McDonald's Eyes $1 Drinks For Summer Sales Boost
March 17 2010 - 09:44AM
Dow Jones News
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
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
A Coca-Cola spokeswomen wasn't immediately available for
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
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
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;
(Kevin Helliker contributed to this article.)
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