McDonald's Corp. today launches the second phase of its All Day Breakfast initiative, called ADB 2.0. Consumers now will be able to order the whole breakfast menu--muffin, biscuit and McGriddle sandwiches--all day, although the entire McDonald's menu (including breakfast) has been pared down once again, eliminating a few items such as the Steak, Egg & Cheese Bagel. Tim Andersen, VP-U.S. Operations for McDonald's Corp., spoke with BurgerBusiness.com about the challenges of ADB 1.0, the possible opportunities with ADB 2.0 (a burger with egg? a BLT?) and how McDonald's continues to learn what consumers want and how to give it to them.
What does All Day Breakfast (ADB) 2.0 provide that the first phase launched last October did not?
It became very apparent when we were in development that as much as customers preferred muffins on the West Coast, they preferred biscuits in equal proportion on the East Coast. It would have been easier for us to go down one path but we knew we needed to offer biscuits in that 20% of restaurants [primarily in the Southeast].
This past year the majority of the U.S. has had muffin-based sandwiches and that 20% has had biscuits. Now the whole country will have all three breakfast sandwiches: biscuits, muffins and McGriddles. There are three sandwiches in each of those product lines so it will be a total of nine across the U.S., plus the Sausage Burrito and hotcakes that everyone had last year.
You do have some regional breakfast products, like biscuits and gravy in the Southeast. Do those regional products become all-day products where they're served now?
If the market chooses to do so. We had two test markets on ADB 2.0: one in Tulsa, the other in Raleigh, N.C. Both of them introduced biscuits and gravy and one found it to be very successful for them. That would be Raleigh, a strong biscuit market, so they'll continue it. I think we'll have some markets that will do it and, for them, it will be an all-day breakfast item. We want to serve what our customers want.
Some other markets are trying Chicken Sausage McGriddles, correct?
Yes, Ohio introduced that in a limited number of restaurants and there's some interest there. If it's interesting to our customers, we will see expansion of that as well.
Initially when you split the country between muffin and biscuit markets, was that done for taste preferences or for operational ease?
It was all about the customer. It would have been easier to have muffins across the U.S. operationally. We ended up writing two training manuals: one for muffins and one for biscuits. We weren't going take a significant part of the country that prefers biscuits and try to persuade them that they should prefer muffins. That wasn't going to work.
It was part of the epic challenge we went through. It wasn't easy internally [to split the menu] but ultimately it was the right thing to do then.
From an operations point of view, what was the biggest hurdle you had to overcome to ensure that ADB 1.0 was going to work from the start?
We knew it was the biggest thing we could do for customers. From research we had done and from social media we saw the frustration of customers, who were saying, "I can get an egg McMuffin at 10: 25 a.m. but not at 10:35. What do you with the eggs? Lock them up?" They couldn't understand the complexity of why they couldn't enjoy that.
I found a memo from 1973 that [McDonald's Corp. founder] Ray Kroc wrote when they first introduced the Egg McMuffin in 1971, and he asked, "When should we sell it to our customers? Should it be breakfast? Should it be all day? Should it be breakfast and dinner?" So we've been talking about this for 42 years.
But the biggest challenge was grill space. As when you cook at home, there's only so much you can do at once. There's such a healthy halo from our breakfast that many people were concerned that we would compromise it by making breakfast all day. We realized we couldn't do it with the equipment we had. We had to have a toaster and a griddle or egg cooker to give us the same great quality and not interrupt the hamburger business for the rest of the day.
At home if you try to cook different things at different temperatures [at the same time], one of them is going to be compromised. What we see a lot with competitors when we're out in markets is that the egg is usually over-done. We weren't willing to go there without investment and knowing we could do it right.
We tested [ADB] in three markets, starting in San Diego in April [2015] and we had incredible response. Our operators realized this was something they could do and champion. But there also was a certain amount of our system who said, "No. Southern California is different than anywhere else. I don't know if it will work in Minnesota" or wherever. So we did two additional test markets on our journey to rolling it out.
Does full-menu ADB require additional equipment beyond the toaster and egg cooker?
No. But the biscuit markets didn't need to add the toaster last year because they weren't toasting but this year they need it because they're toasting muffins [all day]. Some restaurants that didn't think they needed a [dedicated] egg cooker and that they could do it on the cooler zone up front on our grills have now purchased egg cookers. So investments have been made because of line extensions or the success of all-day breakfast.
