From Beverage Digest 5/30/97

Coke Offers Exclusivity 'Rewards' to McDonald's
Restaurants. Dr Pepper/Seven Up Counters.

Multiple industry executives/bottlers say Coke intensifies strategy of persuading McDonald's, in words of one, that "Coca-Cola provides (McDonald's restaurants) with a valuable and complete portfolio of brands and that they don't need other brands." Executives tell BD that Coke recently offers McDonald's restaurants "rewards" -- also called "syrup bonuses" -- if they agree to sell only Coke brands. Even though all McDonald's restaurants in US sell Coke, many also sell Dr Pepper. Several executives say potential rewards include 200-600 gallons of free syrup to restaurants which agree to sell only Coca-Cola Co brands. Amount of free syrup depends on when restaurant agrees to Coke product exclusivity -- June 30, July 30, September 30 -- plus volume growth. Bottler says McDonald's gets about 150 servings per each gallon of fountain syrup. Observes: "If a McDonald's got 400 free gallons (of fountain syrup), that's (about) 60,000 retail servings." Dr Pepper/Seven Up. In response to Coke's overture to McDonald's, several executives say DPSU: 1) matched Coke's offer. 2) offered McDonald's "equally aggressive program." 3) "Responded with a letter to Coke telling Coke if you proceed, (DPSU) will take all possible means to confront the issue."

Coke. Coca-Cola Co executive: "There is nothing unusual here. It's all about healthy competition that serves to benefit our customers and consumers."

DPSU. DPSU CEO Todd Stitzer: "Consumers clearly value choice, and unique brands such as Dr Pepper should be available wherever and whenever consumers want them. All of our Dr Pepper bottler partners, including many Coca-Cola bottlers, clearly value and support brands like Dr Pepper which are important to their business, and we are extremely grateful for their continuing consistent superior volume growth." Adds: "The Coca-Cola Co on the other hand continues to use its dominant position, particularly in the fountain and convenience channels, to attempt to systematically eliminate freedom of choice for consumers. We at DPSU will continue to do whatever it takes in whatever channel to assure that Dr Pepper and our other great brands are available to consumers." Plus: "Based on prior history, we expect to hold our own."

McDonald's. McDonald's franchisee tells BD: "(Coke's program) would be a windfall for those of us that already are exclusive to Coke." Adds: "My only complaint is I think they should have pegged it to a restaurant's usage, not flat amounts. But I'm pleased."

McDonald's 1995 Coke letter. In 1995 McDonald's urged company's restaurant owners not to serve Dr Pepper. In 1995 McDonald's USA president/CEO Ed Rensi wrote restaurant owner-operators: "We do not believe adding Dr Pepper to our stores is a good long-term business decision for McDonald's ... Coca-Cola has earned our business as our valued supplier and partner ... If you are serving Dr Pepper in your restaurants, I strongly encourage you to reconsider that decision." Adds: "Dr Pepper cannibalizes Coca-Cola." At time, McDonald's senior vp Dick Starmann tells BD that Rensi's memo is "just suggestions ... We've always encouraged our operators to use Coke brands" (BD 4/7/95).

Perspective. Industry executives see Coke's recent efforts with McDonald's as part of company's overall strategy of getting its bottlers and customers to focus on its own portfolio of brands. In 3/96 Coca-Cola Enterprises plus other Coke bottlers begin delisting DPSU brands in favor of Coke brands. Independent bottlers say some Coke bottlers offer C-stores incentives to focus on Coke brands. Pepsi impact. Executives also say Coke's efforts partly a response to Pepsi's recent intensified focus on fountain business (BD 1/24/97). Wendy's/Domino's. Separately Coke and Wendy's recently sign new fountain business agreement. Also, Coke signs new 4-year pact with Domino's pizza chain.

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