McDonald’s and Coke's Marriage Might Need a Refresher

0:00Hey, it's Ryan. Our colleague Imani Moise is here to guest host today's episode. Here it is.

0:11McDonald's and Coca-Cola are two of the world's most recognizable brands, and their success has been in part due to their more than 70-year collaboration. It all began in an Illinois parking lot in 1955.

0:27Heather Haddon:So Whitey Pratt was a salesman at Coca-Cola, and he was looking to develop new business for the company. And he met with a new franchise restaurant CEO named Ray Kroc. Our colleague Heather Haddon covers restaurants. And he found Ray Kroc outside of a restaurant he had just opened in the Chicago suburbs. and they struck up a friendship and a business relationship that would span for decades and decades. McDonald's was basically a startup back then. This was the first location east of the Mississippi. But Kroc had plans to go bigger. One thing Ray Kroc was really known for is uniformity and consistency in his restaurants.

1:14Heather Haddon:So he wanted to pick suppliers that could scale as much as his ambitions for the company. So he was seeing this very small restaurant chain that he had just embarked on as one day operating restaurants all over the country. And so he wanted products that he could serve in these restaurants all over the country, and they wanted it to be uniform, whether that was ketchup or cola. So in the parking lot that day, Waddy Pratt had a pitch. Coke should be the signature drink at McDonald's. Kroc liked the idea. And so he decided that Coca-Cola, the regular Coke, would be the beverage of choice in his McDonald's restaurant.

1:59Striking a storied handshake agreement to just marry these two brands, you know. So it's really very all-American, the story. That's our colleague Laura Cooper. She covers the beverage industry. So while this, you know, started out as Coca-Cola, It's grown to involve, for instance, Sprite and all kinds of different drinks over the years. The partnership has helped make both brands into American icons. But the relationship is having issues. Because McDonald's is no longer content planning all of its drinks around Coke. Tastes are changing.

2:41Heather Haddon:People are looking for things other than just soda at McDonald's.

2:48Welcome to The Journal, our show about money, business, and power. I'm Imani Moise. It's Thursday, June 25th.

3:01Coming up on the show, for 70 years, Coke and McDonald's have been joined at The Sip. But customers are thirsty for something new.

3:19This episode of The Journal is brought to you by Harvey, an AI platform designed for legal and professional services. Built and tested by lawyers, Harvey is trusted by more than 60 % of the AMLA 100. The platform dramatically reduces time spent on research, drafting, and document review without sacrificing quality, all while meeting the highest industry standards for security and compliance. Harvey, AI tailored for law. Visit harvey.ai to learn more and request a demo.

3:57Back in the 50s, when McDonald's and Coca-Cola first went into business together, brand partnerships weren't really a thing.

4:07Heather Haddon:Fast food was in its infancy then, so there really wasn't big national chains like we know today. You know, there was regional burger players. There was regional restaurants. Ray Kroc wanted deals with national suppliers to keep things simple and cheap. And it also meant that the quality and what you could expect at a McDonald's was uniform all over the country as it grew. And clearly, McDonald's has grown and grown. And since that fateful parking lot handshake, one of its longest-standing suppliers has been Coca-Cola. The company has been part of McDonald's DNA as the chain has grown to become a global franchise.

4:43Remember those old-fashioned fountain glasses made famous by Coca-Cola? Well, right now, you can take home one of those classic glasses for 29 cents when you buy a medium-sized Coke at McDonald's.

4:53Heather Haddon:You know, for Coke, McDonald's really helped expand all over the world because McDonald's had a lot of these existing relationships and existing franchisees in other countries. McDonald's helped introduce Coke products to Russia as the restaurant expanded there. It became a huge market for Coca-Cola. Well, it's been 14 years in the making, and today, finally, McDonald's threw open the doors to its first restaurant in Moscow. And make no mistake, this was an event of major gastronomic proportions. Coke took it very seriously. They also created their own division within Coca-Cola called TMD, the McDonald's division, which is a separate division within Coca-Cola that just deals with McDonald's.

