America 2004… it’s a nation in motion. Home may be where the heart is, but it’s not necessarily the house of beverage consumption opportunities all day, every day of the week. Away from home is where the land of on-premise opens its gates of opportunity.

One could say on-premise begins where off-premise ends, but that may be an unnecessarily confining way to look at life in the 21st Century. Everything from the ballpark to the bookstore constitute the “on-premise nation”, even as its capitols are clearly the bar and the restaurant. Of course, what gets stocked, served and consumed in those places is up for grabs.
In short, on-premise is like the credit card that claimed to put the you in ubiquity: It’s where you want to be.

The kitchen, at least the business end of it, is a place to which more and more Americans seem to be developing an allergy. Eating out is in.
Restaurant sales are projected to top $440 billion in 2004, a record, according to the National Restaurant Association. That’s 4 percent of the U.S. gross domestic product.

According to the NPD Group, which tracks the restaurant trade, consumers are more likely to wait for a table, or at least their extra value meal, than they were in early 2003 when cold weather, the economy, and Iraq were keeping people home, capping “the weakest year in more than a decade.”

Fast-food joints, conduit of so much fountain soda, picked up their pace in the last quarter of last year, NPD says. Those hamburger restaurants that form the core of the grab ’n go trade saw traffic rise 6 percent from the year before.

At McDonald’s, customers who left supersizing behind long before the Golden Arches did can feel less guilty by ordering a Go Active! Meal, which is a salad accompanied by a bottle of water.

“How illogical was it to not think about your consumer?” asks Darrell Jursa, president of the Liquid Intelligence beverage consultancy. “Look at McDonald’s. Why are they doing so well?”

Among other things, he believes, “it’s the salads at night with the bottled water,” that are a prime example of foodservice operators being in tune with what their customers want.

Diet Dr Pepper also goes nicely with a premium salad, says Bryan Mazur, director of customer marketing for Dr Pepper/Seven Up, explaining its low-cal CSD flagship is increasing its McDonald’s penetration thanks to Mickey D’s catching up to its customers’ health and wellness concerns. Diet Dr Pepper is available in less than 10 percent of the Golden Arches nationwide at the moment, but DPSU projects it will be in between 15 and 20 percent of McDonald’s fountain sets across the United States by year’s end (by comparison, regular Dr Pepper McD’s penetration stands at around 45 percent).

The overall restaurant industry was cresting toward the end of 2003, with NPD pegging November (the last month in eateries’ seasonal year) as the strongest month of the annum just complete.

Every beverage segment wants in. Even good-old stolid milk is acting up. The Milk Processor Education Program notes its product represents only 3 to 5 percent of a restaurant’s beverage sales, well off the rate it enjoys in the take-home market.

“Without significant action to reverse these trends, milk consumption will decline as food at home continues to decline,” reports the association.

“Beverages are the No. 1 or No. 2 profit driver in restaurants,” notes DPSU’s Mazur. That makes the category, in essence, a significant daypart unto itself. “Most restaurants don’t manage it as a daypart,” something DPSU is dedicated to doing with its accounts. Its contemporaries are similarly lending a helping hand.

Eye-poppingly, 23 percent of restaurant traffic does not purchase a beverage with a meal despite all those entreaties of “something to drink with that?”, according to DPSU research. A full 8 percent buys a meal in one place and “makes an effort” to buy the beverage elsewhere. “There’s an opportunity to close the gap,” Mazur says.

Major chains are leading the charge in attracting diners and drinkers — from milk to malternatives — back through their doors. They’re half the restaurant industry and enjoyed a 4-percent rise in traffic last year compared with 2002. Quick-service restaurants (think Wendy’s or Subway) and casual-dining chains (Chili’s, for one) each drove their traffic upward by 5 percent.

“The lines,” Jursa of Liquid Intelligence has noticed, “are out the door at Chipotle.”

Eating out in 2003 wasn’t just about a night on the town. NPD notes traffic increases at fast-food restaurants for breakfast and lunch outpaced those for dinner. Increases were also clocked for lunch at casual dining and midscale (Denny’s is an example) places.

