By 8 a.m. Tuesday morning, the breakfast sandwich assembly line at the Subway restaurant on Granville St. in downtown Vancouver was in overdrive—English muffin, pre-cooked egg, sliced ham and cheese, then into the oven. Brush away crumbs. Repeat. Despite the frantic pace, the lineup spilled out the door and down the street, drawn by that siren call of the tired and hungry morning consumer—a free breakfast and coffee.
There may be no such thing as a free lunch, but when it comes to breakfast, fast-food chains are doling out meals and coffee to anyone who’ll take them. Last November, Burger King Canada gave away free coffees every Friday, having earlier handed out complimentary breakfast sandwiches. Subway’s one-day breakfast and coffee giveaway was its second in 10 months. Meanwhile, McDonald’s has blitzed the morning crowd with free coffees five times since 2009, with each event lasting between one to two weeks.
The goal is invariably the same each time—to get as many new people as possible to try their offerings with the hope that some moochers come back for more as paying regulars.
Restaurants across North America began giving away food and drink during the recession as a way to lure the newly frugal back from their own kitchens. But companies in the quick-service industry have continued to embrace such promotions to build their brand and market share. “Free is the ultimate magic word if you want to attract consumers’ attention,” says Linda Strachan, a restaurant industry analyst with NPD Group. “Operators have discovered it works really well even now.”
It’s easy to see why restaurant chains are so keen on breakfast customers. Over the last five years, the breakfast segment has grown at a compound annual rate of nine per cent, compared to one per cent overall, according to NPD Group. In the case of Subway, the company has struggled to get the message out that it now does breakfast and coffee. “We can offer a tasty, made-your-way product, and that’s something none of our competitors can do, but the awareness is extremely low that Subway even offers breakfast,” says Kathleen Bell, a Subway spokeswoman. In local markets some Subway franchisees have offered free breakfast events, and after the success of a low-key event last summer, the company launched a major ad campaign for the free sandwich day in May.
McDonald’s has pursued the strategy even more intently and credits its semi-annual free coffee events with driving its business to new heights. “Aggressive trial tactics have brought people in at record numbers and just dramatically changed the way people look at our brand,” says Louis Payette, a spokesman for McDonald’s. He says breakfast is the fastest-growing part of McDonald’s business and that last year the chain grew guest counts more than in the previous eight years combined. “It’s tough to instill a new routine, but we believe tasting is believing.”
For the majority of takeout breakfast consumers in Canada, that routine has traditionally involved a visit to Tim Hortons. The company controls roughly two-thirds of the category. But there are signs Tim Hortons is struggling to retain that lead. Last month its shares fell five per cent after same-store sales growth at its Canadian stores grew at the slowest pace since 2009, falling well short of analyst estimates. The company blamed its popular Roll Up the Rim campaign for shaving one percentage point from its growth. To mark the 25th anniversary of the contest, the company increased the odds of winning from 1-in-9 to 1-in-6. Two weeks later, CEO Don Schroeder abruptly resigned.
It’s not clear whether Tim Hortons moved to give away more prizes because it was feeling pressure from McDonald’s. Tim Hortons is famous among analysts for squeezing every penny out of its operations, so it was unusual for the company to take any action that might risk its results. It’s also true that, for two years running, McDonald’s free coffee giveaways have overlapped with the Roll Up contest. (Payette at McDonald’s claims it’s just a coincidence.)
When Tim Hortons revealed its lacklustre results, Schroeder downplayed the free coffee from McDonald’s in a conference call. “The fact that a competitor was giving away coffee during that period, I’m sure, there is no question that some people are going to try and take advantage of that. But did it negatively affect the success of the program? No.”
McDonald’s is tight-lipped about its plans for future free coffee giveaways. As for Subway, now it must wait to see whether the free breakfast freeloaders come back with their wallets open.