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Tea, craft soda, beer bubbling up in beverage trends

Fast casual operators can pull away from the pack by offering trendy beverages like handcrafted sodas, specialty teas and alcohol. But will margins be high enough to make it worth it?

October 21, 2014 by Brenda Rick Smith — Editor, Networld Media Group

"If I'm going to drink my calories, it better be worth my while."

That seems to be what is going through customers' minds when it comes to beverages, according to a panelist on the the "Getting Your Beverage Offerings on Trend" session featured at the 2014 Fast Casual Executive Summit last week in Denver.

And since beverages are typically high-margin offerings that can help one concept differentiate from another, restaurant operators are wise to keep an eye on beverage trends.

"We continue to see consumers moving away from traditional sugary carbonates, really sweet flavor profiles, and towards beverages that are a little bit lighter, a little bit healthier, a little bit more refreshing, a little bit more complex and refined in terms of their flavor profile," said Elizabeth Friend, senior research analyst for Euromonitor, an international marketing research and strategy firm.

But that doesn't mean consumers aren't willing to indulge.

"We do want to indulge, but we want to make sure it's worth it in terms of the calories and the experience," said Friend.

Consumers want a high quality beverage that's a high value, too. Consumers want to get the most out of every aspect of their food and beverage experience, she added.

Craft soda

Just because consumers are giving Coke the cold shoulder doesn’t mean they aren't interested in sodas, however. Even as consumers move away from traditional carbonates, early trends indicate an interest in handcrafted and house-made sodas.

"They feel different in a way that feels modern and exciting to consumers," Friend said.

Starbucks is one driver of the craft soda trend. The coffee giant recently added the Fizzio platform to its mix. The platform features three different soda formulations, each delivered to the customer's preferred level of carbonation.

Casual connoisseurs

Customers have grown accustomed to sipping a wide variety of teas and coffees at specialty shops. Along the way, they have discovered a penchant and passion for higher quality offerings across a broad range of flavors, and they want the same experience wherever they consume beverages.

"When it comes to fast casual, much of the opportunity – perhaps most of the opportunity – is going to be iced tea and iced tea blends," said Friend. Unit prices for fruit, green and herbal teas, for example, have grown by almost 50 percent in recent years.

"Consumers want more premium, more varied, more exciting types when it comes to hot drinks, and with tea in particular, it's such a great tool for fast casual operators in terms of innovation," she said. "It's a really good way to differentiate because there's so much you can do with those flavors. Tea can be healthy or indulgent, it can be seasonal, there's really no limit with what you can do with tea and it can pair very well with any type of concept."

Beverages with benefits

Consumers are also seeking beverages that multi-task, the panelists said. Successful beverage offerings go beyond simply quenching thirst; they also offer health benefits and boost energy.

Plant-based ingredients play a big role in flavor trends, for example. Be on the lookout for new, unusual plant-based flavors like maple and artichoke.

Refining fast casual with alcohol sales

Alcohol sales are an untapped source for most fast casual brands in the US, according to Friend. Why?

Because fast casuals have tended to focus on the lunch daypart, which is not traditionally an occasion for alcohol in the US. Fast casuals also typically employ a counter-based service model, which is not conducive to alcohol service.

But concepts are evolving in a more premium direction, and consumers are taking their fine dining occasions to their favorite fast casual restaurant.

Alcohol is a way fast casual restaurants can say "we are a dinner destination" said Friend.

Fatburger has launched several "Fat Bar" variations which serve alcohol, said Andy Weiderhorn, CEO of Fatburger.

The Fat Bars have been positively received, but it's been necessary to change the service model. Instead of fast casual, the Fat Bars fit more into a casual dining model where servers take orders and bring drinks to the table.

Not so fast

Also, even as operators consider beverage trends, they should keep the main thing the main thing, observed Weiderhorn.

"Ninety-five percent of customers walking in to one or our restaurants are not coming in the door for a beverage," said Weiderhorn. "They are coming in for a burger or wings. And that's really what we are trying to drive."

While he's seen a reduction in carbonated fountain drink sales, that reduction has been very, very small, and only a small fraction of sales. The vast majority of beverage sales in his stores are carbonated fountain drinks, which sell for around $2 and yield $1.80 in profit. Bottled drinks sell for around $3 each, but yield only $1 marging at best.

Coke Freestyle and Pepsi Spire machines seem to be satisfying consumers' needs for customization, said Weiderhorn, without sacrificing operators' margin.

About Brenda Rick Smith

Brenda has more than 20 years of experience as a marketing and public relations professional. She invested most of her career telling the story of entrepreneurial non-profit organizations, particularly through social media.

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