Smoothies coming to McDonald's as competitors watch and wait

By Jeremiah McWilliams

The Atlanta Journal-Constitution

In the Great Smoothie Race of 2010, McDonald's has the jump on its sandwich-selling competitors, who don't seem sure they even want to compete.

McDonald's, the market leader in fast food, officially will introduce its first fruit smoothies in strawberry-banana and "wild berry" flavors on Tuesday after weeks of a soft launch in area restaurants. The company aims to stake a big claim on fruity beverages after already doing the same in the coffee market.

The smoothie segment posted steady growth from April 2004 to March 2009 , and held up relatively well through the recession. Servings declined in the year ending in March, but the long-term trend has been positive, said Bonnie Riggs, a restaurant analyst with NPD Group.

"McDonald's watches trends very closely," Riggs said. "They see something that's growing, and they're going to get a piece of it."

The smoothie category is small compared with other beverage categories such as specialty coffee. Americans consumed 422 million servings of smoothies between April 2009 and March 2010, according to NPD. In that span, they had 2.57 billion servings of specialty coffee, or six times as many.

Smoothie sales are heaviest on the West Coast, with mediocre saturation in Middle America. That might explain why fast-food operators have been slow to jump into the game, leaving most of the market to outfits such as Smoothie King, Jamba Juice, Tropical Smoothie and Planet Smoothie, as well as Starbucks and Baskin Robbins.

McDonald's, which has about 280 restaurants in the Atlanta market, is following a familiar game plan. It is expected to become a major player in smoothies, just as it did in coffee. .

The "hamburger" category -- including McDonald's -- has increased its share of the specialty coffee market, with gourmet coffee places losing market share, Riggs said. She credited McDonald's iced coffee and specialty coffees with broadening the demographic reach of specialty coffee among 18-34-year-olds who have lower income than the typical customer of gourmet coffee shops.

McDonald's foray into the beverages seems to have paid off. Franchisees had to make significant capital investments to build McCafe stations. Executives hoped the buildout would add $125,000 in extra beverage sales per restaurant. McDonald's stores are running well ahead of that goal on average, said Morningstar analyst R.J. Hottovy.

The smoothies are intended to attract people who want a snack instead of a full meal, generally between 2 and 4 in the afternoon. That snacking window has delivered much of McDonald's growth in recent months.

In the weeks before and after the official launch, McDonald's is pushing the fruity concoctions with free samples, television commercials and billboards. It had a "smoothie skybox" at the Peachtree Road Race on July Fourth.

"The whole beverage initiative for McDonald's is a major effort," Hottovy said. "I expect them to have pretty good success with the smoothie program. It's accessible to a wider audience, and this is something that kids can enjoy."

Bobby Williams, vice president of marketing at Louisiana-based Smoothie King, said it will help to build awareness of the smoothie category to have McDonald's involved.

"McDonald's is the 900-pound gorilla in the room," he said. "Whenever they roll with something, it creates a halo effect."

McDonald’s is not a threat on the smoothie front, said Becky Shell, vice president of marketing for Atlanta-based Petrus Brands, parent company of Planet Smoothie.

“We are not fast food,” Shell said. “The way we serve smoothies is not fast-food style.”

The McDonald's smoothies are priced at $2.29 for a 12-ounce serving, far below the typical drink at a smoothie-centric chain.

"We will never be able to compete with McDonald's on the price of a smoothie, just like McDonald's will never be able to compete with us on the quality of a smoothie," Williams said.

Executives at fast-food competitors such as Wendy's, Arby's and Chick-fil-A have not made smoothies a top priority. Chick-fil-A executives say the company won't move forward on the smoothie front until it can figure out how to make the drinks faster.

Chick-fil-A tested blueberry-pineapple and strawberry-pomegranate smoothies last year in Indianapolis, Knoxville and Austin. The company said customers liked the drinks, but it took employees too long to make them: up to two minutes in some cases, compared with a target time of 30-45 seconds.

Meanwhile, neither Wendy's nor Arby's has smoothies on its menu. Nor, apparently, are there plans to add the drinks.

Rather than introduce smoothies, Wendy’s plans on expanding its Frosty lineup -- part of the original five items on founder Dave Thomas' 1969 menu -- with Frosty shakes, floats, and a "coffee toffee twisted Frosty," said Bob Bertini, spokesman for Atlanta-based parent company Wendy's/Arby's Group.

Likewise, Arby's is focused on its jamocha shake. "We don’t speculate on new product development efforts," Bertini said. "But our focus has been and continues to be leveraging our core, distinctive menu items."

Vicki Phelps Chancellor, a McDonald's owner-operator who also serves as president of the Greater Atlanta McDonald's Operators Association, said McDonald's carefully tested its smoothies for more than two years in cities such as Detroit and Bakersfield, Calif.

"We don't need to be the first on the block," she said. "McDonald's is not a fad."