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While core carbonated beverages have long dominated the market, consumers are looking for more options and new flavors.

Artful Elevation: Upgrading Your Beverage Program

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While core carbonated beverages have long dominated the market, consumers are looking for more options and new flavors.

By Barney Wolf January 2016 Non-Alcoholic Beverage

Quick-service and fast-casual restaurants are often categorized by entrée points—burgers, chicken, burritos, and so on—but there’s one thing they all have in common: They serve non-alcoholic beverages.

Whether the libations are sodas, coffee, tea, waters, or juices, they are profitable opportunities to provide customers with a complement to their meals or as a stand-alone, thirst-quenching option. Increasingly, restaurants find beverages a means to differ from competitors and to meet consumers’ changing demands.

“We’re seeing more unique beverage options beyond the typical soda fountain” that dominates quick service, says Jennifer Aranas, project director at the market research firm Datassential.

Aranas recently authored a Datassential report that found that brewed hot coffee is the most consumed non-alcoholic beverage other than tap water, followed by bottled water, juices, carbonated drinks, milk, iced tea, and diet carbonated drinks.

Limited-service restaurants have been upping their game with drinks, whether it’s Chick-fil-A rolling out specialty grade coffee, Wendy’s adding Honest Tea

green tea with tropical flavors, or Taco John’s menuing summer-themed carbonated beverages.

There’s plenty to consider when determining how to elevate a beverage program, including cost, brand alignment, and the target audience.

“Your brand is No. 1,” says Brad Miller, operations and finance expert at Synergy Restaurant Consultants. “If you are going to choose a program that is a step up, it also needs to be in line with the investment cost and your customer base.”

An effective way to move a beverage program ahead is adding fresh flavors.

“Bringing fresh in your restaurant sells very well,” Miller says, noting the trend has trickled down from full-service restaurants. Tropical and herbal flavors are also on the rise. Blood orange has been the fastest growing flavor on menus, up more than 300 percent since 2010. Other gainers include lavender, coconut water, and greens such as kale.

Just as new flavors are driving beverage sales, so are health concerns. Teas and waters are seen as better for you, while traditional carbonated beverages and some juices are sometimes disparaged due to their calorie levels.

But there’s more than caloric issues involved, since carbonated beverages may have the same or fewer calories than some similar-sized coffee drinks, including lattes and mochas. Instead, the issue is how they are sweetened.

Just as the terms “fair trade” and “local” carry the perception of premium quality, so does cane sugar, as opposed to high-fructose corn syrup. “Clean labeling is what some consumers see as healthy,” Aranas says.

The demands of Millennials have had a big influence on beverages at restaurants, and that’s unlikely to change with Generation Z, says Henry Howard, director of marketing and creative services for Compass Group, which provides culinary services for hundreds of educational institutions.

Water and its variations are extremely popular with these consumers, Howard notes. “The carbonated waters are growing, but the non-carbonated water is off the chart. We can’t keep enough in our coolers. The variety and flavors have increased exponentially.”

He says tea—bottled and fresh—is continuing to gain favor, as are beverages that have a healthy halo or link to sustainability. “Students are gravitating to items that carry the label organic or fair trade,” Howard says.

Working with Providers

Finding a suitable supplier partner—one that understands the operator’s business and philosophy—is critical in boosting a beverage program.

“It’s critical to understand our customers and their customers,” says Kirk Tanner, president of foodservice at PepsiCo. “We want to be relevant with the demographic they’re trying to meet.”

While core carbonated beverages dominate limited-service restaurant beverage options, “that’s not enough for the future,” he states. “You see more and more restaurants building out with teas, lemonade, and flavored and enhanced water.”

Some operators are adding bottled drinks to complement their fountain beverages, while others are bringing traditionally bottled waters to fountains, as PepsiCo has done with its SoBe brand waters.

“Fighting tap water incidences is important, because it is missed revenue and missed incidents,” he adds.

PepsiCo works in tandem with operators to create special beverages, such as Taco John’s Citrus Fresh drinks, strawberry, and mango, that includes Sierra Mist soda and Tropicana lemonade. The restaurant also featured two summer iced-coffee drinks made in conjunction with Nestle.

“This has been a tremendous opportunity, not only to drive incremental sales, but to feature our partnership with key national brands,” says Billie Jo Waara, chief marketing officer for Taco John’s.