When viewing the territory that comprises the shifting plates of on-premise, at least one high-profile beverage marketer chooses to see not one but four broad opportunities to take consumers’ orders and serve what they want and what they need.

Michael Hammer, Pepsi-Cola North America’s senior manager for channel strategy, restaurants and entertainment (including theaters, theme parks, lodging, casinos and foodservice), says there is a foodshop quartet of thirsty people’s concerns to which his company is listening closely.

The aging population. “Baby boomers are getting older. They’re active and have more money to spend. It certainly adjusts the products we offer and how we offer them.”

The battle of the bulge. “Obesity. Hey, you’ve gotta balance fun-for-you with good-for-you. So it’s not just full-calorie on fountain.”

A diverse audience. “Latino and African-American demographics are growing faster than Caucasian. Working with our bottlers, we reevaluate our offerings at individual locations keeping the ethnic market in mind.”

Variety and convenience. “There’s a higher demand for what used to be considered out of the norm. In the afternoon, there may be a desire for a high-calorie boost — or high juice content in the morning. We take every single occasion and find a product to match it.”

What unites these diverse constituencies is that people “are living most of their lives away from home-occasions,” Hammer says. “What to pick up on the way to work? After work? What do you want to consume from restaurants, theme parks, movies?” Pepsi and its fellow brand owners may not have all the answers, but Hammer says, “we do a lot of work to help with our customers.”

It’s not just about dousing a hot tamale with the first cold, wet item within arm’s reach of that fire. “I may be a loyal Pepsi drinker at home,” Hammer says, assuming the identity of a consumer, “and I buy it at a good, valuable price, maybe $1.29 for a 2-liter. But at a restaurant, I may want a Mountain Dew or a lemonade as a different treat. Maybe a clean, clear, crisp Sierra Mist.” Increasingly, the customer wants Aquafina and can get it at Burger King, quite a coup for Pepsi, considering the fountain business still belongs to Coke.

All of the above, Hammer emphasizes, is what mixing and matching “occasion and need state” involves. The restaurant may represent a treat or “an escape from what you have at home.” Thus enter, for instance, flavored tea that never sees the inside of some consumers’ refrigerators.

Category management sets the course for foodservice, according to Foodservice Leadership Drivers, a study by Cannondale Associates. “It is focused on identifying solutions and programs based on fact-based consumer insights… the consumer is at the heart of true category management excellence.”

“We act,” Hammer says, “as [customers’] strategic partner in category management. If we’re doing our jobs right, most customers realize beverage sales are more and more important. The profitability can be huge.”

Fountain has a lot going for it, notes Mike Dillon, group director of QSR marketing at Coca-Cola North America: “freshness, control and profitability.” A Coke and a smile are perennial favorites, but Coca-Cola tells its foodservice customers, “we can make you more money than anyone else” as a beverage provider. “We build your brands.”

Non-carbs aren’t exactly non-profits either. Dillon cites Dasani’s penetration as “pushing the roof” and Minute Maid Lemonade Light as “taking off”. That’s the consumer’s idea, not Coke’s.

“It’s never because we push it,” Dillon says of that or any Coke brand’s on-premise success. “It’s because it gets pulled through.”

Coke calls its foodservice mindset a matter of TURF: Total Unduplicated Reach and Frequency, meaning brand optimization drilled down via intense study of demographics, usage patterns and patronage at any given location of any given outlet — anything to create the appropriate brand set.

“There’s an interesting relationship between consumption and preference,” Dillon explains. “The No. 1 driver of preference is consumption and the No. 1 driver of consumption is preference.”

The lessons of the multiple beverage marketplace haven’t been lost on its biggest participant. Coca-Cola, like everybody else, needs to take its cues from people’s desires. If the people would just get around to making up their minds, everybody could knock off early.

No such luck. Dillon cites data that finds “at 4 p.m., 70 percent of America has no idea what it’s having for dinner. Time pressure is massive. It’s driving a lot of consumption away from home and away from the office.”

