Why McDonald’s All-Day Breakfast Was Years in the Making

Few breakfasts are more beloved than the one underneath the golden arches. Not only is McDonald's a pioneer of the fast-food breakfast — in many ways, it's perfected it. (McDonald's nugget-shaped hash browns are a junk food work of art.) The chain was responsible for one-third of all fast-food breakfast sales in 2012, making it a big player with only one Achilles' heel: It stops serving the breakfast menu at 10:30 a.m. Franchise owners had been hearing customer requests (and some complaints) about extending breakfast hours for a long time. It's almost become a rite of passage to arrive at a McDonald's hoping for an Egg McMuffin or McGriddle, only to be told you're five minutes too late.

But in April 2015, McDonald's finally came around and opened a test market for all-day breakfast in San Diego. By September, it announced all-day breakfast would be hitting McDonald's menus nationwide on October 6, and its timing couldn't have been better. According to the Washington Post, there's a direct correlation between the unemployment rate and breakfast consumption: People with jobs are more likely to grab breakfast on the way to the office. And people with low-paying jobs, where the majority of job growth has been since the recession, are likely to buy a cheap breakfast. You can't get much cheaper than fast food.

What does it take to put a brand — and an army of franchisees — on the same page?

Most customers pay little attention to how the McGriddle is made, so to speak, but setting up a program like the all-day breakfast takes more than just marketing. In addition to years of talking about putting this plan into action, stores across the country spent months testing all-day breakfast and straightening out any flaws. Even once a plan was implemented, it was up to more than 3,000 owner-operators spread throughout the nation to upgrade and reorganize their kitchens for the menu change.

While each franchise is technically run by an independent business person, not by McDonald's, remaining truly independent while aligning to a brand identity is a tricky balancing act. What does it take to put a brand — and an army of franchisees — on the same page?

As fast food's hold on American diets has started to weaken, the "most important meal of the day" has still managed to show some growth. Between 2007 and 2012, breakfast sales at fast-food restaurants rose by an average of 4.8 percent per year. Meanwhile, interest in lunch and dinner at those same restaurants have been stagnant or falling.

Because it's a national campaign, every McDonald's franchisee has the option of adding an all-day breakfast to their menus. According to McDonald's director of media relations Lisa McComb, "as independent business owners, [franchise owners] can opt out of any promotion or upgrade they wish." Though she doesn't think it's very likely.

Franchiser-franchisee relationships are complicated. Rick Bisio, author of The Educated Franchisee and a franchise coach, says that the desire for independence is a major sticking point. "Humans don't always like to follow what someone else said," he explains. "We think we can do it better — and sometimes we actually can." But franchise contracts have become more strict in recent decades. A perfect example of the changes that have overtaken the entire fast-food franchising industry is one Moorhead, Minnesota Dairy Queen that has been running since 1949. Because this branch has simply been renewing its original contract all these years, its owners pay a much lower percentage on both income and items ordered from corporate headquarters. They've also been able to alter (or continue original) menu items to a much larger degree than any other franchisee would be allowed.

"McDonald’s has retained more control over their operations than almost anybody else."

Robert Purvin, chairman and CEO of the American Association of Franchisees and Dealers, would love to see franchise contracts get closer to those experimental early days. While he ranks McDonald's among the good guys in their franchisee relations, "they've maintained more control over their operations than almost anybody else," he says. Not everyone sees this uniformity as a bad thing — even for franchisees. Bisio explains that one of the benefits of belonging to a franchise is the national marketing. If a franchisee wanted to opt-out of the all-day breakfast, for example, he not only loses the benefit of the coupons and advertising that might have brought McMuffin-seekers to his door.

Purvin says that many franchise agreements allow the franchisor to make unilateral changes without testing and evaluating the new idea first. While Purvin says McDonald's is still a very top-down company as far as decision-making, its system of using franchisee committees and marketing councils does help them avoid this issue. "The manner in which a company embraces change is critical to the happiness of their brand," Purvin adds.

McDonald's franchisees did vote on whether or not they wanted to implement the promotion nationally. (Spoiler alert: they said "yes.") This is not a public vote, so it's impossible to know how many voted for or against. But while franchisees might technically be able to opt-out of a campaign, the customer expectation that a product will be sold at your restaurant makes it difficult to say no — an owner opting out runs the risk of alienating his customer. "The [customer] doesn't come to your restaurant because they don't expect you to be following the system," Bisio says.

