Smoothing a smoothie launch at McDonald's

It’s hard to imagine a firm asking its sales force to reign in sales of a new product for which it has high hopes, but that is effectively what McDonald’s is doing with franchisees and its new smoothie offering (McDonald’s Cuts Aggressive Smoothie Promos Ahead of U.S. Launch, Jul 2, Wall Street Journal). Here’s the scoop: The Golden Arches are launching a new smoothie product with the official coming out party scheduled for July 13th.  Expect lots of ads. However, before the advertising blitz, they need to load up the supply chain.  That means, the stores have the stuff and are capable of selling it. And they may well be excited about selling it because drinks generally have fatter margins and the whole point of this product is to drive traffic at otherwise slow times of the day. But having stores jump the gun is messing up McDonald’s launch plans.

McDonald’s is trying to rein in sales in the two weeks before the company throws the full weight of its national marketing machine behind the product, according to internal company documents. McDonald’s has ordered some stores in the South and Midwest to stop offering free samples in stores and to cut down on tasting events, where trucks offer samples at sporting and other gatherings. Some Southern markets are being told to take down posters and other in-store signage promoting Smoothies, unless they have a “Coming Soon” tag.

Smoothies supplies are “flying out too fast and the supply chain was predicting a catastrophe if they didn’t reel it in some,” said one McDonald’s franchisee who declined to be named because the company forbids store operators from discussing internal matters. …

“In an effort to gear up for the national launch and make sure we’re all aligned and have sufficient supply for our national marketing efforts, we have scaled back a bit on some of the local efforts,” [McDonald's spokeswoman Danya] Proud said.

So this is an interesting supply chain contracting problem. For one, I have only seen a limited amount of research on aligning inventory and promotional spending. I think it is reasonable to expect that a lot of folks will be willing to try McDonald’s new drink (whether they become regular consumers is a different question). Having it available when there is interest and excitement in the market seems key. But the interests of the principal (Mickey D’s) and its agents (its franchisees) potential diverge. The franchisees have little reason to sit on a product that is taking up space in their stores and sells for a good margin. On top of that, McDonald’s has some sort of reward for stores that end up in the top 25% of smoothie sales. A franchisee then has an incentive to woo its customer base and get them acclimated to coming in for an afternoon snack. McDonald’s likely would be happy if everyone starts buying these things everyday — assuming they have enough supply. If they run into supply hiccups (smoothies involve processed fruit that the chain doesn’t usually handle), then they may be concerned about disappointing customers and blowback from franchisees who followed their launch rules while other moved early.