Banking on Beverage | Food Newsfeed
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Beverage programs can make a restaurant—or a chain of them. McDonald’s proved it with McCafé in the last decade, Dunkin’ Donuts quickly diversified beyond donut-dipping drinks, and Red Robin has made beverage a core facet of its resea

Banking on Beverage

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While food will always draw guests in, some restaurants have diversified through beverage so well, they have become a destination outside of the food program. Here’s what others can learn from them.

By Kevin Hardy October 2014 Bar Management

Red Robin has always had a bar. In fact, the brand started as a tavern near the University of Washington’s campus in the 1940s. But at some point in the 80s or 90s, amid nationwide expansion, the prominence of alcohol was lost in favor of building a more family-friendly environment.

“We really went the other way and kind of got away from the bar,” says Red Robin master mixologist Donna Ruch. “I don’t want to say we ignored it, but we didn’t really put a focus on it.”

In the last four years, since CEO Stephen Carley came on board in September 2010, Red Robin has re-emphasized the importance of beverages, both alcoholic and nonalcoholic. The restaurant known for its fire-grilled burgers—which accounted for 46 percent of its 2013 fiscal sales—and bottomless steak fries has rolled out specialty cocktails and indulgent shakes, and made headlines for its quirky creations like cocktails served in cans. While the brand is noticing an uptick in beverage’s share of the business, company leaders are clear that Red Robin isn’t getting away from what it does best—it’s simply adding to it.

Across the industry, brands are increasingly tapping into the power of the drink. For a decade, Taco Bell has diversified beverage sales with its proprietary offering of Mountain Dew Baja Blast. Coca-Cola Freestyle machines have opened a world of possibility to consumers with endless combinations of waters, sports drinks, lemonades, and sodas. Coffee titan Starbucks is now trying to up sales of cold drinks with the introduction of its Fizzio Handcrafted Sodas in June. And craft beers and specialty cocktails have never been more popular.

In 2013, non-alcoholic beverage sales accounted for $150 billion in sales, nearly 25 percent, of the total $620 billion in food and non-alcoholic sales across the foodservice industry, according to research and consultancy firm Technomic. And restaurants are finding that adding on new beverage lines can pull double duty, giving operators the potential to increase average ticket sales, and also helping to open up dayparts and draw in new customers, making the brand a destination outside of its core competency.

“First and foremost, we’re about a gourmet, fine line of burgers,” Ruch says. “[Beverage] is going to be a complement.”

It’s a fine point. As beverage becomes a more important piece of the business, brands must discern which sips they can do well and which they can’t—and which beverages their customers will give them credibility for. Whether it’s quick service or full service, experts say the addition of coffees, smoothies, milkshakes, teas, and premium alcohol must make sense within the greater context of the brand.

If the mix is right, there is money to be made on new beverage lines, as customers’ collective thirst has never been greater. And that’s important in a noticeably dampened marketplace.

Hudson Riehle, senior vice president of the research and knowledge group at the National Restaurant Association, says 2014 is the fifth consecutive year of sales growth for restaurateurs, but that growth has moderated. With steep competition—there are now more than 1 million restaurant locations in the United States—and inflation on food prices running high, increased sales from innovative beverage lines are welcome relief.

“The margins on alcohol and non-alcoholic beverages can certainly counteract some of the less robust margins, for example on certain beef dishes or dairy-based offerings,” Riehle says. “When you look at wholesale food price inflation this year, it’s running in the high 3 percent range—the highest since 2011. So, the ability to offset some of those cost increases becomes important. The beverage offerings are now more sophisticated and diverse than at any other point in time.”

Perhaps no other restaurant chain has seen the kind of beverage success that McDonald’s did following the implementation of its McCafé line. With McCafé, the world’s leading foodservice retailer not only rolled out a popular beverage line, but also fashioned a niche brand identity.

The concept launched in Chicago in 2001, but a more extensive rollout came in 2009. At the time, McDonald’s predicted $1 billion in annual sales from its espresso-based drinks, which undercut the prices of many traditional coffee houses.

