Meanwhile creative and aggressive competitors, including Starbucks, Wendy's, Burger King, and Dunkin' Donuts, see the same eating trends, and they're targeting many of the same customers. Starbucks Corp. and Wendy's International Inc. both are testing hot breakfast sandwiches and planning national rollouts in the next year or two, in a direct challenge to McDonald's most profitable business.

Despite the competition, McDonald's is, at the moment, triumphant. After posting its first-ever quarterly loss in 2002, it has logged 45 consecutive months of U.S. sales increases, including a 6.9% pop in December. It now commands nearly half the U.S. hamburger market—three times more than either Wendy's or Burger King—and has such a lead that even its fastest-growing rivals may never catch up. McDonald's share price, up 25% in the last year, is trading at a seven-year high of nearly $45. John Glass, a restaurant analyst with CIBC Worldwide, sees only further gains from McDonald's new strategy. "People's days are longer," he notes. "So are McDonald's restaurant hours. This is a natural evolution to capture more business."

Skinner is all optimism. Hosting breakfast at the McDonald's restaurant inside the corporate headquarters in Oak Brook, Ill., the 62-year-old CEO says: "We've learned. We've evolved. We believe we've cracked the code in the United States." It's a simple secret, actually: Americans like to eat all day long. Having conquered lunch and dinner, here's how McDonald's plans to win the rest of the day.

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Early morning: at 5:50 a.m. on Thursday in Garner, CNN is on the restaurant's two wall-mounted flat-screen TVs. In the back of the dining room, a few retirees are drinking coffee. The first to arrive, David Scott, a former Raleigh police officer, had driven 14 miles to wait outside for the doors to open at 5 a.m. McDonald's is this group's social center. The men, joined sometimes by a few wives, are there every morning, each taking his usual chair.

Meantime, Julie Brown has driven up in her Hummer to fetch breakfast for her daughter, Jasmine, and the rest of the high school swim team while they practice. Brown's order includes more than $30 worth of Egg McMuffins, sausage breakfast biscuits, egg-and-sausage bagels, hash browns, orange juice — and a peach-mango smoothie for herself. Brown, 37, loves the wider variety of foods and drinks available at McDonald's today. "I used to have to go to five different places for everyone. I'd have to go to one place to get bagels. Smoothies at another. Coffee at another," she says. "Now I can get everything here, all at once."

Thanks to icons like the McMuffin and the McGriddle — a pork patty between two syrup-infused pancakes introduced in 2003 — McDonald's dominates mornings. It owns a quarter of the $25 billion market for fast-food breakfast. In fact, morning is now the most important part of the day for McDonald's in the U.S., accounting for a quarter of domestic revenue and nearly half of profits. Those numbers roughly approximate the breakdown in Garner, a fairly typical store, where breakfast accounts for 30% of the store's $2.5 million in annual sales. Lunch is 24%, afternoon 15%, dinner 15%, and overnight 16%. The single hour that generates the most revenue annually at the store, about $200,000, is the traditional lunch period, from noon to 1 p.m.

For all of its success at breakfast, management is confident that there's still plenty of room to grow in the morning. Why? Because it is still the meal that people in the U.S. are least likely to eat away from home. For every restaurant breakfast, the typical American orders 2.5 lunches and nearly 2 dinners, according to NPD Group. And new products attract new business. Since McDonald's rolled out a darker and stronger coffee last March, same-store sales at breakfast have increased 7.5% in the U.S., on a pace with Starbucks. To build on this momentum, the company is testing two more breakfast items: a Southern-style fried chicken biscuit and Newman's Own iced coffee.

CONTINUED : Burgers and breakfast

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