5:38So it shows you how important the McDonald's account is.

5:47Together, the two companies created the Value Meal and the idea that a McDonald's burger wouldn't be complete without an ice-cold Coke.

5:55Heather Haddon:They became a really key partner in developing the extra-value meals that we all know that McDonald's and now many other chains offer. ...size order of our golden fries plus a large Coke for just 39 cents more. Try a triple cheeseburger with fries and a Coke and an extra value meal. So that's a sandwich or chicken nuggets and fries and a beverage. You know, these were novelties in the 1990s when they first started expanding across McDonald's restaurants. And you would get all that for an affordable price, cheaper than buying all these items a la carte. These meal deals boosted sales for both companies.

6:33Here are your eight Big Macs, 10 fries, and your Coca-Cola Classic. You must really be hungry.

6:38Heather Haddon:Nope, just lucky. Coke was on the TV screen for so long for McDonald's ads and generating sales in those restaurants and for McDonald's to have this key partnership expanded its line of products. Coke products aren't the only drinks on the menu at McDonald's. Dr. Pepper got a spot on the fountains, and some locations even briefly experimented with selling bottled Pepsi products. But Coke has always been king. Get your burgers taste now!

7:16So McDonald's brought Coke to the world. And Coke brought customers to McDonald's for a drink they couldn't get anywhere else. Literally. Because Coke at McDonald's is unique. They have worked really hard to make Coke the best tasting in all of the McDonald's restaurants. A lot of people say that if you get a McDonald's Coke, it's crisper than if you were to get it anywhere else. So they put a lot of time and effort into that. Have you ever had a Coke at McDonald's and thought there was something kind of different about it? That's not just in your head. McDonald's says the water they use for Coke is filtered in a specific way.

7:55It's also chilled to a particular temperature. And the syrup concentration is special too.

8:01Heather Haddon:The regular Coca-Cola syrup is trucked to McDonald's restaurants and it is siphoned off in a hose, which means it's never housed in plastic containers, which both sides say, you know, that keeps the quality and the taste far superior than you would get in other restaurants or what you would get off the shelf. That sounds like a lot of effort for a soft drink. Has it paid off for the companies? They would say so, yes. So McDonald's is the biggest restaurant that Coke has among its customers. Insiders talk about the McDonald's Coca-Cola collab as greater than the sum of its parts. There is an expression that you can hear within these companies that one plus one is greater than two, or one plus one is three.

8:46Heather Haddon:And I think that does reflect that, that they view their work together as better themselves beyond just what they would be independently. You know, they share data, they have this team within Coke that's just devoted to McDonald's business, that they just get more out of this work together than they would by themselves. It's been a 70-year marriage. But customers' changing tastes are starting to complicate their relationship, specifically the demand for more drink options. And competitors are cashing in. Taco Bell's Mountain Dew Baja Blast, a custom collaboration with Pepsi, now brings in a billion dollars a year.

9:32Fruity refresher drinks at Starbucks are a$2 billion brand.

9:36Heather Haddon:You know, anyone who has gone to a Starbucks in the last decade knows this is the way things are going. There's more cold foam, there's more boba, there's matcha in beverages. You know, there's just all kinds of variants of beverages today. And traditional soda just isn't enough. So it's really just been an explosion in these different kinds of chains offering all kinds of drinks. And beverages are easy money for restaurants, right? Yeah, beverages are big business. I mean, beverages have some good margins. I think that they can bring people in and make more money for companies. And so it's definitely an important category for restaurants.

10:19McDonald's estimates the global market for drinks has grown to be worth about$100 billion. And the company wants a bigger piece of that.

10:28Heather Haddon:McDonald's franchisees and executives for a long time now have been asking for more options. They've been asking for different things that they can provide in their restaurants. I think there was just kind of a sense that the Coke range had stalled out a bit. And that has meant that, you know, McDonald's has had to look around and say, we need to offer something different than just Coke for our consumers.

