Free Refills of Soda and Coffee

Readers Question: What is the economic answer to why do fast food stores offer free refills on sodas?

Firstly, the marginal cost of refilling soft drinks like coca cola is very low. The stores will buy the drinks in bulk. The cost of filling up a drink is merely a few cents. So they don’t have significant costs to fill up drinks.

Secondly, it offers an attractive advertisement. “free drink refills” might attract a few customers into the store who otherwise wouldn’t come. If you gain a few more customers spending $5-$10 this easily makes up for the few cents extra cost.

Thirdly, I wonder how many extra colas people actually get? Fast food stores like McDonalds are not exactly the kind of place people like to spend a few hours relaxing. Also cola is not like drinking beers. You feel pretty full with all the carbonated soda in your stomach.

Overall, it’s a cheap but eye-catching extra the fast food shop can advertise with limited costs to itself.

The interesting thing is why don’t Starbucks / Costa Coffee and coffee shops offer free refills of coffee?

Here, Starbucks may not want customers who sit for 2 hours drinking the same coffee taking up a table. Unlike McDonalds people may want to spend quite a bit of time in the comfy chairs. One problem Starbucks has is that people sit around occupying seats putting off other potential customers. The last thing Starbucks wants to do is to encourage the chair loungers to stay longer.

In fact I’m sure coffee shops would like to find a polite way to get rid of customers who have finished their drink but continue to occupy seats and table.

Also for Starbucks selling coffee is the main revenue source.

For McDonalds they get a greater % of income from selling food. Therefore, they are happy to offer soft drinks as a loss leader if it gets more customers coming into buy food.

By on September 22nd, 2009

4 thoughts on “Free Refills of Soda and Coffee

  1. It is not just the marginal cost, it is the average and/or total cost.

    In fast food places where you can get unlimited refills it is generally self-service. That means that the fast food restaurant does not have to have an employee fill up the cup in the first place. The consequence of having the customer fill the first cup means that the labor savings in total labor costs is greater than the second or even third servicing of beverages that some customers take.

  2. starbucks cranks up the AC to the 60-65 degree region. unless you’re from siberia, it becomes quite uncomfortable sitting in there for longer than 10 minutes

  3. I had always understood that the food in a fast food place was the loss leader or breakeven, and that all the money was made on the drinks which had, as you suggest, a huge markup. If you sell a 5 cent drink for a dollar or more, even with the labor, giving away another 5 cents in soda does not ruin your margins, especially if it enhances sales volume.

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