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Supplies Thin, McD Cancels Free Smoothies

CHICAGO —McDonald’s smoothie roll-out has been so successful that the firm announced it is canceling a promotional giveaway of the new fruit drink this week, according to the Associated Press. Its concern is that the popularity of its newest beverage could result in the chain’s restaurants running out of smoothie ingredients, which are already stretched because of a hot summer and the drink’s early popularity.

Almost two years ago, franchise owner-operators were told that they would have to invest in the necessary beverage equipment to offer the premium coffee and smoothies of the McCafe lineup. There was just one small problem in an economy that was already turning south. It would cost each restaurant roughly $100,000. The franchise owners balked. In response, franchisor McDonald’s Corp (NYSE:MCD) volunteered to cover half of each restaurant’s cost.

Now the restaurant owner-operators are positioned to reap the benefits of the investment. AdAge reports that the new McCafe line of beverages will add an average of $125,000 to each store’s annual sales. That works well for the franchisor too. The drinks are collectively estimated to add $1 billion to the earnings of McDonald’s Corp.

Darren Tristano of food consulting and market research firm Technomic, Inc. told Blue MauMau that the new drink is a win-win for both McDonald’s Corporation and the restaurants. “The national rollout of McDonald’s smoothie line will likely have a positive effect on the chain’s same-store sales, with consumers upgrading to a higher priced specialty beverage or visiting restaurants for meal replacement or additional snacking opportunity.”

Will the offering of smoothies by the giant brand quash specialized smoothie chains?

Food consultant John Gordon, principal of California-based Pacific Management Consulting Group, thinks it might.

Gordon says that McDonald’s is actually resetting the whole smoothie sector. “The smoothie chains are hobbled with a too expensive, five-dollar smoothie mantra,” observes Gordon. He has conveyed the message to Jamba Juice’s senior management that the real problem is that when consumers buy a smoothie and a food item on the side, it ends up costing them $9.

He thinks that the high price point among premium smoothie chains will be eroded by McDonald’s considerably lower prices. “There is only so much demand for snacks,” he declares.

But food consultant Tristano stresses a different point. He thinks that in the long term, giant McDonald’s will lift the whole smoothie sector.

“The convenience of the McDonalds drive-thru and the attractiveness of the price point will draw some patrons from chains like Smoothie King and Jamba Juice,” he tells Blue MauMau. “But ultimately, the awareness building around smoothies will create increased demand for this healthier (fresh fruit and yogurt) specialty beverage and stimulate growth at more specialized beverage chains.  Over time, the impact will be felt in the frozen desserts category with less being spent on ice cream, yogurt and milkshakes.”

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