McDonald's to Offer Some Pepsi Products in Select Locations

Restaurant giant McDonald's (MCD) — long a bastion of Coca-Cola (KO) products — has quietly started offering non-carbonated beverages made by Pepsi (PEP) at some outlets.

Dave DeCecco, a spokesman for Purchase, N.Y.-based PepsiCo Inc., confirmed that selected McDonald's outlets are offering Gatorade, Propel Fitness Water, Lipton Iced Tea, Tropicana orange juice and Mountain Dew. The outlets won't sell Pepsi or Diet Pepsi.

"We're really excited to be a part of this, and we hope consumers respond favorably," DeCecco said.

McDonald's had exclusively sold Coca-Cola products at its restaurants since 1955. As part of the pilot program, Oak Brook, Ill.-based McDonald's is selling the Pepsi products in bottles, cartons and cans and not as fountain drinks, DeCecco said.

McDonald's spokesman Bill Whitman said in a statement Monday evening that Coca-Cola is working with the restaurant chain on a test of different beverage options in a limited number of U.S. outlets.

"We're encouraged by what we're hearing from our customers," the statement said. "However, it's too early to speculate on test results or specific product offerings."

Ray Crockett, a spokesman for The Coca-Cola Co., based in Atlanta, said, "We are McDonald's beverage supplier and we are working with them on this test to make sure consumers get the choice they want."

McDonald's move comes as health-conscious consumers have decreased consumption of carbonated beverages. Beverage makers who once relied heavily on carbonated soft-drink sales also have put more focus on water and sports drinks as consumers have begun to favor drinks that are perceived to be healthier.

Industry watchers said the decision to expand drink offerings is a smart one for McDonald's executives, who likely realized that a lack of variety in their beverage choices could drive consumers elsewhere.

"It's no longer 'Coke is it,'" said Morningstar senior analyst Matthew Reilly. "There's a heck of a lot of more choices there."

While Coke is still the dominant force in carbonated soft drinks worldwide, that segment of the beverage industry is no longer growing, Reilly said.

Non-carbonated beverages such as iced teas, flavored waters and coffee drinks are gaining ground, and Pepsi has a slight lead in that part of the market, he said.

"Pepsi has been more aggressive in non-carbs," Reilly said. "They realized the opportunities sooner."

Besides selling some of its brands at McDonald's restaurants, Pepsi also has a partnership with Starbucks Corp. (SBUX) for a line of coffee drinks.