Now that McDonald’s is offering all-day breakfast, an unexpected segment is suffering: family dining.
Sales at Denny’s, IHOP, and other family-dining restaurants that have been serving all-day breakfast for decades are slipping as McDonald’s same-store sales grow, according to Nomura analyst Mark Kalinowski.
While Nomura is forecasting a 3% growth in McDonald’s US same-store sales in the fourth quarter, the company says that aggregated sales in the family dining sector are likely negative in October and the first half of November.
One possible reason — McDonald’s all-day breakfast is cutting into family dining chains’ market.
McDonald’s power in the restaurant industry is immense. Because it has so many locations (more than 14,000 in the US), seemingly slight fluctuations in sales send waves throughout the rest of the restaurant industry. So, when the chain began serving breakfast all day, thousands of customers who used to only have IHOP or Denny’s as an afternoon hashbrown spot now have the option of going to McDonald’s instead.
The family dining segment is also struggling to maintain growth because it has done extraordinarily well in the last year, in part because of McDonald’s sales slump.
(Christian Storm/Business Insider)
Last January, when McDonald’s was at one of its lowest points, almost half of the top 25 largest US restaurant chains reported 5% or greater same-store sales growth — an uncommonly high number. When the burger giant isn’t attracting customers, it creates a huge opportunity for other chains. But, when McDonald’s is thriving, that’s a big handicap.
“McDonald’s is so big in this industry — about four times as big as the second biggest restaurant chain,” Kalinowski said on Monday at a Nomura retail roundtable. “If McDonald’s does a plus 3% same-store sales in Q4, as we’re forecasting right now… [that] makes it that much more difficult for any other restaurant chain in America to be growing their sales at a really good rate.”
The anticipated sales slip would come after a successful year at IHOP and Denny’s. In November, Denny’s announced a 6.1% growth in domestic same-stores sales in the third quarter.
IHOP’s parent company, DineEquity, reported a similarly strong third quarter, with US same-store sales increasing 5.8% at IHOP. A big part of the reason: all-day breakfast.
"70% of Americans wish that restaurants would serve breakfast all day long," Julia Stewart, CEO of DineEquity, told investors on an August conference call. "And importantly, IHOP has been doing so for almost 57 years."
McDonald's rolled out all-day breakfast on October 6, after testing extended breakfast hours at select locations accross the US throughout the last year.
More From Business Insider