McDonald’s into beverage price cut as industry slumps

McDonald's Company

McDonald’s Co. disturbed 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 leads a $228 billion U.S. fast-food industry that faces slackening growth. However, data from researcher IBISWorld shows that after increasing 2.4 percent last year, revenue gains will slow to 1.5 percent this year and 1.6 percent in 2018. McDonald’s shares have gained 5 percent this year, about the same as the Standard & Poor’s 500 Restaurants Index.

Starting April, the McDonald’s promotion will include soft drinks of any size for $1. For a limited time, customers can also buy small McCafe beverages such as smoothies and frappes 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.”

The shift from food to drink may reflect a changing environment. Over the past several years, profits have been helped by cheaper commodity prices. But that may not last much longer: The consumer-price index rose a larger-than-forecast 0.6 percent in January, the most in almost four years, Labor Department figures show.


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