The summer drinks drove incremental guest checks and helped boost a new 2 p.m. to 4 p.m. Happy Hour.

A good supplier can provide pertinent insight, explains John Buckner, vice president of marketing for S&D Coffee and Tea. “We work hard with customers to identify their beverages and to move coffee and tea from commodities to beverages with an identity.”

For instance, he suggests differentiating on origin, cuisine type, name, or ingredients. “In the past we saw me-too beverages. Now you want a destination beverage.”

Both coffee and tea provide great opportunities for restaurant owners, he adds, but they require effort on the part of both the supplier and operator to make sure the product is consistent, so that the beverage tastes the same at a unit in New York or Los Angeles.

Creating a new line

Branching into a new beverage program requires thought, planning, and execution. Consider Chick-fil-A’s effort to bring upscale coffee to its menu.

“Our journey with coffee started a few years ago when customers said we had to do a little work on this,” says Matt Abercrombie, senior consultant for beverages and desserts at the suburban Atlanta-based company.

So, Chick-fil-A partnered with Thrive Farmers Coffee, a revenue-sharing platform that works with more than 5,000 coffee farmers to develop high-quality hot and iced coffee.

“One of the things we were able to leverage with Thrive is specialty grade coffee that only the top 10 percent of coffees in the world meet,” he notes. The coffee meets the standards of the Specialty Coffee Association of America.

In a similar move, Honest Tea worked hand-in-hand with Wendy’s when the restaurant company decided to add iced green tea to its offerings.

Wendy’s size and breadth made it “a major undertaking,” says Seth Goldman, president and chief executive of Honest Tea, which is owned by Coca-Cola.

Honest Tea must be produced to certain specifications to be consistent at all of its clients’ units as well as with the tea company’s manufactured beverages.

The result? “I ended up at a Wendy’s restaurant one day—I didn’t know the tea was available yet—and I was so delighted with the taste,” Goldman says. “I was predisposed to like it, but I’m pretty critical, and this was wonderful.”

Craft

Restaurants are increasingly turning to craft sodas to expand carbonated offerings. For a company like PepsiCo, that means beverages like Izze bottled carbonated juice drinks and Caleb’s Kola craft soda. Caleb’s and the craft Stubborn Soda line, both sweetened with cane sugar, are also available in special pouring units.

When Bruxie, a Southern California fast-casual operator, developed its menu several years ago, the founders eschewed existing carbonated drinks and developed their own pure cane sugar cola, spiced cola, root beer, and other sodas.

The founders found a local craft bottler who could make the drinks, and eventually “we became known for our sodas,” says co-founder Dean Simon. “It was a passion for us and the soda crafter to develop these flavors.”

Wow Bao, a five-unit Chicago-based Asian eatery, has used its house-made ginger ale as a point of differentiation, President Geoff Alexander says it not only carries a healthy halo, but also complements many of Wow Bao’s menu items, which prominently feature ginger. Thirty pounds of ginger are peeled by hand to produce each batch of the drink’s syrup. Pure cane sugar provides the sweetness.

A 16-ounce serving consists of ice, soda water, and about two ounces of the ginger concentrate. There are also green tea and pomegranate versions.

Marketing

An important aspect of creating a new beverage program is letting people know about it via advertising, social media, or inside stores.

“Part of the identity of a new product is its name and story,” says S&D’s Buckner. “Coffee and tea offer a lot of opportunities for that. They are natural and plant-based and good for you. How they are grown, where they are grown, and how they are processed and brewed can all tell a story. Millennials in particular want to know how it got to [them].”

Chick-fil-A’s partnership with Thrive provided a story to go along with the coffee. In addition to the specialty-grade rating, the supplier’s model eliminates non-essential layers along the supply chain, meaning more money goes to farmers.

“We love this because it’s bigger than just coffee for these guys,” Abercrombie says. That melds with Chick-fil-A’s view that business can be bigger than the bottom line.The restaurateur’s decision to offer just hot and iced coffee—no espresso, lattes, or other popular beverages—is smart, Miller notes.

“First, you have to have a great coffee,” he states. “A lot of quick serves make the mistake of upgrading coffee with sugar, syrups, and blends that aren’t aligned with the brand.”

