The McDonald’s Coca-Cola Connection

Having just purchased a hamburger restaurant from the McDonald brothers, Ray Kroc wanted a signature drink. In 1955, after he called Coke, they soon had a handshake deal.

And the rest of the story is history…

Until now.

McDonald’s Connection to Coke

Referring to their 70-year partnership, a Coke executive said, “Since then, our brands have been attached at the sip.” McDonald’s was so important to Coke’s bottom line that it created TMD–The McDonald’s Division. Not only was Coke McDonald’s only Cola but they even replaced Seven Up with Sprite during the 1980s. Reputedly, McDonald’s Coke tastes better because, mixing Coke with carbonated water, franchisees use filtration equipment. They even hose special containers of Coke syrup into restaurants to guarantee freshness.

An economist might say Coke and a Big Mac were complementary goods. Consumed together, demand for one boosts the other:

However, after decades, McDonald’s decided that Coke was not enough. Sort of innovating, they tried selling bottles of soda and a “freestyle” dispenser that let customers mix and match. Both fizzled.

Still, Coke’s new CEO said their relationship was fantastic. Most recently, the two are partnering on “dirty drinks” with Sprite and syrups. However, having tried and failed with Coke’s Monster lineup, McDonald’s focused on coffee and signed a deal with Red Bull.

Explaining, McDonald’s said it was committed to Coke but, at the same time, observing evolving consumer preferences. Responding, Coke is at work developing its Strawberry Hot Honey Lemonade and Blueberry London Fog drinks.

Our Bottom Line: Competition

As an oligopoly, Coke is in rarified territory with other massive corporations. Typically, as few as four or eight companies mass produce for a large number of customers. Because of their size, market entry and exit are difficult. As for strategy, product differentiation rather than price is a preferred approach. Our examples include cola companies, auto makers, cereal producers, pharmaceutical firms.

Indeed, McDonald’s market was the perfect 70-year match for an oligopoly like Coke.

My sources and more: Thanks to WSJ for inspiring today’s post and providing our facts. Then, we used this NY Times article to confirm some of our facts.