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McDonald's to Cut Prices on Drinks as Fast-Food Industry Slumps

by Leslie Patton

February 22, 2017, 3:00 AM MST


  • Promotion will offer $1 sodas, McCafe beverages for $2

  • Rising food costs may be pushing chain toward latest strategy


McDonald’s Corp., reeling from an industrywide restaurant slump and slowing growth from its all-day breakfast push, is looking to beverages to help perk up the business.

The world’s biggest food-service company, which last year focused its advertising on cheeseburgers and chicken sandwiches, plans to offer $1 sodas and $2 McCafe specialty drinks across the U.S. It’s turning to higher-margin beverages at a time when cheap grocery prices are prodding more Americans to eat at home. The drink promotion may also help McDonald’s cope with the eventual rebound in food costs.

McDonald’s has been revamping its menu and marketing since Steve Easterbrook took the helm almost two years ago. Along with the introduction of all-day breakfast, Easterbrook has relied more on discounts and promotions across the country. Last year, the chain advertised two-for-$2 and two-for-$5 deals to bring back diners they’d lost after nixing its popular Dollar Menu.

McDonald’s leads a $228 billion U.S. fast-food industry that faces slackening growth. After increasing 2.4 percent last year, revenue gains will slow to 1.5 percent this year and 1.6 percent in 2018, data from researcher IBISWorld show.

“Demand has been a little weak,” said Jack Russo, analyst at Edward D. Jones & Co. “A lot of these guys think they’ve got to keep promoting to keep people coming in the door.”

The McDonald’s promotion, which starts in April, will include soft drinks of any size for $1. For a limited time, customers can also buy small McCafe beverages such as smoothies, frappes and espresso drinks for $2. At stores in Chicago on Tuesday, small McCafe frappes sold for between $2.69 and $3.09. The chain plans to support the rollout with national advertising.

The strategy aims to create “noticeable changes” for customers, said Adam Salgado, vice president of U.S. marketing at Oak Brook, Illinois-based McDonald’s. “It’s adding another layer of great value for customers with more choices.”

READ THE FULL STORY AT BLOOMBERG.COM.

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