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Taco Bell jumps into the breakfast market

AP

This product image provided by Taco Bell Corp., shows Taco Bell's new Johnsonville sausage and egg wrap, one of the items the fast-food chain will be offering on its new breakfast menu which debuts Thursday, Jan. 26, 2012.

It's getting a little crowded in the breakfast nook.

Fast food chain Taco Bell announced Thursday that it's entering the breakfast fray. It joins larger rivals such as McDonald's, Wendy's and Subway in a market saturated with breakfast options including specialty coffees to lure in addicts who’ll buy a breakfast sandwich along with that daily cup of joe.

Irvine, Calif.-based Taco Bell, which is known for its low price points and late night hours, is introducing a breakfast menu at nearly 800 restaurants across 10 Western states, including California and Arizona.

“This is a very important launch for our brand,” said Brian Niccol, Taco Bell’s chief marketing and innovation officer, in a statement. “While we're beginning in the West, where people grew up with breakfast burritos, we plan to reach a national audience in the future, becoming a part of their morning routine, and truly opening people's minds and taste buds as they begin to open their eyes and take on the day."

Notably, Taco Bell’s breakfast offerings include well-known brands like Tropicana, Cinnabon, and Seattle’s Best Coffee, which may serve to alleviate customer concerns about food quality following a 2011 lawsuit in which the contents of Taco Bell’s beef were called into question. 

“It helps with one of the issues that they need to content with, which is quality,” said David Morris, an analyst for consumer goods research firm Packaged Facts. “That’s a smart move.” 

The chain plans to open its drive-through locations an hour earlier than normal for breakfast, generally around 8 a.m. or 9 a.m., and will offer breakfast until 11 a.m. It aims to roll out its breakfast menu on the East Coast in 2013, and will begin experimenting with offering breakfast foods during late-night hours in late 2012.

Fast food breakfast has turned into one of the swiftest growing areas in the entire restaurant industry, and Taco Bell competitors like McDonald’s, Wendy’s and Subway have already successfully rolled out breakfast menus. A 2010 report from NPD Group found that breakfast accounted for 60 percent of the restaurant industry’s growth over the last five years, with breakfast traffic increasing by an average of 2 percent per year. Lunch traffic, was largely flat, while dinner traffic decreased by an average of 2 percent per year during the same five-year period. 

Despite the already-crowded market for breakfast, Taco Bell’s low price points and its Mexican food-tinged variation on the traditional breakfast offering should serve it well in the battle over breakfast, experts say.

“Taco Bell has done a great job at being an industry leader in that category,” said Darren Tristano, executive vice president of Technomic, a food and beverage industry research firm. “If you have a good coffee offering like many of the successful chains have, you can then provide a differentiated product because of the Mexican food offering.”

He added, “Younger Americans, specifically millenials, are looking for not only spiciness at breakfast, but also the cheaper price point.”

Taco Bell has some catching up to do, however. McDonald’s is already raking in a hefty 27 percent of its $33 billion in annual sales at breakfast, according to Tristano.

It could serve as a slightly cheaper alternative to some of its competitors. Among Taco Bell’s new breakfast offerings are sausage or bacon and egg burritos for $1.49, grand skillet burritos for $2.79, and $3.99 combo meals containing a breakfast item with a drink and hash browns. That’s slightly less than breakfast combo meals elsewhere, which tend to approach $5 and up.

Another plus for Taco Bell that stands to help it capture part of the breakfast market is its already-established drive-thru presence, as well as its decision to sell Seattle's Best Coffee, which Packaged Facts’ Morris says is one of the major reasons for the growth of sales in the breakfast category. “The magic of coffee is that it’s been one of the few products that people have been willing to pay more for both before the recession and after,” he said.

Taco Bell later opening hours versus competitors could be a problem, though. “A coffee drinker is going to go elsewhere if they [Taco Bell] don’t open early enough,” Morris said. “They’ll need to contend with that in order to compete with more established limited-service breakfast players.”