organizations) plus cheese. Choices include varieties with ham, bacon or steak, vegetables and condiments offered on the lunch menu, and several breads (flatbread, English muffin or the chain's sub breads). Prices range from $1.75 for muffin melts to $6 for foot-longs.



In addition to testing its breakfast menu, Subway set the stage by introducing the Starbucks-owned Seattle's Best Coffee brand in 9,000 of its U.S. units and 800 Canadian units by year-end 2009, and continues to roll out that offering. The chain's advertising for its breakfast rollout is starting this week, according to Associated Press.

Subway ('09 U.S. sales of $10 billion, per foodservice consultancy Technomic, Inc.) is clearly taking on McDonald's, which is not only #1 in total sales ($30.9 billion '09 U.S. sales, also per Technomic), but the reigning breakfast king.

Various analysts have estimated that breakfast accounts for about 25% of McDonald's U.S. sales, and the chain has moved aggressively to protect its turf as high unemployment has cut into the breakfast market. (Breakfast/brunch sales fell 3.4% between 2007 and 2009, according to Mintel.) In addition to introducing its McCafé premium/specialty coffee offerings last year, the chain recently launched a breakfast Dollar Menu.

McDonald's has been gaining share within the shrinking breakfast market, a spokesperson told Crain's Chicago Business/AP. And while McDonald's actually has fewer U.S. locations (about 14,000) than Subway, Technomic president Ron Paul points out that its ubiquitous drive-throughs also constitute a major competitive advantage in the harried breakfast daypart.

Adding that Subway "hasn't really broken through yet" with its Seattle's Best offering, Paul notes that it's possible that Subway's breakfast initiative could have more of an impact on Burger King and other competitors than on McDonald's.

Burger King, which also has a breakfast value menu (and is also now featuring Seattle's Best on its menu), and Starbucks, which last year rolled out more affordable breakfast combo options, have been McDonald's primary competitors up to this point.

And formidable as they are, these brands are, of course, also competing with Dunkin' Donuts, Wendy's, Hardee's, Carl's Jr. and even Taco Bell -- not to mention 24/7 breakfast option chains including IHOP, Jack in the Box and Denny's -- among a long and growing list.

Furthermore, while the battle is in many respects all about the profitability of breakfast items, given the relatively low costs of their makings, the fevered competition has cut into those margins by forcing chains to compete on pricing. (Witness Burger King's new TV spot in which "The King" is shown breaking into "McDonald's HQ" and making off with the "plans" for the Egg McMuffin. Voiceover: "The new BK Breakfast Muffin Sandwich ... It's not that original, but it's only a buck.")

Nor is that the full picture. As Kevin Coupe, editor of retail newsletter/site, points out, Subway and all chains fighting for breakfast dollars are not only competing with McDonald's and each other, but with every company that sells "cereal, milk, bananas, yogurt, frozen waffles, etc."

Referencing the remarks of Sara Lee SVP/CMO Philippe Schaillee at the recent Symphony IRI Summit, Coupe points out that "even while drilling down to get more specific about customer needs and preferences, it is critical for marketers to take the broad view of the marketplace, keeping a contextual view of meal opportunities and fighting for as much share of stomach as possible."

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