Adding Honest Tea has allowed Wendy’s to market its affiliation with the respected supplier as well as add a certified organic ingredient. Social media was used predominantly to reach consumers.

“We identified who was most likely to be the target customer for the tea, such as those seeking organic food or having a healthful lifestyle,” says Brandon Rhoten, Wendy’s vice president, advertising. “We then built up small pieces of content across social segments.”

As a result, hundreds of different messages, based on these individual characteristics, went to consumers through various social media outlets. “It was very customized, down to the level of what you care about.”

The five-month campaign also included print and radio advertising, along with high-visibility promotions directly on the menuboard.

Technology and equipment

Technological advances have made beverage equipment more sophisticated, more open to choice, and easier to use.

Coca-Cola’s Freestyle and Pepsi’s Spire machines put plenty of options in the hands of consumers by offering dozens of different beverages—carbonated soft drinks, teas, juices, and waters—and the ability to add various flavors at the touch of a button.

Some operators have worked with the beverage companies to create new drinks for these dispensers, as Firehouse Subs did with a custom-blended, non-carbonated cherry limeade in its Freestyle machines. Similarly, Spire provides the opportunity to add flavor shots to all available options, allowing operators to become their own mixologists.

Equipment is vitally important to a company like Juice It Up!, which blends its juices, smoothies, and other drinks, where taste, texture, and nutritional value are important.

Using heat to process ingredients into juices will denature their nutritional value, so it’s important that the blending machines used by Juice It Up! are temperature controlled, allowing for all of the nutrients of the fruits and vegetables to remain.

Another advance is the BKON Craft Brewer, which uses a process called Reverse Atmospheric Infusion (RAIN) to enhance flavors from coffee, tea, and fruit by removing trapped air with vaccum cycles for better extraction.

“This is a way to brew a high-quality tea or coffee beverage without worrying about the time or knowledge to do it,” says Greg Richards, vice president of business development for Franke Foodservice Systems, which distributes the devices. The machines are fully automated, meaning the employee only needs to add the correct ingredients and push a button to ensure the ideal end result. “It’s like having a coffee or tea expert to create a great cup in 90 seconds,” Richards adds.

Training

Having the right new products, equipment, and marketing plan are all important, but all of these efforts are rendered worthless if the beverages can’t be made correctly.

“One of the most common complaints you hear with quick serves is that the employees are not properly trained with new items, including beverages,” says Miller from Synergy.

When evaluating a new product, operators need to consider its impact on operations. With considerable turnover at limited-service restaurants, constant training is important.

As Wendy’s was preparing to launch Honest Tea, Goldman says, training was critical.

“We built this brand up for 18 years, worked to create an expectation, and if someone goes into a restaurant and the tea is bitter or super sweet, that can all be shot down,” he says. “We put a lot of time—both us and Wendy’s—to make sure the process was right, relatively quick, relatively simple, and extremely precise.”

It’s critical to ensure that after all of the groundwork has been laid, nothing is amiss in the final stages of delivering a new beverage to consumers that could tarnish the excitement surrounding a shiny new offering.

Margins

One great thing about non-alcoholic beverages is, of course, the high margins. The cost to operators of many drinks is less than 10 percent of the menu price. In addition to the direct cost of the ingredients, however, restaurant owners need to consider other outlays in featuring new beverages.

“The labor costs and preparation time always seem to be forgotten when thinking of a new infused tea or some sort of other upscale beverage,” Miller says. “There’s also the cost of things like cups and storage to go along with costs of making the product.”

The base cost of traditional soda was below 10 percent, but it’s now closer to 15 percent due partly to unlimited refills, he says. Tea’s margin is even better.

Beverage costs that approach 25 percent of the menu price, however, signal a problem. “In that case, you need volume, and if you can’t offset the higher cost with volume, it’s time to rethink where your beverage program is,” Miller explains.

Having a house-made drink can carry a high profit margin.

Wow Bao’s ginger ale, for instance, is not only priced at 70 cents more per cup than the chain’s regular fountain drinks–overcoming the higher labor costs to produce the soda–but there are no free refills.

“We are really able to control the food costs,” Alexander says.

Of course, the profit is the end result of all the other factors that need to be considered in adding a new drink or beverage line. It’s process that requires plenty of thought and planning to get to that point.