McDonald's says it's up to breakfast challenges

McDonald's Corp. said Thursday that it is prepared to defend the Egg McMuffin's 30-year reign as breakfast champion from an old rival and as many as three fast-food challengers.Jim Skinner, McDonald's chief executive, told shareholders attending its annual meeting at the company's Oak Brook headquarters that the chain is exploring expanding its dollar menu, currently limited to lunch items, to include the first meal of the day. That would counter Burger King's $1 breakfast menu and its version of the Egg McMuffin, a ham omelet sandwich.Breakfast is the fastest-growing category in the restaurant business, expanding at about 9 percent per year, as time-pressed consumers opt to grab something on the go rather than fix breakfast at home. McDonald's holds about a 40 percent market share in the breakfast category.In addition to Burger King, McDonald's soon could be facing increased competition from Subway, Taco Bell and Wendy's, all of which are testing breakfast products.Wendy's has said that its breakfast test, at 160 restaurants, is to be expanded to 20 percent to 30 percent of its 6,600 restaurants by the end of the year.Subway is testing a toasted breakfast sandwich at 7,000 outlets that offer breakfast, while Taco Bell is testing a breakfast program in four markets. No date has been set for either to expand nationally.Taco Bell spokesman Rob Poetsch said the chain, which is offering breakfast burritos and soft tacos, wants to "distinguish ourselves from the biscuit and muffin crowd."McDonald's is facing competition at breakfast from Dunkin' Donuts and Starbucks, which are better known for their coffee than their food.Ralph Alvarez , McDonald's chief operating officer, warned the newcomers would find it is more difficult to deliver breakfast than it is to develop the menu."Breakfast is not as easy as it appears," he said, citing a host of challenges ranging from staffing and training to choosing restaurant locations."Driver's don't make left turns," he said, explaining that breakfast diners are in such a hurry they might stop at only the most convenient locations.Bob Goldin, executive vice president of Technomic Inc., a food research and consulting company, said the challengers are not likely to have much impact on McDonald's breakfast business."McDonald's is going to fiercely defend its well-earned turf," he said. "It has earned a tremendous amount of equity in the business that is going to be tough to dent."In addition, Goldin noted that the company is going to become more formidable when it rolls out a 24-hour breakfast menu.McDonald's is testing grill systems in Romeoville that would allow its operators to offer breakfast around the clock, rather than the current system that requires them to stop breakfast to make way for its burgers."We feel pretty good about breakfast," said Don Thompson, president of McDonald's USA.The comments about breakfast came as the world's largest restaurant chain, which slowed growth in 2003 to about 1 percent annually to focus efforts on expanding sales at existing restaurants, is planning to increase the speed of its expansion to about 1.3 percent annually. The company is planning to add 800 new restaurants and remodel 2,000 worldwide this year.Most of that growth is to be concentrated in Russia and China, where the mantra has become "better and bigger," said Tim Fenton, head of McDonald's Asia, Middle East and Africa business. The company plans to add 100 restaurants, a 12 percent growth rate, this year in China, where it runs about 800 outlets.In the U.S., growth is to be limited to about 200 new restaurants, said Matthew Paull, executive vice president and chief financial officer. McDonald's operates 13,800 units domestically. ---------- jschmeltzer@tribune.com