McDonald's (NYSE:MCD) wants you to believe that removing soda as the default drink choice from its Happy Meals menu is a success because it's led to higher juice and milk sales in the year or so since the experiment began. But a closer reading of the results suggests the burger joint may be doing itself no favors.
Milking an opportunity
According to McDonald's, the percentage of customers ordering juice or milk with a Happy Meal has increased from 37% to 46%. Meanwhile, the percentage who order soda has dropped from 56% to 48%, indicating that McDonald's is moving the needle in the right direction.
But that's only because it hid soda as an option for the Happy Meals -- it only shows milk or juice as a drink option now. This means customers are going out of their way to buy the carbonated beverages.
So, while there may be fewer customers ordering soda now than there were before, the fact that they are still ordering more soda than milk or juice means McDonald's risks angering them by making them jump through hoops to get what they want. And considering that the burger chain's same-store sales continue their near two-year decline, that could be contributing to the problem.
More and healthier choices
Back in 2013, McDonald's hooked up with the Alliance for a Healthier Generation and committed to helping customers make better eating choices in 20 of the restaurant's largest markets, which represent 85% of its $27.4 billion in global annual sales.
The components of the plan included:
- Make water, milk, and juice the only beverages promoted and marketed on Happy Meal menu boards and in advertising
- Design Happy Meal packaging to generate excitement for fruit and vegetables, and low- or reduced-fat dairy and water options
- "Ensure 100% of all advertising directed to children to include a fun nutrition or children's well-being message"
McDonald's wanted to have 30% to 50% of its plan implemented within three years in the 20 markets it identified, and to have it fully implemented by 2020. It also agreed to offer side salads, vegetables, and fruits as alternatives to French fries. In the annual update on its progress issued last month, the burger chain said it is well on its way to hitting those goals.
McDonald's reported that it sold 21 million additional containers of milk and juice between July 2014 and May 2015 compared to the prior year. It also pointed out that in 2014, only 2% of its U.S. restaurants offered side salads for value meals, but as many as 83% offered it as of this past February. McDonald's also sold 161 million tubes of Go-GURT yogurt between July 2014 and May 2015 and sold 38 million Cuties clementines between November 2014 and March 2015.
Falling in popularity
But at what harm to its business? McDonald's has previously been estimated to capture as much as a quarter of the kids-meal market and has said Happy Meals account for about 10% of its U.S. sales. This works out to about $435 million in company-owned domestic stores and more than $3 billion in domestic franchised locations.
Yet the popularity of kids meals has been on the wane for years. First, toys were taken out of many of them. Then it became cheaper to just buy off the dollar menu or share a meal between family members. NPD Group reports that "visits to fast-food restaurants in which kids meals were purchased have declined every year since 2007", including a 5% decline in 2011 (the last year for which data are available).
McDonald's itself continues to lose customers. U.S. same store sales in May were down 2.2%: the fourth straight month that comps fell and the 13th of the last 16 months the burger chain didn't show growth.
While McDonald's has made soda harder to find and harder to order, customers still want soda for their kids when they order a Happy Meal. That soda still outsells juice and milk indicates parents are rejecting McDonald's progressive push to make meal choices for them. McDonald's thus risks further alienating its core customers by aggressively promoting healthier choices.
Follow Rich Duprey's coverage of all the restaurant industry's most important news and developments. He has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.