Now we also have found a piece of equipment, the combi-oven, for our very highest-volume restaurants that provides a lot of capacity for egg cooking in those busy hours. We've really become a breakfast restaurant on weekends up until noon. And then we sprinkle in some more regular menu, but [breakfast] still is selling strongly into the afternoon to evening. Internally, many thought it might be [strong] until 2 p.m. or so and then fall off. But if you go to McDonald's in the evening you'll see people enjoying an Egg McMuffin next to someone having a Big Mac, so it's fun to see how our customers have reacted.
In March, speaking at the Bank of America Merrill Lynch conference, your CFO Kevin Ozan said that initially about 15% of non-breakfast-daypart orders included ADB items but that that percentage had come down a little since. Do you think ADV 2.0 could push that back up to or beyond 15% of orders?
I don't have the data Kevin did, so I won't quote a number, but I will tell you that ADB did energize our lunch business in a pretty significant way. Some consumers who may not have been coming before found McDonald's to be a great lunch place. We may have missed that customer before because we didn't have the Egg McMuffin to enjoy.
You've trademarked the phrase "The Simpler the Better" and you've talked about simplifying the menu and operations. Are ADB 2.0 and simplification compatible?
They are because we've reviewed the menu now for a third time and looked at some of the menu items that were not selling as we would like. We've given the individual marketing co-ops the option to remove them. We don't do that across the U.S. because in some markets there's success for products and in others our customers enjoy something else. We give individual markets the opportunity for simplification of their menu at the same time as we're doing menu board changes to enhance and showcase our expanded ADB menu.
Is this third round of menu simplification recent?
It's happening as we speak. As we change menu boards to talk about all-day breakfast, there was an opportunity for markets to reduce menu offerings, if that was a decision they wanted to make.
Can you say which items will likely be coming off?
I can tell you that there have been cases where we may have offered two [versions] of an item and we may now be down to one. We don't want to completely remove an item but if there's something that's selling less of one than the other, we'll offer just one.
We've taken a look a look at salads and reduced some of the offerings but we still have a great salad portfolio for people to choose from. We look at the number of SKUs and whether if we remove one product can we simplify the number of SKUs. That's where we focus.
It has been quite a journey because there's a lot of passion among our owner-operators in the field. But we're interested in finding out what our customers are buying. Maybe they're interested in something else, like all-day breakfast, that we could offer. But we don't want to lose guests and have them go elsewhere. We may remove an item but we want to have something they may be more interested in ordering.
You've opened the system to more regional items [such as Gilroy Garlic Fries, Signature Sriracha burgers and Southern Style Chicken Strips]. Will that continue and might we see additional regional breakfast items?
We are looking at what makes sense for different parts of the country. We are doing some breakfast work, but the majority of the work we're doing right now is continuing on the journey to removing artificial flavors, colors and preservatives from our food. It's a big undertaking and we're proud of the work we've done, especially at breakfast, and now we're moving into other parts of the menu.
There doesn't appear to be any big gap in our breakfast menu today with customers. We'll continue to look at what may be opportunities for us but our portfolio is broad and strong and meets our customers' needs.
But we're looking at new ideas. Could we put an egg on a burger? That's obviously an option that doesn't add additional raw food products. Or a BLT? We have bacon, lettuce and tomato. So we're playing around with some things, but it's very early in that process.
In San Diego you're trying Breakfast Bowls [Scrambled Egg & Chorizo and Egg White & Turkey Sausage.] Are those something that will get greater market testing?
There has been some interest from the East Coast and we're looking at it. But I see that as a product that probably would not play across the whole country. But our Southern California group has been quite aggressive in the breakfast menu and they're pleased with the reception they have gotten from their customers.
Do you think consumers are giving McDonald's adequate credit for having solved the problems that kept it from offering all-day breakfast before?
I do. They've told us in so many ways--visits to the restaurants and social media, which was on fire last year--and been so positive about saying thanks for doing something they've wanted forever. I know our employees are happy with 2.0 because now they don't have to say "No" to anything, like breakfast after 10:30. They can say "Yes" to virtually everything the customer wants.