McDonald’s Calling The “Doctor”

Highlights include McDonald’s Corp. (MCD), The Coca-Cola Co. (KO), Dr Pepper Snapple Group Inc. (DPS), Starbucks Corp. (SBUX), Burger King Holdings, Inc. (BKC), Wendy’s Arby’s Group Inc. (WEN) and PepsiCo, Inc. (PEP).

McDonald’s (MCD) is replacing Pibb Xtra (aka Mr. Pibb) from Coca-Cola (KO) with Dr Pepper at all of its 14,000 U.S. restaurants. The 5-year agreement with Dr Pepper Snapple Group (DPS) will expand the availability and market share of Dr Pepper.

Dr Pepper’s “shelf space” at McDonald’s is almost doubling from 8,500 to 14,000 soft-drink slots, along with expanding into McDonald’s restaurants in the important Chicago, Los Angeles and Northern California markets.

McDonald’s is increasing its variety of fountain and bottled drinks in order to complement the McCafe espresso-based drinks that are available in 70% of its U.S. stores. McDonald’s expects that the larger variety of drinks will create incremental beverage sales outside of breakfast hours in the company’s effort to lure customers from Starbucks (SBUX) and Dunkin’ Donuts (privately held).

On the other hand, the management of Dr Pepper Snapple Group has achieved its goal of making Dr Pepper available in restaurants nationwide in 25 of the top 30 fast-food chains. Dr Pepper is already available nationwide at Burger King’s (BKC) 7,500 U.S. stores and Sonic’s 3,500 restaurants. Dr Pepper is available at 80% of Wendy’s (WEN) locations and at 60% of Subway’s (privately held) stores.

As McDonald’s exclusive supplier of cola, lemon-lime, and root beer beverages, The Coca-Cola Company still supplies the foundation of McDonald’s soft drink offerings with four of the eight soft-drink slots in a typical McDonald’s restaurant. However, Coke is expected to lose volume share with not only Pibb Xtra being dropped from McDonald’s national fountain roster, but also Powerade.

However, certain brands of Coke bottled products (such as Powerade Mountain Blast, Dasani water, and vitaminwater XXX) will remain available at selective McDonald’s restaurants.

According to Beverage Digest, Coca-Cola has about 70% of the soft drink fountain market, followed but PepsiCo (PEP) with approximately 20% and Dr Pepper with around 10%. The McDonald’s-Dr Pepper agreement should significantly increase Dr Pepper’s market share and top-line, though management has not yet quantified the magnitude of the impact.

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