The battle for breakfast

Breakfast at Maison Francois in London’s St James, just around the corner from Fortnum & Mason, was not the quiet affair I was expecting as the room was packed at 8.30am on a Tuesday morning, with upbeat hedge fund types enjoying the likes of eggs benedict at £14, or a punchy £24 for both sides of the muffin with accompanying egg and ham.

Volatility in markets is the bread and butter of hedge funds that thrive on price movements and uncertainty. This is the polar opposite of regular consumers who worry about job prospects when things are unsettled. In the US, there is evidence in the recent results of McDonald’s that these uncertain times are leading to people cutting back on visits to the fast-food brand. It has just reported its biggest drop in sales since the height of the pandemic five years ago.

McDonald’s chief executive Chris Kempczinski says many people are now having breakfast at home rather than visiting his stores. This scenario is undoubtedly also being playing out in the UK, despite the sausage and egg McMuffin meal deal being a veritable bargain at £2.49 (when using the app) – for both sides of the muffin, no less.

Highlighting the competitive nature of the market right now is the battle being fought out for the first meal of the day by the value-focused players. JD Wetherspoon pitched in with a breakfast deal that included a muffin and a drink with unlimited refills for £2.99 or less, while Greggs had its breakfast roll and a drink at £2.85. At these ultra-competitive price points, it would be reasonable to believe there is little to choose between these options for even the lower-income consumer.

Not so. At this most price sensitive end of the market, dining decisions are turning on a sixpence for an increasing number of people. This is reflected in the fortunes of Greggs, which has, over recent years, enjoyed value dominance in the market – which has in turn driven both a store opening frenzy and an impressive share price trajectory. But this is now under increasing pressure.

According to a report from Peel Hunt, the game could be up for the company as it has been unable to maintain competitive pricing for its benchmark sausage roll versus the basic McDonald’s hamburger. Multiple price increases pushed the renowned roll to £1.30 versus £1.19 for the hamburger that has been held at this price point for some time. 

Another increase will be introduced on 15 May that will magnify the issue, according to Peel Hunt, which reckons the growing price gap is a very worrying turn of events for Greggs. This is highlighted in a recent The Sun newspaper poll that found 40.7% of people now believe it is “not worth the money”, while another 15.9% say they “haven’t been in there for a while”, which might well be down to the pricing. The remaining 43.4% says it’s “still good value” but erosion is a distinct possibility when you have McDonald’s pushing out more promotional deals including its latest £5 meal deal (cheeseburger, fries, drink and four McNuggets anyone?)

The City firm stated: “Value credentials are central to Greggs’ branding and business image…price increases should be approached with caution. While they can provide short-term relief to like-for-like growth, the signs that core customers are sensitive to the price increases concerns us.”

This will be far from music to the ears of all operators. Whatever the travails of those at the most acute end of the value chain, there is undoubtedly some trickle down – or should it be trickle up in this case? It presents a troublesome backdrop for the hospitality industry while cost pressures persist. Without passing on price increases, the books clearly have to be balanced through other routes. The creativity and ingenuity for which the sector is renowned will absolutely continue to be a key requirement of all operators.

Glynn Davis, editor of Retail Insider 

This piece was originally published on Propel Info where Glynn Davis writes a regular Friday opinion piece. Retail Insider would like to thank Propel for allowing the reproduction of this column.