McDonald's (NYSE: MCD) is making a bold bet that new, innovative drinks can spur much-needed growth. The fast-food giant has been testing new beverages in select markets and will introduce even more interesting options this fall. Most notably, a new line of energy drinks in collaboration with Red Bull will hit stores in mid-August.
Unfortunately, I do not believe the novelty drinks are enough to solve the stagnant-growth crisis facing McDonald's and many of its peers in the industry, as well as across the broader consumer discretionary sector. This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia.
For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » McDonald's is in the middle of its turnaround, internally called >NEXT. The strategy aims to simplify operations while adding new and improved menu items.
So far, results have been mixed, but analysts remain cautiously optimistic. Beverages are a worthwhile focus for the fast-food giant. They are high-margin menu items, but drinks alone won't cut it.
Consumers are extraordinarily value-conscious and price-sensitive. Value meal promotions have helped increase sales, and this is really where McDonald's can make a difference, in my opinion. Fast food prices are no longer the bargain they once were.
While gimmicky drinks and promotions are temporary fixes, consumers really just want to know they are getting a tasty meal for a reasonable price. This, combined with cost cutting and increased operational efficiency, will really move the needle. The novelty of a new energy drink will wear off quickly, but giving customers a substantial meal for their hard-earned dollars won't.
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