McDonald's Nears Decision on Bottled Drink Sales

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McDonald's Nears Decision on Bottled Drink Sales

OAK BROOK, Ill. -- After testing what it believes could be a billion-dollar annual sales builder, McDonald's Corp. is coming to a decision on whether to expand its U.S. beverage options to include specialty coffee, bottled drinks, smoothies and sweet tea, Dow Jones Newswires reported.

Called the Combined Beverage Initiative, an internal document stated the project would "help McDonald's become a credible destination for beverages by developing and implementing new profitable [...] offerings that our customers want," the report stated.

Widening its beverage options is part of a strategy to boost the company's average annual domestic restaurant sales to $2.5 million, from the current average of about $1.9 million, the report stated. Incremental profits are projected to reach $50,000 or more annually, on incremental sales of $100,000 per restaurant. If all 13,700 U.S. locations were to implement the system, sales could top $1.3 billion, according to the report.

While the company has designated an officer to oversee the project, it will not comment on how close it could be to a final decision, the report stated. In addition, McDonald's is not revealing the beverages it may stock for both in-store and drive-thru customers, but has hinted that it may include manufacturers other than Coca-Cola Co., its primary source of carbonated beverages, the report stated.

The initiative "makes tremendous sense," John Sicher, editor and publisher of Beverage Digest, told Dow Jones Newswires. Sicher told Dow Jones about a McDonald's franchisee who told him he was "getting tired of watching people buy a hamburger at his store and a Coke at a local convenience store because they might have wanted a resealable bottle," he said.

However, the project is generating concerns, including its franchise community, the report stated.

One of the concerns is that the cost and profits of the program are debatable. Some operators claim the full-blown installation could cost $100,000 per location, varying on the equipment already at the store.

A recent survey of McDonald's franchisees by independent restaurant industry analyst Mark Kalinowski found more concerns, according to the report. The project "will be expensive and will slow service," one anonymous operator was quoted stating in the survey. "The Combined Beverage Initiative is a real concern for me," said another, adding "We have yet to see any fact-based info to know if this is a good investment or not." While a third responded that "we need to say NO! to a fast rollout of CBI," Dow Jones reported.

In addition, another concern is the extent of company assistance to implement to program.

A company memo to franchisees reviewed by Dow Jones, said that at a meeting, "concern was expressed on the cost of CBI and lack of specifics related to those costs," the report stated.

McDonald's upgraded its beverage program last year, when it rolled out a premium blend of coffee, which gave the retailer's sales a boost in 2006, according to the report.

At an investors' conference in February, McDonald's President Ralph Alvarez said the company was working on a variety of "destination beverages" -- including fruit smoothies, iced coffee, cappuccinos, lattes and mochas -- to partly stimulate more trips to its restaurants, the report stated.