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McDonald's Plays-Off Pepsi Against Coke

News, 13 March 2007

OAKBROOK, Illinois: As a Michelin three-star restaurant offers only vins des grand cru, McDonald's customers expect no other cola than Coke - although the underlying rationales for those decisions are likely to be very different.

Or were.

In a ten-month pilot scheme, and for the first time in its 67-year history, McDonald's is presenting its customers with a cola choice: Coke . . . or Pepsi.

The latter, however, is available only in bottles and cans, whereas Coke flows fizzily from fountains. Moreover, the choice is restricted to a handful of participating outlets.

Nonetheless, the pilot is judged a success by two of the three participants and is likely to be extended from the Texas cities of Bryan and College Station, plus Kansas City, to a third market: Wichita, Kansas.

According to an anonymous executive: "Where consumers have freedom of choice, like they do in stores, that's where you see Pepsi have a lead. It's fountain that tips the scales for Coke, and it's McDonald's that tips the fountain scale."

When (if?) the choice is rolled-out nationally, it could finally push long-time runner-up Pepsi onto the winner's podium. "This to me is the beginning of the end," opines the anonymous insider, who estimates that McDonald's sales contribute up to 10% of Coke's North American profit.

"If 10% of your cash flow in North America [flips] from Coke to Pepsi," opined the executive, "Coke's share leadership will unravel. That's what convenience-stores have already found out."

  • In a separate (but perhaps not unrelated) move, Coca-Cola announced a major reorganisation of its North American operations, including the creation of a unit dedicated to developing new products outside its traditional soft drink category.

    The US soda market slipped by 0.6% overall last year - three times the decline registered in 2005 - and would have been greater but for strong growth in energy drinks [WARC News: 12-Mar-07].

    Coke's domestic portfolio will henceforth be separated into three new business units: sparkling beverages, still beverages and emerging brands.

    The latter initiative, which will focus on NPD, signals Coca-Cola's determination to respond to the shifting sands of the US beverage market.

    Coca-Cola North America president Sandy Douglas vows that the company will become "the US growth and profit leader in emerging ideas, brands and categories".

    Data sourced from and Financial Times; additional content by WARC staff