Bojangles’ rivals smell profits at breakfast

Biscuits being made in the Bojangles’ test kitchen.
Biscuits being made in the Bojangles’ test kitchen.

When Bojangles’ reports its latest financial results Thursday, analysts will be listening for how its rivals’ push into breakfast foods has affected the Charlotte-based chicken-and-biscuits chain.

Breakfast, after all, makes up 38 percent of Bojangles’ sales. It’s one of the strengths the chain touted to Wall Street when it served potential investors freshly baked biscuits at the Nasdaq the morning the company went public last May.

Competitors, it turns out, are also seeing opportunities in breakfast.

McDonald’s introduction of an all-day breakfast menu in October was aimed at improving sales and the chain’s image – and that has proved successful. In January, McDonald’s said fourth-quarter sales rose 5.7 percent at established U.S. locations, the best reading in four years.

Analysts say McDonald’s biggest sales boost from its all-day breakfast menu has come at midday – perhaps indicating demand for late-morning breakfasts.

Taco Bell launched its breakfast menu about two years ago and has elbowed its way further into the market in recent years with measures such as adding vegetarian options. Burger King has also boosted its breakfast offerings, with new items like the Supreme Breakfast Sandwich.

It’s smart to put emphasis on breakfast since it’s the only category for quick-service restaurants over the last five years that has consistently grown, said Warren Solochek, president of the food-service practice at the NPD Group.

Bojangles’, he said, has “done the right thing by putting additional emphasis on breakfast. There’s a lot of growing demand for that.”

But the competitive pressure is real. Bojangles’ CEO Clifton Rutledge told in a January interview that McDonald’s has taken “some share” of its sales thanks to its switch to offering breakfast all day, as well as adding promotions.

“There has been a good bit of discounting from McDonald’s, Wendy’s and Burger King, and we have been forced to respond,” Rutledge said.

When Jack in the Box posted worse-than-expected fourth quarter earnings, CEO Leonard Comm cited McDonald’s transition to all-day breakfast, “primarily between the hours of 10:30 a.m. to noon,” as a challenge.

Bojangles’ declined to comment for this story, citing the “quiet period” the company is in before its earnings report.

And just why exactly is breakfast so hot right now?

Analysts say the improved economy is a big part of it.

“It really gets back to job growth. Coming out of the recession, when you’re not getting in your car to go to a job you don’t have, you generally won’t go out to a (quick-service restaurant) breakfast,” said Andy Barish, a managing director and senior equity research analyst at Jefferies.

NPD Group’s Solochek said the category’s popularity is also tied to the fact that there are so many more options out there now. Two decades or so ago, restaurant breakfast would be little more than pancakes or an egg and biscuit. Now, restaurants are innovating with new offerings such as breakfast burritos, oatmeal and French toast sticks.

“There is more variety out there, so (breakfast) has greater appeal,” Solochek said.

He also noted how chains like McDonald’s and Chick-fil-A have revamped their coffee offerings in recent years to give themselves even more of an edge. That’s something Bojangles’ could also consider, he said.

“Having a good coffee program at a restaurant gives people incentives to go out and grab a coffee on the go instead of brewing their own at home,” Solochek said.

Today, Bojangles’ share prices are down about 19 percent from where they were at the company’s initial public offering, closing Monday at $15.41. Jefferies’ Barish notes that shares in several restaurant chains, including Bojangles’, are below their IPO price from 2015 “as the stock market and tone towards restaurant stocks got tougher in back half of 2015.”

Banking on its popular breakfast offerings to help drive overall sales, Bojangles’ laid out an ambitious but careful growth plan at the IPO, and it’s likely to share details on the plan’s progress Thursday.

Bojangles’ said it would grow its footprint by 7 to 8 percent a year, gradually moving into neighboring markets in the Southeast while also filling its core in the Carolinas.

Another impact on sales Bojangles’ management may mention Thursday: the success of the Carolina Panthers. Bojangles’ has said tailgating has grown for the brand every year for more than a decade.

“The Panthers’ run into the Super Bowl probably helped, with Big Bo boxes and tailgating on Sundays,” Barish said.

Katherine Peralta: 704-358-5079, @katieperalta