McDonald's Eyes $1 Drinks For Summer Sales Boost

Date : 03/17/2010 @ 1:44PM
Source : Dow Jones News
Stock : McDonalds Corp (MCD)
Quote : 160.33  -1.17 (-0.72%) @ 9:47PM
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McDonald's Eyes $1 Drinks For Summer Sales Boost

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McDonald's Corp. (MCD) summer sales may get extra juice with a push to sell all soft drinks, at any size, for $1.

McDonald's executives are trying to sell its franchisees on the offer in recent weeks at regional meetings, where Coca-Cola Co. (KO) representatives have also pressed the case for $1 drinks, according to two franchisees.

McDonald's, aiming to become a destination for buying beverages, has used dollar drink promotions in summer's past, with most markets opting to sell large sweet tea for a buck last year. But the franchisees say the fast-food chain is making a greater effort this year for more markets, who have the final say on any offer, to sell all fountain drinks for $1.

McDonald's also wants the $1 drink promotions to run 150 days, starting after Memorial Day, up from 100 days in prior years, the franchisees say.

McDonald's spokeswoman Danya Proud declined comment on any conversations between the company and its restaurant operators. She said more than 90% of U.S. restaurants sold drinks for $1 last summer, which "should give you an indication of its success for our business."

A Coca-Cola spokeswomen wasn't immediately available for comment.

The $1 drink prices are discounts from suggested prices of $1.39 for a large soda. Some experts estimate profit margins run about 90% on sodas at restaurants, leaving some room to maneuver on price. Still, franchisees worry that discounting drinks, sales of which typically compensate for discounts on other products, could hurt the bottom line, especially if customers buy other items off its Dollar Menu.

"We can use the sales, but these are very costly sales to get," said one McDonald's franchisee.

McDonald's hopes the promotion can steal customers from other fast-food chains and from other places where consumers buy drinks like 7-Eleven or Circle K convenience stores. The added customers could help introduce customer to McDonald's new beverage line-up, including smoothies and frappes -- a blended, icy coffee drink -- both set to debut nationally around mid-year. Cold sodas can also attract customers during afternoon hours, a time when smoothie and frappes sell well.

McDonald's says its beverage play is paying off. McCafe espresso-based drinks have helped make coffee 5% of total sales, double from about 2006, while the company is on track to top a goal of adding $125,000 a year in per-store sales adding new beverages.

Drink discounts did cut into McCafe sales some last year, McDonald's executives have said, as consumers bypassed some pricier espresso beverages for discounted items. The impact, however, "certainly wasn't significant enough to prevent us from recommending it again," Proud said.

Though unclear how many markets will choose a discounted promotion for the summer, McDonald's presence as a bigger drink player is reverberating already.

Sonic Corp. (SONC) is installing new drink equipment at its drive-in restaurants that will offer customers more flavors. Starbucks Corp. (SBUX), where a UBS analyst recently suggested frappucinos sales could face greater competition from McDonald's frappes, plans to offer the cold drinks customizable starting in May.

Other chains, like Burger King Holdings Inc. (BKC) with a new iced coffee and Yum Brands Inc.'s (YUM) Taco Bell with cherry- and classic-flavored limeades, are planning summertime drink additions that could face pressure from $1 drinks at McDonald's.

McDonald's is also in early tests on other beverage additions, including frozen lemonade and shakes topped with whipped cream and a cherry that come in see-through containers, both in a small number of stores.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com

 (Kevin Helliker contributed to this article.) 
 
 
 

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