Industry News | February 27, 2009

Pepsi Fails McDonald's Test-Run

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McDonald’s Corp. ended test sales of PepsiCo Inc.’s bottled Mountain Dew and Gatorade, handing a victory to Coca-Cola Co., the exclusive fountain-drink provider to the world’s biggest restaurant chain.

McDonald’s began testing bottled beverages in 2006 to see if they could boost soft-drink sales. It dropped the PepsiCo products from the test in July 2008, PepsiCo spokesman Larry Jabbonsky said today by telephone. He called the test “a great opportunity and a great learning experience.”

The decision defuses a threat to Coca-Cola’s five-decade relationship with McDonald’s, its largest customer. The chain introduced non-Coca-Cola drinks because it deemed bottled products outside its exclusive fountain agreement with Coca- Cola, sealed with a handshake in 1955 and no written contract.

McDonald’s is still testing bottled products from Coca-Cola to attract customers seeking a wider selection of beverages, such as sports drinks and teas, and the convenience of a resealable bottle at the drive-thru window.

“We continue to work with other national and regional beverage companies--including Coca-Cola--to identify a variety of fountain and bottled beverage options that will meet our customers’ preferences,” Danya Proud, a McDonald’s spokeswoman, says in an e-mailed statement.

Coca-Cola controls about 70 percent of the U.S. fountain- drink market, according to data from Beverage Digest, an industry newsletter. PepsiCo, based in Purchase, New York, controls about 20 percent.

Raising the Flag

Coca-Cola’s fountain dominance is due in large part to the McDonald’s deal. The maker of Diet Coke and Sprite dedicates a stand-alone division to the hamburger chain and raises the McDonald’s flag when executives visit its Atlanta headquarters.

McDonald’s, based in Oak Brook, Illinois, has tested bottled drinks in a fraction of its nearly 14,000 U.S. restaurants, including some in the Kansas City, Missouri, metropolitan area and College Station, Texas. The test has let McDonald’s sell drinks with higher market shares than corresponding Coca-Cola offerings.

The chain decided not to sell the PepsiCo products nationally after the test, Proud says.