What has been overlooked in all the hoopla over McDonald’s Corp.’s $100 million campaign to steal coffee drinkers from Starbucks is that this offensive is only the beginning of a battle that’s far bigger than lattes. McDonald’s target isn’t only coffee shops, it’s also 7-Eleven and other convenience stores.
McDonald’s wants to be the dominant retail location for all beverages, hot or cold. The burger chain’s management hates it that some consumers buy a McDonald’s breakfast sandwich and a Starbucks coffee, and this current push is intended to regain those coffee sales and add new coffee customers. But equally frustrating, if not more so, are customers who buy food at a McDonald’s drive-thru and then drive a block to a c-store for a 32-oz. resealable bottle of soda or a bottled sports drink. That’s the part of the beverage market McDonald’s is most eager to absorb.
Why? Consider that Starbucks’ global 2008 sales were $10.4 billion while the National Association of Convenience Stores says its members’ 2008 sales of packaged nonalcoholic beverages were $24.5 billion, just in the United States.
Two years ago, when McDonald’s unveiled its Combined Beverage Initiative (CBI) plan for its franchisees, expanding the coffee platform was the first phase, adding packaged soft drinks, sports drinks, water and other beverages in larger resealable containers was the second phase. The chain told operators that CBI meant upwards of $125,000 in added annual sales per store. But full implementation of CBI also could mean an investment of more than $75,000 per store by operators.
That may be one reason McDonald’s has been slow to launch phase two: This isn’t the best time to ask franchisees to spend. Softening beverage sales also may be a hurdle. In March, Beverage Marketing Corp. reported that U.S. soft-drink consumption declined 3.8% to 760 8-oz. servings per person. That’s still the world’s benchmark for fizzy water, of course, but U.S. soda consumption has declined 10.5% since 2000.
Although McDonald’s pursuit of the soda market may have slowed, the chain seemingly hasn’t given up on its plan, especially now that it has a new, expanded arrangement with Coca-Cola, whose support it will need to convince operators to buy into packaged beverages. In the next year, watch for McDonald’s to test the addition of beverage coolers–like those you find in 7-Eleven and other c-stores–in restaurants it builds and remodels. There’s billions of dollars at stake, and McDonald’s isn’t one to leave money on the table.