Changing beverage habits and sales erosion

soda machine, Pepsi, soda

Some long gestating changes to American behavior have taken root in 2016. The beverage category looks much different today than it did 15 years ago. Sales of giants Coca-Cola and Pepsi (and their endless list of owned brands) have been flagging. Though they have found innovative ways to gain bumps in sales, it appears that new habits may be leaving those brands behind. The CPG space has already reflected these new behaviors which are now impacting the dining space.

According to NPD Group, soft drinks are still the number one consumed beverage on-premise. Coffee ranked number two. It appears that tap water is cutting into the purchases of both of these. But bottled water is the fastest growing segment of beverages purchased with meals. Orders of tap water indicate cost sensitivity, but increased sales of bottled demonstrates people making a choice. They are choosing fewer soft drinks.

Government programs raising costs won’t help. Sugared beverage taxes increase costs for both customers and restaurant operators. Tax programs have expanded to five more cities this month. State programs like these take aim at cost sensitivity to change habits towards sugary soft drinks, but may have further reaching consequences.

Sugar isn’t the only problem. This summer, it was reported that alcohol sales have dropped for the third straight year. The Beverage Information Group reported that sales had dipped again in volume though revenue remained mostly flat. This reflects a move to more premium or craft alcoholic beverages.

The introduction of the Coca-Cola Freestyle machine differentiated restaurants and spurred drink sales for a while. But this has faded.

Assuming this trend continues, a move away from premium beverages would be another hit to same store sales. That becomes even more important when you layer on research from Upserve. They analyzed thousands of checks from their POS system. Guests who ordered alcoholic beverages are more likely to order dessert. About 75% of tickets with alcoholic beverages also included dessert. Red wine had the highest correlation to a dessert item. This tells us that as average check drops from lower alcoholic beverage sales, desserts and other items will drop as well.

Obviously, fewer drinks ordered immediately reduces average check. People choosing tap water take revenue away from restaurants. So understanding why is important. Guests have never had more options for beverages. It will be difficult for restaurants to both stand out and to predict the favorite of every guest.

The introduction of the Coca-Cola Freestyle machine differentiated restaurants and spurred drink sales for a while. But this has faded. New approaches are needed. For most brands, beverages are an afterthought. The time is right for innovation with beverages.

Go small.

This might be the time to test offering craft beverage makers exclusively. We sell what guests want. They are buying less of big brands. Test programs bringing small producers to your guests. The drawback is finding partners to match your brand footprint, and meet your demand. Obviously, Pepsi and Coke have distribution covered no matter where your restaurants are. This might be an opportunity to work with new distributors to uncover brands on a regional basis. Using small or local partners also aligns with the trend of anti-global consumerism.

Explore drink LTOs.

If your concept allows for it, consider rotating your beverage options. Dedicate one of your pours to a revolving drink on a limited basis. This will create some interest in the drink menu and vary experiences for returning guests. This is an important part of the experience curve. Pricing these attractively will also spur interest and get guests back in the habit of ordering that beverage.

BYO Beverage.

One way to counter the swing-and-a-miss of choosing the wrong small beverage brands is to create your own brand. Guests are already there, they will be receptive to trial if you can make your drinks compelling. Try flavor combinations that really compliment your food menu, even specific items. Make drink options that are fixed or recommended parts of combinations. This is another way to extend your brand and differentiate from competitors.

Finally, train your staff to offer a drink with each transaction. Whether it’s a server at the table or someone at the register. Just asking if guests would like a drink is often enough to remind them that they actually do.

Author: Adam Pierno

Adam Pierno has a one-of-a-kind perspective on restaurant and CPGs. He investigates the connections between strategy, media, digital and business goals employing social media listening, analysis and traditional consumer research to find meaningful insights for brands thinking about their futures.