In the case of McDonald's breakfast, it helped that the chain put a lot of effort into making sure everything will run smoothly — at least as far as logistics are concerned. Test markets are a major part of the process, as is having a designated franchisee-led "task force." Before launching the all-day breakfast, McDonald's implemented a "task force" headed by LeAnn Richards, the owner of eight McDonald's franchises in Arizona. Richards says she was "a little skeptical" at first. She knew that the logistics of cooking eggs and meat on separate grills at the same time would be difficult. The San Diego test market — which focused on testing whether or not restaurant staff can actually get the food prepared, made, and to the customer without slowing business down — had already been open for a few months by the time she got on board. "We learned from them," she says. "You take one test market, improve on that, and keep growing."

Adding all-day breakfast brings many challenges. The grills McDonald's uses to cook burgers don't translate well to eggs. Buns need one toaster setting while hearty English muffins require a different level of heat. This may not be an issue for a traditional restaurant, but in the high-volume, quick service fast-food industry, fiddling with grills and toasters while fitting another group of ingredients into the prep area doesn't scream efficiency. That is a big problem.

The cost to open a McDonald’s franchise is roughly $500,000 in liquid assets; the new breakfast equipment adds $500 to $5,000 to that bill.

Rather than being annoyed about the extra work, Richards says that her employees really came together to problem-solve. "I was pleasantly surprised by how thrilled they were," she says. To keep the eggs away from the meat, the powers-that-be brought in a special egg cooker — essentially a grill hooked to a small cart with wheels. Richards explains that finding the right place for it to go in the close quarters of a commercial kitchen isn't easy. Likewise with finding a way to toast muffins and buns at the same time. (The solution? Bring in a new toaster.)

All this new equipment comes with a cost — estimated to be between $500 and $5,000, depending on what the location already has — which has to be paid by the franchisee. According to FranchiseHelp, the cost to open a McDonald's franchise is roughly $500,000 in liquid assets. The new equipment costs are comparatively a drop in the bucket but, at the same time, it does add up. Franchisees may be more accepting of the all-day breakfast plan, but they haven't loved every past promotion the chain has come up with. One potential issue is that while the all-day breakfast might bring in extra revenue, if it takes too much extra time to cook, customer satisfaction quickly falls. As it turns out, people don't like it when their fast food isn't fast.

Photo: Joe Raedle/Getty Images

Earlier this year, Bloomberg Business profiled owner-operator Al Jarvis, who was selling his two McDonald's franchises after nearly 50 years with the company. The former franchisee cited executives who prized innovation over execution as one major issue. Jarvis told Bloomberg Business, "I don't think they know what they want to do... They're saying, ‘Let's go back to basics,' then they're doing these customized burgers, and they're talking about all-day breakfast." He believes McDonald's was better off as a "burgers and fries" place. A look at the full McDonald's menu shows more 100 possible menu items (not counting drinks) that a customer might order — even with some variation between locations, that's a lot of combinations to grab and get to the customer in a short amount of time.

If a franchise owner wanted to pare down their menu to Ray Kroc's original burger, cheeseburger, shakes, and fries, that's not how McDonald's the brand operates. It makes sense that this top-down control would be a company's default setting, since it has a brand to run and wants to make sure every store fits into the McDonald's mold.

But something has finally come along that might give franchisees their freedom back, for better or worse. A recent ruling by the National Labor Relations Board opened up the definition of a "joint employer": a brand that's considered a joint employer of a local franchise is on the hook for legal action taken against that franchise. They can also be subject to collective bargaining from unions in a way that would have been impossible to organize before the ruling. The ruling has unsurprisingly been quite controversial. "It literally could destroy franchising," Bisio says.

One of the things that would determine whether a franchise was a joint employer under the NLRB decision is the level of control they exert over each store's operations. Bisio explains that the only way a franchise could separate themselves from this definition as a "joint employer" would be to "relax something." "They would have to universally change their agreements and operating agreements to avoid it," he adds.

So there may be even more incentive for the chain — and others — to loosen their contracts in the coming years. "If they begin to give back the authority for franchisees to make internal decisions in their markets, to me, that's a good thing," Purvin says. For now, that authority has led to all-day hash browns and Mc-breakfast sandwiches, to the delight of those showing up at McD's at 10:31 a.m.