Article

Beverage innovation becoming a necessity

December 8, 2011 by Alicia Kelso — Editor, QSRWeb.com

When McDonald's introduced its McCafe concept in 2009, plenty of skeptics thought the burger-and-fry giant was out of its league. But as the coffee line grew, so did McDonald's bottom line – from $1.13 billion to $1.41 billion in the first year.

McDonald's launched its McCafe concept after watching the international success of chains such as Starbucks, a brand well documented to have elevated the heated beverage category with its lattes, americanos and even hot chocolate.

Now, the McCafe menu features not only coffee, but also smoothies, cappuccinos, frozen drinks and more. Further evidence of the growing beverage category can be found by watching chains such as Jamba Juice and Red Mango, which recently introduced a line of seasonal artisan hot chocolateto complement its frozen yogurt and smoothie offerings.

And it's not only specialty coffee, hot chocolate and smoothies that are making the beverage category overflow with opportunity. Iced/frozen/slushy drinks and iced teas also are experiencing a consumer increase in popularity.

Last year, the National Restaurant Association listed specialty iced tea as the No. 1 nonalcoholic beverage trend. Mintel Menu Insights' forecast also called for a 53 percent increase in iced tea beverages from 2008-2013.

Michael Szyliowicz has as firm a pulse as anyone on the segment. More than 20 years ago, he started Mont Blanc Gourmet, a company that creates specialty beverages for some of the biggest fast casual, quick service and coffee brands in the world.

We spoke to Szyliowicz, about drink innovation, strategies and predictions for 2012.

FastCasual: Specialty beverages have become a major part of menu strategy. Can you describe how this trend came about?

Michael Szyliowicz: Look at some of the best known brands; they're making a name with specialty beverages. The Frappuccino, for example, is iconic and it's only associated with Starbucks. If you look at how McDonald's approached the entire McCafe concept, they took the best of specialty coffee and made it more accessible to a wider audience. They just took what was out there and made it more available and affordable, and now the demand exists at all levels of QSR and fast casual.

Another driver is the growing snack daypart. Operators are looking at how to capitalize on different dayparts, and for coffee, most will obviously come between 5 and 11 a.m. But you have to lure customers into your stores later in the day and by offering smoothies and teas and other specialty beverages, it's a good way to do that.

FastCasual: Considering the power behind brands like McDonald's and Starbucks, should smaller concepts compete? And, if so, how?

MS:They need to follow suit because they have to differentiate themselves from the larger competitors and offer something unique for their customers. If you're adding flavors to tea, for example, it's not really a huge investment. You already have the infrastructure in place, you just need to use that base and add flavors. You could offer seasonal LTOs on that base, as well.

Successful operators are the ones that have a base drink – whether its tea or lemonade or something else – on the menu at all times and then are able to simply expand those existing platforms by adding a few flavors. It can be done at a relatively low cost and it will generate additional sales and high profit.

FastCasual: Will coffee continue to be king in the specialty beverage space?

MS:Yes, especially as you see strong and growing breakfast dayparts. Coffee is the de facto beverage of choice and that's always been the case. However, Americans are now trained to enjoy coffee in different ways, and people are accustomed to flavor and that will continue to be where the demand is.

FastCasual: What other beverages will we see more of?

MS: We will see more hot chocolate varieties. I've been arguing for awhile that operators can capitalize on a chocolate beverage menu if they invest their time and resources. Chocolate as a flavor is extremely compelling to a lot of people. I think to make it successful, an operator needs to be able to offer a menu of choices, whether it's traditional or European or dark cherry chocolate, cold, blended or something else. Now, the whole idea is around mass customization, so it's not the same drink every time.

The other one is tea. Consumption is increasing in the U.S., primarily for iced tea, and operators should offer a tea platform and expand the line to have three or four flavors.

FastCasual: McDonald's had a lot of success with the frozen strawberry lemonade over the summer. Will frozen beverage options increase?

MS: Frozen drinks do have a place on the menu and you have large chunks of the country where it's warm and appealing all year round. There is no doubt that when McDonald's does something, everyone watches. The same can be said about their smoothies. Smoothies have been ubiquitous at smaller brands for 10 years, but McDonald's offers them at a price point that will not only drive sales, but also demand and interest. Because they have done well with smoothies, other QSRs and fast casual concepts will be expanding their lines and adding more flavors.

FastCasual: Does the recent news of slumping soda sales help or hurt the specialty beverage segment?

MS:We know operators are concerned about the decline, and it is another reason to consider expanding beverage offerings. It comes back to really figuring out something they can offer that customers can purchase with their food. During this economic time, the pressure is on not to spend money. But customers are more than willing to spend on something of value to them; something they can't get at home. It is the affordable indulgence theory; you may not go to Disneyworld, but you can buy yourself a latte everyday.

FastCasual: What was the biggest specialty beverage trend of the year?

MS:The re-emergence of smoothies is big. We will continue to see more flavors and options there. We are also starting to see more unique variations on iced teas and lemonades and I think that will accelerate moving forward.

FastCasual: What other trends do you expect to emerge in 2012?

MS:Mass customization will continue and value will become the key driver. Not low price, but value. You can make a very compelling argument that a $5 Frappuccino is a good value.

Also, the idea of adding botanical and unusual flavors, and unique combinations, into traditional products will start to happen more. For example, hibiscus, peach coconut, strawberry basil lemonade. Having unique, healthy-sounding botanical flavors will be one of the things we'll see as operators try to differentiate.

Finally, global beverages will be incorporated more into foodservice operations. A good example is Thai iced tea or Vietnamese iced coffee. Those types of influences will start to show up and will pick up steam in the next few years.

Just as most of these specialty beverages – smoothies, cappuccinos, etc. – started as a niche and moved into the mainstream, so will global beverages. What we'll see is evolutionary, and more beverages will be offered as signature items.

Read more about specialty beverage trends.