“We are aggressively looking for ways to grow our business under The Golden Arches, and McCafé gives customers another reason to visit McDonald’s,’’ said Alan Feldman, then president of McDonald’s USA, in a statement in 2001. “People can experience the McDonald’s they know and love, or explore and enjoy this new concept that will add a unique dimension to their visit.”

The brand-within-a-brand strategy didn’t start in the United States for McDonald’s. McCafé debuted in Australia in 1993 as standalone coffee shops, within or adjacent to traditional McDonald’s stores. The concepts offered upscale coffee and pastry items, and grew to some 300 stores in more than a dozen countries.

McDonald’s has had an interest in premium coffee for a quarter of a century. Twenty-five years ago, the brand asked coffee maker Gaviña to create a proprietary blend of coffee to offer in McDonald’s stores. Gaviña traveled the globe searching for the right blend and found it in the rich coffee-bearing soils of Central and South America, where McDonald’s Premium Roast Blend was born, says Carolyn O’Mara, director of marketing, beverage category, McDonald’s USA. In 2006, the company stiffened its blend of drip coffee to a stronger mix, and its popularity was proof that McDonald’s had the potential to expand beverage offerings beyond drip coffee.

The company debuted espresso drinks with its 2009 U.S. roll out of McCafé, but the line rapidly expanded to include blended ice frappés, smoothies, and limited-time offerings such as frozen strawberry lemonade. The beverage line helps to boost sales with existing burgers-and-fries customers, as well as drives beverage-specific traffic at all hours of the day. And unlike in other countries, McCafé isn’t its own concept in the U.S., but a line of menu offerings right next to the Egg McMuffin or Chicken McNuggets.

For consumers, there are more options than ever for beverages in the restaurant industry. And Millennials are shaping much of that change, with wants and needs that are proving more complex than previous generations, says Riehle at the NRA. He notes that the world of beverages is changing quickly, with all kinds of concepts innovating with coffee drinks, cocktails, or smoothies.

“It really is only limited by the imagination of that operator and the local market conditions to accept, embrace, and use those offerings,” he says.

And beverage is an area in which nearly all brands can compete. That is, if they choose the right menu items.

“There’s certainly room for everybody,” Riehle says. “The question is, how does it align with that brand’s or establishment’s business plan. In general, there’s no substitute for knowing the core patron demographics and then aligning the offerings with those demographics.”

Mirroring brand expectations was a primary focus for bd’s Mongolian Grill when it reshaped its beverage offerings.

The 31-unit chain revolves around create-your-own stir-fry, so a create-your-own margarita was a natural fit. And classic drinks were given an Asian twist, like the Mongo Mule, a spinoff of the Moscow Mule that includes cucumber vodka and ginger syrup and debuted in March.

“For your guests, for your community, for your teammates, you have to give them something that says, ‘I can only get this here,’” says Carrie Martin, bd’s vice president of operations support.

The brand worked with consultant Patrick Henry Creative Promotions to reshape its drink menu. The drink menu, with prices between $5 and $8, is an effort to keep customers in stores longer and encourage them to have more than just one drink with their stir-fry. In addition to a re-imagined cocktail list, bd’s has expanded craft beer offerings to tap into the growing enthusiasm for local and microbrews. A franchisee in suburban Kansas City even opened up a tap room, offering 50 craft beers on tap and growlers to go—all in an effort to reach local customers where they already are.

After expanding the drink menu in April, bd’s saw a 1 percent increase in beverage sales.

“I think to any restaurateur, the liquor, beer, and wine segment is very important because of the profitability aspects of it,” Martin says. “But it’s always going to be important to us that we give our guests something different that sets us apart from the competition, something that’s quality.”

Juan Martinez, principal and founder of Profitality, a foodservice industrial engineering and ergonomics consultancy, says interesting beverage offerings are becoming more of a necessity. And the driver is obvious: sophisticated, sexy beverages bring in new customers at new times.

“The reason they’re important pieces is because it hits this grazing experience,” Martinez says. “Millennials are animals that eat many times in the day. They don’t have a set breakfast, lunch, and dinner. So, what are you going to give them that hits the spot?”

