McDonald’s announced that they are phasing out self-service drink stations for dine in customers by the year 2032. The stated reason is to “create a consistent experience across all occasions”.
Opinion:
The real reason for this move is that it will save them millions of dollars on the ever and rapidly increasing cost of Coca-Cola syrup. Coke syrup cost has risen at a rate higher than inflation for more than 20 years.
This move is a shot across the bow to Coke. It is likely Coke fought hard to prevent the change. It will reduce the amount of syrup usage, and therefore revenue for Coke, while not affecting McDonald’s revenue at all. And we all know how the foodservice business follows the moves made by McDonald’s. The move away from self-serve in the rest of the industry can’t be far behind.
Facts:
1) Self-serve usually nearly doubles the cost of ingredients for a fountain drink served in the dining room. And depending on the restaurant concept, it could add more than three times the cost.
2) Self-serve drinks take up a lot of real estate in the dining room also. That’s space that could be eliminated or repurposed to revenue-generating activity.
3) McDonald’s has seen a significant shift to off-premise consumption, making this move fairly low-risk for them.
Should you follow McDonald’s example?
Opinion:
We think it depends on your concept, technology, mix of on and off-premise consumption, and your tolerance for further soft drink company price hikes. Let’s look at each of these factors.
a. Concept: If you advertise or promote customization, it is possible that you want to continue to offer self-serve drinks. The drink station offers consumers a way to customize their offering.
b. Technology: If you believe that speed of service and labor savings are gained from handing consumers a cup instead of pouring the drink, you may be right. It is worth a look. Keep in mind that McDonald’s uses very expensive robot-like technology to automate drink pouring. Labor is not an issue for them when it comes to crew-serve drinks right now. In the future, it looks like they will be implementing a table-delivery model for dine in customers.
c. Occasion: Is your occasion mix mostly off-premise? If so, then self-serve drink stations are likely a waste of space and capital. But if the mix of your occasions is still at least 50% on-premise, self-serve can be viable, if other factors discussed here point to it.
d. The most important and maybe most overlooked factor is the price of your fountain syrup. We have seen 5% to 8.5% price hikes lately. But even before that, when inflation was in the 2% range, the price of soft drink syrup was increasing annually 3.5% to 4.5%. There was no correlation between input cost and pricing to the restaurant industry.
Ten years ago, in September of 2013, the published price of Coca-Cola fountain syrup was $12.73 per gallon, or $63.65 per bag in box. It is now $19.90 per gallon, or $99.50 per bag in box. A hike of nearly 60% over that period. It is likely that no other item in your food cost portfolio has risen at that rate.
There will be further discussion about the implications of this decision by McDonald’s. It is a huge blow to Coca-Cola, and it made news in every conceivable news outlet. The pushback from Coca-Cola had to be tremendous. The President of the McDonald’s team, the team that serves the McDonald’s business for Coca-Cola, reports directly to the Chairman of the board and CEO of Coke. This could be perceived as a major failure for that account management team. It would not be surprising to see a change in that leadership because of this decision. Especially since it will affect both Coke and Pepsi’s fountain business across the industry.