10:53After the break, McDonald's explores opening up its relationship with Coca-Cola.

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11:40Things are changing for McDonald's and Coke. One former McDonald's franchisee who works closely with Coca-Cola told Heather, quote, Coke gets the message that we want more from them. And Coke has offered McDonald's some new options over the years.

11:56Heather Haddon:One of the things that Coke pointed to in their arsenal of innovation was these freestyle machines, which you might have seen if you've gone to a movie theater. And a lot of hotels have them where you could mix all different kind of flavors together, you know, just punching buttons. And McDonald's did try it. McDonald's franchisees did test them in their restaurants, and they just did not perform in ways that they hoped. A lot of people found them cumbersome and expensive, so they didn't embrace it.

12:27McDonald's also tried offering bottled Coke brands like Monster Energy and Vitamin Water.

12:33Heather Haddon:And then those bottled beverage tests, they also just didn't do as well. You know, it wasn't the same level of quality and freshness as those fountain beverages. And it was harder for people to know they were there, You know, when you're going through a drive-thru, it's just not the same as knowing what's on the fountains at McDonald's restaurants. Offering Coke products in new ways wasn't quite cutting it. So McDonald's tried something really different. McDonald's had a very short-lived restaurant concept called Cosmics, which started in 2023. and this was going to be a new kind of spinoff concept that would be more oriented to these younger consumers looking for treats and snacks and drinks and pick-me-ups, particularly in the afternoon, which is what McDonald's is really trying to compete for, more afternoon customers, younger customers.

13:27At Cosmix, drinks were the star, and not everything on the menu came from Coca-Cola.

13:33Heather Haddon:And so it offered, you know, some snacks and donuts, but what it was really geared towards is beverages. And so they had some frappés, they had a churro chiller, popping boba drinks. And some of these drinks Coke was involved in, but others, they weren't.

13:53Eventually, McDonald's pulled the plug on Cosmix. But what worked was the drinks. They added six new options to regular McDonald's menus earlier this year.

14:02Heather Haddon:There were three refreshers that included freeze-dried fruit in them, and then a Sprite drink, a Dirty Dr. Pepper, and then I believe it was a high C drink. And these had cold foam in them, and you could customize the drinks to a limited degree. These last three are part of the dirty soda drink trend. So maybe for the uninitiated, what is a dirty soda? A dirty soda is essentially if you were to take a soda and put different syrups and juices and things in it. So for instance, I had one recently that was like, I think it was Pepsi, cream, and wild cherry. And McDonald's is doing that with different sodas, but namely Sprite.

14:50Heather tried some of them.

14:52Heather Haddon:So I went to the headquarters and I, me and a lot of influencers were there to try these drinks. I'm at McDonald's Global Headquarters to taste refreshers, dirty sodas, and other cold beverages that the chain is rolling out to U.S. restaurants through. The drinks are, yeah, very brightly colored. They're very sweet. McDonald's just came out with some new fun drinks, so let's try them. Do you guys know that McDonald's came out with new refreshers? I like this better than Starbucks. I know. I know. The cold foam ones have a richness to them, and I think this is exactly what the company wants. They want something that looks new and fresh and exciting and hope will trend on TikTok and social media.

15:36Beyond these new dirty sodas, McDonald's also has a whole new partnership in the works, a deal with Red Bull, which is not owned by Coke. Coke says it respects McDonald's decision.

15:49Heather Haddon:in august we know through our reporting that they're going to start these red bull infused drinks they're going to have syrups in them and other mix-ins i do think when the red bull drinks come out that will be a real splash because red bull is a big name it has a lot of currency including among younger consumers and this is a real first this this this brand partnering So big deal for both of those companies. Instead of selling fast food with a drink on the side, with these new offerings, McDonald's is flipping the script, focusing on selling drinks first. McDonald's would love to have new customers coming to their restaurants for these beverages, and they even served us what they believe customers will order with these drinks.