The fast feeder, aiming to become a destination for buying beverages, has used dollar drink promotions in summers past, with most markets opting to sell large sweet tea for a buck last year. But [image-nocss] the franchisees say the fast-food chain is making a greater effort this year for more markets, which 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 said.
Company spokesperson 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."
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, said the report, 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," one McDonald's franchisee told Dow Jones.
McDonald's hopes the promotion can steal customers from other fast-food chains and from other places where consumers buy drinks, such as 7-Eleven or Circle K convenience stores. The added customers could help introduce customers to McDonald's new beverage lineup, including smoothies and frappes, both set to debut nationally around midyear. Cold sodas can also attract customers during afternoon hours, a time when smoothie and frappes sell well, the rport said.
McDonald's said 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. is installing new drink equipment at its drive-in restaurants that will offer customers more flavors. Starbucks Corp. plans to offer the cold drinks customizable frappucinos starting in May.
Other chains, such as Burger King Holdings Inc. with a new iced coffee, and Yum Brands Inc.'s 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, said the report.
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