Article

Technomic report predicts alcohol sales falling in 2010

Alcohol sales at casual- and fine-dining chains are expected to be slim in 2010, giving some fast casual operators a golden opportunity.

November 3, 2009 by Valerie Killifer — senior editor, NetWorld Alliance

Based on expectations of continued contraction in the restaurant and bar industry in 2010, foodservice consultancy Technomic has issued its forecast for beverage alcohol sales in those channels.

Total alcohol sales in all away-from-home venues are expected to decline 2.5 percent in 2010 with the biggest declines to be seen in casual- and fine-dining restaurants.

"Our outlook for alcohol sales is based upon continued weakness in restaurant traffic and further consumer frugality," said David Henkes, vice president at Technomic and the director of the firm's on-premise practice. "The overall share of visits that include alcohol has been on a downward slide for several quarters. While next year won't be quite as bad, we don't think we'll begin to see real growth in consumer spending on alcohol again until 2011."

Alcohol sales at casual dining restaurants are expected to drop nearly 7 percent in 2010 and alcohol sales for the segment so far this year have decreased almost 11 percent.

"Both numbers are driven by cutbacks not only in visits to casual restaurants but also cutbacks in the percent of visits that include alcohol," Henkes said. "Our numbers indicate that about 40 percent of visits (21+ consumer age) include alcohol, down from 60 percent of visits at the same time last year."

Another reason for the drop is consumers' shift to fast casual restaurants for the overall experience, food quality and cost/value.

"Fast casual can be positioned well, but selling alcohol within the confines of a fast food establishment, even a more upscale environment, is tricky, and those that are doing it have had mixed success," Henkes said.

In 2007, Henkes ran The Adult Beverage Insights Group, which focused on the fast casual segment. The group consisted of operators, manufacturers and suppliers of alcoholic beverages and looked at the challenges and opportunities within the space.

While it was determined there were more obstacles than benefits to supplying alcohol, those challenges also depended on the type of concept serving alcohol and the type of beverage it provided.

"Beer was what we found was universal among every fast casual chain that offered alcohol and not a lot of them offered spirits at all,"Henkes said.

Of those that did provide at least beer, some of the brands that had a high percentage of alcohol sales included Chipotle, Pei Wei Asian Diner, Rubio's, Noodles & Co. and Jason's Deli. And even though they reported higher-than-average alcohol sales, the majority still only posted those sales at between 1 percent and 2 percent of sales overall.

Six inhibitors to providing alcohol have a major impact on the fast casual segment, Henkes said.

For starters, a large percentage of fast casual restaurant sales come from the lunch daypart, a time when typically most people are not drinking alcohol. Another inhibitor is the age-range of fast casual employees, many of whom are under 21. Space is another inhibitor as well as the number of distributors that have order minimums in regard to the volume of alcohol purchased.

According to a Technomic 2007 study, the top 66 fast casual chains, representing an estimated $5 billion in overall sales, claimed alcohol sales attributed to a combined less than $142 million in sales. And of the chains that sold alcohol at the time, Henkes said it was a challenge trying to determine which ones did so systemwide.

"Fast casual still continues to outperform the industry so we do think there are opportunities, but it's picking the right chains and opportunities to make a splash," Henkes said. "Just because of the growth that is in fast casual, it's important for companies to look at it as an opportunity, but not a slam dunk by any stretch of the imagination."

Beer and wine

While wine sales have suffered the biggest decline, at a projected 6.7 percent, beer sales will be least impacted, with a projected 1.8 percent decline that doesn't reflect the small gains craft and microbrews have made this year.

"We don't have specific numbers on how the individual (beer) categories are doing, but anecdotally know that microbrews are still holding their own, particularly relative to imports," Henkes said.

For 2009, Technomic estimates that alcohol sales will end the year down 4.9 percent. This drop in sales is further supported by current data from the Technomic/GuestMetrics partnership which shows check averages are down 6 percent through the third quarter of 2009. On top of declining traffic, overall alcohol sales levels have fallen at a much steeper rate than the decline in food.