McDonald’s beverage offerings are becoming more like Sonic Drive-In’s, which has analysts and operators alike excited about the quick-serve giant’s future.
Spokesperson Bill Whitman says McDonald’s and Coca-Cola are testing a variety of carbonated and non-carbonated bottles, as well as flavor shots. Started a year ago in the Kansas City and Bryan-College Station, Texas, markets, the tests focus on a variety of Coca-Cola products and a handful of Pepsi products, Whitman says.
The bottle product test includes Dasani Water, Mountain Dew, Gatorade, Powerade, Lipton Green Tea, and Red Bull. At the fountain, test stores are offering Sprite and Minute Maid Lemonade. As for the flavor shots, right now the focus is vanilla, cherry, and berry-blue flavor shots, but those might soon change because as Whitman says, “it’s a test.”
In Bryan-College Station stores are offering those flavors along with sugar-free cherry and blue raspberry. The shots are mixed with cold drinks, and McDonald’s crew members report the flavors are a big hit among consumers.
“We’re encouraged by what we’re hearing from our customers,” Whitman says. “They are telling us that they appreciate the added value, convenience, and selection. However, it’s too early to speculate on test results or specific product offerings.”
According to independent restaurant analyst Mark Kalinowski, McDonald’s is jumping into the flavored drink, iced coffee and flavor shot category while the demand is very high. In its 2007 Industry Forecast, the National Restaurant Association reported more quick-service operators were looking to add espresso/specialty coffee, energy drinks, and bottled water, while a June Productscan report found a 50-percent increase in new launches under the flavored drink category compared to the same period in 2006. However, according to a 2006 Mintel report, fruit-flavored juice drinks are on the decline.
The market for these fruit-flavored products has dropped 9 percent to $4.4 billion from 2001, which corresponds to a decline of 20 percent in constant terms. The major factors blamed for this decline include the nation’s obesity epidemic and the declining population of children aged 612, which has fallen 5 percent between 2001 and 2006. But that does not seem to bother McDonald’s and those numbers are not indicative of flavored sodas, which have taken market share from fruit juices, Mintel says.
“McDonald’s seems to believe they can become more or less a beverage destination for their customers,” Kalinowski says. “And they’re excited for the opportunity, because beverages generally tend to make meaningful higher gross margins than the average quick-service product. They are poised with some nice success with this.”
Earlier this year, McDonald’s, a long-time Coca-Cola user, revealed it was testing Pepsi products (Gatorade, Propel Fitness Water, Lipton Iced Tea, and Tropicana Orange Juice) and that Mountain Dew bottles were being served in select Texas stores. At the time, some franchisees voiced concern, fearing their brand was moving away from longtime partner Coca-Cola. But George Schmidt, an Ohio McDonald’s operator, has faith in his parent company’s beverage judgment. He believes McDonald’s is following an “obvious consumer demand for more flavored drinks.” “It’s exciting that McDonald’s is moving in this direction,” he says.
One brand already experiencing great success with the flavored-drink category is Sonic Drive-In. The Oklahoma City-based company has long featured Cherry Limeades, Ocean Water (Sprite with blue coconut flavor added), and Vanilla Cokes. Flavors such as vanilla, chocolate, cherry, strawberry, cranberry and apple can also be added to standard beverages in any combination the customer chooses.
Sonic CEO Cliff Hudson credited these drinks along with new product launches as a big part of the reason his company had a strong third quarter.