McDonald’s Corp. is urging its store owners in the Western U.S. to slash large soda prices to $1 this summer in a move the company hopes will attract consumers away from convenience stores, a company memo obtained by Crain’s Chicago Business showed.
"Let’s take the c-store drink out of their hands and build our transactions," said the April 2 memo sent from Steve Plotkin, McDonald’s western division chief, to franchisees in that region, the report said.
Plotkin asked the franchisees to discount one of their most profitable items, and signaled the company’s concern about the effects of a slowing economy. "Value is integral to delivering for our customers in this economic environment," the memo said.
While franchisees usually go along with such requests from McDonald’s, the strategy carries risk. Discounting beverages could boost sales, but store owners would probably see profits drop when the price of 32-ounce drinks at many restaurants is cut in half, Crain’s reported. Rivals could respond by cutting their own prices.
"Times are tough, and this could be a beverage war," said Dennis Lombardi, an Ohio-based restaurant consultant. "This is tapping into an area that historically fast-food chains have not wanted to go."
Lombardi said restaurants usually don’t discount drinks because it 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.
McDonald’s and its rivals are already offering more burger and breakfast deals as the economy slows. McDonald’s executives now want to take the low-price battle to the fountain machines and directly to 7-Eleven and other convenience stores that have long promoted Big Gulp-type deals.
The company is already going after the convenience store customer by selling bottled drinks, part of its bigger beverage strategy that includes specialty coffees to compete with Seattle-based Starbucks Corp.