OAK BROOK, Ill. -- McDonald's Corp., which is already gunning for Starbucks on the coffee front, now is targeting the convenience store industry on the soda front. The fast feeder is urging owners in the western United States to cut prices on large soft drinks to $1 this summer specifically to win customers from c-store chains, according to a memo obtained by Crain's Chicago Business. "Let's take the c-store drink out of their hands and build our transactions," McDonald's western division chief Steve Plotkin wrote to franchisees on April 2.
Plotkin's missive asks the franchisees to discount [image-nocss] one of their most profitable items and signals the company's concern about the effects of a slowing economy, the report said.
"Value is integral to delivering for our customers in this economic environment," the memo added.
While franchisees usually go along with such corporate requests, the strategy carries risk, said Crain's. Discounting beverages could boost sales, but store owners probably would see profits drop when the price of 32-oz. drinks at many restaurants is cut in half. And rivals could respond by cutting their own prices.
If the response of Dallas-based 7-Eleven Inc. is typical of the c-store industry, convenience retailers may not be especially concerned by this new threat from McDonald's. "Few retailers or quick-serve restaurants can offer the selection of carbonated beverages 7-Eleven stores do—both Pepsi and Coca-Cola, as well as other major branded choices, 7-Eleven spokesperson Margaret Chabris told CSP Daily News. "Most QSRs have contracts with one or the other. We offer customers freedom of choice and the ability to fix it their way."
She added that she "would be surprising to see the QSRs discount fountain drinks. They are typically the high-price outlets. They would need to reduce prices significantly to get competitive. The speed of service is also a deterrent at a QSR. Customers, especially males, want a quick fountain beverage and aren't inclined to wait in line or at the drive-through when they can run into a 7-Eleven stores and get what they want quickly. Recent surveys show customers give 7-Eleven high marks for speed and customization in our beverage selection."
Dennis Lombardi, executive vice president of foodservice strategies with Dublin, Ohio-based restaurant consultant WD Partners, told Crain's, "Times are tough, and this could be a beverage war. This is tapping into an area that historically fast-food chains have not wanted to go."
He said the restaurants usually don't discount drinks because that can hurt sales of highly popular combo meals. With cheap drink prices, more customers could decide to mix and match items from the value menus instead.
Oak Brook, Ill.-based McDonald's and its rivals already are offering more burger and breakfast deals as the economy slows, the report said. Now, McDonald's executives want to take the low-price battle to the fountain machines and directly to 7-Eleven and other c-stores that have long promoted Big Gulp-type deals.
The company already is going after the c-store customer by selling bottled drinks, part of its bigger beverage strategy that includes specialty coffees to compete with Seattle-based Starbucks Corp., said the report.
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