McDonald’s Corporation (MCD), The Wendy’s Company (WEN): Will Late-Night Cravings Boost Falling Profits?

A new challenger

If the “After Midnight” menu proves popular, it could put McDonald’s in competition with some of the reigning kings of late-night dining. Restaurants such as Jack in the Box Inc. (NASDAQ:JACK), Steak n’ Shake and IHOP have traditionally been havens for those seeking a bite to eat late in the night. Given the sluggish economy that’s only slowly picking up steam, and these companies could do without the extra competitive pressures.

Jack in the Box Inc. (NASDAQ:JACK), for instance, recently revealed its second-quarter earnings for the 2013 fiscal year and had little in the way of good news to share. Missing analyst estimates and reporting a 2.8% drop in revenues in comparison to the same quarter a year ago, the company reported a 4.7% decline in sales company-wide (which includes not only its Jack in the Box restaurants but also its Qdoba Mexican Grill fast-casual locations.) The success of a McDonald’s late-night menu could hurt the company’s own late-night offerings, as it not only offers its full menu all day but also began testing a late-night menu of its own late last year. While McDonald’s is also subject to rising commodities costs, a slow economy and bad weather, McDonald’s has five times as many locations and a much greater brand familiarity with consumers. If new menu initiatives start bringing in late-night customers at McDonald’s, it could be at the expense of some of Jack in the Box’s stores.

Satisfying a craving

Unlike the hit-or-miss nature of the limited-time offerings that McDonald’s has been trying to drive profits with, the “After Midnight” menu has a decent chance of being a sure thing. Customers have wanted an expansion of the company’s breakfast hours for years, to the point that the ending time of breakfast has become a piece of popular culture.

The new menu would allow late-night diners to end the night with the McDonald’s breakfast items that they crave, and would even let them have it with a side order of those famous fries. As appealing as the Habanero Bacon Ranch Quarter Pounder that’s among the company’s current promotions sounds, the “After Midnight” menu is much more likely to be a hit.

John Casteele has no position in any stocks mentioned. The Motley Fool recommends McDonald’s. The Motley Fool owns shares of McDonald’s.

The article Will Late-Night Cravings Boost Falling Profits? originally appeared on Fool.com and is written by John Casteele.

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