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McDonald's focuses on discount drinks

News, 24 February 2017
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CHICAGO: McDonald's, the quick service restaurant chain, is planning to entice customers back to its stores by launching a nationwide promotion of discount soft drinks and McCafé beverages.

Starting in April, the promotion will offer consumers soft drinks of any size for just $1 while, for a limited time, they can also buy small McCafé drinks, such as smoothies and frappes, at $2 each.

Supported by a national advertising campaign, the strategy aims to create "noticeable changes" for customers, according to Adam Salgado, VP of US Marketing at McDonald's. "It's adding another layer of great value for customers with more choices," he told Bloomberg.

"We know that there are budget-conscious consumers out there. Value will always be a part of our strategy," he added.

Like other brands in the fast food sector, McDonald's faces a market that is experiencing weakening growth as cheap grocery prices encourage more US consumers to eat at home. And it comes amid mounting evidence that consumers are increasingly opting for healthier meal choices.

According to research firm IBISWorld, after recording 2.4% revenue growth last year, McDonald's is expected to see its growth slow to 1.5% this year before rising slightly to 1.6% in 2018.

Bloomberg also reported that McDonald's shift to the promotion of beverages should help the company when food costs begin to increase again.

Indeed, commodity price inflation is something that PepsiCo already anticipated when it announced its full year results last week.

Beverages also command higher margins, which will help McDonald's to offset the cost of discounting. According to Peter Salah, an analyst at BTIG LLC, gross margins for drinks can be as high as about 90%, while they are about 65% to 70% for food.

Beverages are "some of the highest-margin products, so they can probably afford to do it," he said.

Data sourced from Bloomberg; additional data by Warc staff

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