But the addition of new beverage lines come with risks, both in terms of operations and brand identity.

Making a smoothie or an iced coffee drink takes longer than filling up a soda cup. Vendors are innovating with new equipment to speed the process of making specialty blended drinks, but Martinez says brands, especially those in the quick-service arena that value speed, need to think carefully about how team members can integrate new products and equipment.

“I want to go after drinks because drinks are big. But I want to go at it in a way where I can deliver it within my operational infrastructure,” he says. “You can have a great product, but if you can’t deliver that great product, it’s not so great anymore.”

And a brand can’t get beyond the scope of its identity. Because, like other food offerings, customers need to acknowledge a brand’s ability to execute the beverages on the menu. Think about it like a sub sandwich concept offering a deluxe venison steak sandwich.

“You can’t do it,” Martinez says. “It won’t work.”

But even brands already known for beverages are finding new life.

Dunkin’ Donuts continues to make major additions both to its coffee line and to iced and hot teas. Beverages represent 60 percent of sales for Dunkin’, which continually adds on new items, particularly teas. The brand offers a batch of made-to-order iced teas, unsweetened or sweetened in multiple flavors, including blueberry, raspberry, and peach. And with only five calories per 16-ounce serving, Dunkin’ can make a major play at healthfulness with its unsweetened teas.

This year, Dunkin’ partnered with Arizona beverages and Arnold Palmer Enterprises to create the Frozen Arnold Palmer Coolatta, a combination of iced tea and lemonade. Named in honor of the legendary golfer, the cool, refreshing drink was another effort of blending familiar items into a distinctive offering.

Jeff Miller, executive chef and vice president of product innovation at Dunkin’ Brands, says in an email that the company has found that items that are “familiar with a twist” resonate well with customers. Offering a full variety of beverage choices makes Dunkin’ a destination for its drinks, he adds.

“Our research also tells us that Millennial consumers are looking for more variety from [quick-service] brands,” Miller says. “With iced tea, we aim to provide familiarity, which can come from seasonality, favorite flavors, classic dishes, and more; at the same time, we are looking to put Dunkin’s stamp on a product.”

Even Friendly’s, the 350-unit chain known for its ice cream and ice cream drinks, is finding ways to diversify beverage options. This summer, it launched a limited-time line of iced teas. “As the popularity of tea and tea beverages continues to rise in the U.S, our goal is to complement our heritage of serving classic creations by introducing new refreshment options,” says CEO John Maguire.

Back at Red Robin, the company’s ever-innovating beverage line has spread across social media, exciting both the existing and new customer base. But master mixologist Ruch says the beverage program is not all novelty sampling: guests come back specifically for beer cocktails, adult milkshakes, and other specialty drinks. And Red Robin isn’t forgetting about burgers. It extensively tests new drink items and trains team members before implementing the beverages full-scale. The company recommends burger and drink pairings, Ruch says, and it won’t add drinks unless they make sense within the whole context of the menu and Red Robin’s consumer base.

Take, for example, Red Robin’s adult-only milkshakes, boozy, one-of-a-kind concoctions that sell for $6.49 to $7.49. There’s a Blue Moon Beer Shake, which includes the Belgian-style white beer, orange liqueur, orange juice, and soft serve ice cream; beer and milkshakes already go well with burgers, the thinking goes, so the brand put the two together. Building off that, the brand unveiled a Mango Moscato Wine Shake for summer 2014, a blend of Alice White Moscato, SKYY Infusions Moscato vodka, mango purée, and soft serve.

The 470-unit chain also added can-crafted cocktails last summer, specialty beer and liquor drinks served in sturdy souvenir aluminum beer cans. Red Robin has also innovated in the realm of non-alcoholic beverages, with new offerings like fall 2013’s Popping Purple Lemonade, a bottomless bright purple beverage made with kids and adults alike in mind.

“When I add things, I really look through that lens of: would I want to have this drink with a burger and fries?” Ruch says. “And that’s been on our success. Just because something’s on trend—like everyone else is doing iced lattes—well, it might not fit our brand. Just because everyone else is doing it doesn’t mean it’s going to be right for me.”