Late Night Dining Strategies in US Fast Food

Taco Bell’s introduction of a new breakfast menu underscores the importance of expanding meal time opportunities for fast food operators in the United States. A strict emphasis on lunch and dinner time operations may limit important and high value growth opportunities.

While new breakfast options currently generate the headlines, the late night menu (termed the “Fourth Meal” by Taco Bell) has also been a source of investment for the company (Yum! Brands) over the past two years. Other major chained players, mainly in burger fast food, have also placed more focus on introducing and improving late night menus. As the US fast food industry seeks to avoid a ‘race to the bottom’ in terms of menu discounting, a well-crafted night time meal segment could provide a valuable revenue stream for operators.

State of Play in US Fast Food

The affordability and convenience of fast food for US consumers enabled the industry to outperform other areas of foodservice during the most recent economic downturn. From 2007-12, fast food transactions increased as a percentage of total foodservice volume. While full service restaurants faced almost 15,000 net closures over the troubled 2007-12 period, fast food outlets benefited from over 5,500 in net outlet openings.

Preserving foot traffic came at a cost: the industry became dependent on discount offers and ‘dollar menus’ to entice the cash-strapped consumer to dine out during the recession. In real terms, value sales per transaction declined by 8% over a five-year period. In 2014, operators face the challenge of stemming this decline. Driving more value from menu items is consequently a major strategic challenge for the fast food industry.

The introduction of ‘premium’ items on traditional (lunch or dinner) menus has yielded mixed results for fast food operators, with higher priced burgers and other items sometimes caught in the middle between economy options and higher quality fast casual alternatives. Introducing or expanding alternative meal occasions – including breakfast and late night – may be promising opportunities to steer fast food menus away from the discount wars.

Value per transaction declines in US fast food accelerate during the recession

Source: Euromonitor International

Note: Value sales expressed in constant (2012) US dollars

While breakfast seems the most obvious inclusion due to high traffic potential, the growing importance of late night to this equation should not be understated. According to Euromonitor International’s Global Consumer Trends Survey, Americans under the age of 29 are more than twice as likely to dine after 10pm as the wider population. While youth affords more flexibility in terms of scheduling meal times, less structured meal time occasions among the younger generation of customers may be part of a more sustained shift, with later meal occasions continuing into later adulthood. Many operators in the US have reported that the 10pm-4am window is among the fastest growing meal occasions over the past year.

Time of Meal or Snacking: General Respondents v. 15-29 year old

Source: Euromonitor International

High Value Brand Differentiators

Higher traffic generated from longer hours seems simple enough, but can extended hours and a late night menu increase traffic as well as providing a crucial bottom line boost for fast food chains?

Whether ‘late night’ becomes a true source of value generation from consumers will depend on how late night options are implemented by brand owners and their franchise partners. To realize the potential of the late night menu as a revenue driver, the segment should not be approached as a simple extension of daytime meals, or rehashed economy menu options.

The consumer should see late night options as fun, satisfying and exclusive. Some fast food chains have gained traction with brand loyal consumers through the implementation of ‘secret’ or off-menu food items, allowing for more indulgent options and sustaining brand interest. These initiatives sustain word-of-mouth interest in chained brands. Given the younger demographic of late night customers, social media platforms can be an important means of driving interest in new late night items.

Chains have begun to find success in this approach. In late 2013, US burger fast food chain Jack in the Box introduced its light-hearted late night food menu, incorporating a ‘Munchie Box’ of both hamburgers and tacos. Late night sales account for 15% of the company’s reported annual total in 2013. Other operators have adopted a more value-centric approach. Last year, Wendy’s ‘Moon Light Meal Deal’, a $5 combo meal, was rolled out to the US market. While price focused, the high indulgence side items (chili cheese frees, larger drink sizes) distinguished the product from day time meal options.

In 2013, McDonalds began to trial a special ‘After Midnight’ menu during the 12am – 4am hours, mixing breakfast meal items with day time meal options. This approach has strong appeal with the brand loyal McDonalds consumer base, allowing for unique meal options (combining breakfast sandwiches and burgers) that would not be possible during day time hours. The combination of day time and night time options stimulates interest in the menu, particularly among loyal late night customers.

Operators will make a mistake if late night is treated as an opportunity for promoting the same value oriented daytime menu items. Instead, late night should be more synonymous with indulgence occasions. Higher value for the operator may not mean higher priced for the consumer. Low priced desserts, beverages side dishes or add-ons (extra toppings on burgers or pizzas) can be high value propositions for indulgence minded midnight snackers. This focus – on higher calorie, guilty pleasures – may be unique to late night.

US consumer tastes during breakfast hours are extremely traditional in many cases, limiting menu innovation. Daytime is value focused, with consumers more inclined towards healthier options, limiting consumption or counting calories. Late night menus are an opportunity for a treat.

Despite consumer-led tailwinds favouring late night adoption, there may be resistance on the part of franchisees to the longer hours and higher labour costs associated with late night or 24 hour operation. Late night operation creates tough logistical obstacles for franchisees in some areas of the country. This is difficult for some restaurants to implement, particularly in the low-wage, high turnover environment of US fast food.

For other franchisees, a late night menu could offer a valuable “fourth meal” occasion to bolster profits and increase transaction value. In order to capitalize on this trend, brands should remember:

  • Many fast food franchisees already keep longer hours during weekends, when late night snacking is more prevalent. While healthier menu options are necessary for weeknight lunch or dinner options, the late night customer is probably not counting calories. Shareable food items, larger portion sizes and creative dessert items may be more appropriate in this segment.
  • Differentiate and brand the late night menu, don’t simply extend hours. Limited ‘midnight’ options or menu items can generate excitement and interest, particularly with brand loyal customers.
  • Late night attracts young, social, brand loyal consumers. Use a strong social media presence to engage with this demographic and offer new, product (not price) driven menu innovation, with a focus on indulgence rather than economy.