Driving is the key word, as QSR drive-through becomes ever more important to food and beverage sales.
Coke’s service to its customers then becomes anything but drive-by. “Our job becomes providing a total system solution, our whole bundle.” That means providing drink vessels that are better for cars, dispensers that fill those cups at the optimal rate and a service infrastructure that fits seamlessly with the account.

Pepsi, like Coca-Cola, doesn’t lack places to display its on-premise know-how, ply its trade or pour its heart out. “We’re a company that focuses a lot on retail distribution and the value of distribution as well,” Hammer says. “There’s an incredible need to use these channels for activation, sampling and growing a brand in its channel. If we can activate a brand in movie theaters while people are enjoying their time out, it does so much to build the enjoyment of colas.” There’s a genuine joy by association to be had from foodservice, he adds.

Sierra Mist, Hammer reports, benefited from near-nationwide fountain distribution in 2003, three years after its initial introduction. But these things can take time. Fountain, Coke’s Dillon says, is not a no-brainer when it comes to launching brand new products. “Post-mix is onsite manufacturing,” he explains. “There’s a lot of physical activity. It’s a slower build,” than bottle and can, he says, where volume and distribution can be achieved “extremely fast — in weeks.”

Jones Soda seems as if it’s a perpetual freshman, gaining notice from time to time as if it’s the first time anyone had heard of the Canadian-born, Seattle-based pop that uses pictures on its labels that are sent in by its consumers. Jones has been at it almost a decade, its innovative endurance trumping its size.

Just because Jones is small, it doesn’t have to think that way. Its on-premise strategy reflects a widening of the mind. As chief operating officer Jennifer Cue explains, “We really wanted to branch out and diversify from the independent distributor network.” Premium foodservice accounts became the ideal route to market.

It all made sense for a brand whose roots were in skate shops and tattoo parlors, outlets to which the bigger guys hadn’t given much, if any, thought.

Earlier this year, Jones Soda went on sale in 3,900 Starbucks coffee emporiums across the country, following an audition of sorts that’s been going on in Canada (400 outlets) since 1999. With North America’s Starbucks conquered, Jones has an impressive trio of non-traditional — by old standards anyway — account notches along its on-premise belt. The brand, in carbonated and non-carbonated form, was already ensconced at Barnes & Noble cafés and at Panera Bakery Cafés. That’s beans, books and bread in a big way for a little guy.

“It’s a real high-visibility account,” Cue says of Starbucks. “We’re more of an accessory there. But it’s huge recognition for us throughout the country to have Jones in Starbucks, Panera and Barnes & Noble.” Sales there represent a significant chunk of Jones volume, but it also, the company hopes, demonstrates its viability to distributors who might take it elsewhere.

Fiji Water is about as upscale a bottle of water you can find, and sells most — about 85 percent — through retail channels. But the company says the golden three in 20 servings that pour on-premise are significant beyond their numbers.

“It’s the best sampling program you could ask for,” testifies Senior Vice President of Sales Ken Kurtz. “The great thing with on-premise is it’s the highest-potential growth channel.”

Top restaurants and hotels offer it across America, “and it drives trial,” adds Doug Carlson, president and chief executive officer.

Word of mouth has its advantages. No so-called alternative beverage can attest to that the way Red Bull can. Long before its wings spread on spot television, the Euro concoction that was all about boost became buzzworthy. Clubbers found a Bull, taken straight or mixed with vodka, made the night last longer. Its cans have become fixtures behind many bars… at a nice margin, too.

The fountain could become a font for energy drink sales, one competitor is thinking. Roaring Lion, letting loose from Southern California, is offering similar functionality and taste to Red Bull but in a way that promises to love the nightlife even more. Roaring Lion has a bag-in-box version to energize more bar and club sales.

The tavern scene wasn’t built on energy drinks but rather the vigor of a harder drinking crowd. For a drinker, even one taking the widely prescribed route of moderation, there are two ways to enjoy and/or take advantage of the emerging health benefits of alcohol. You can stay home and enjoy a quiet cocktail or you can go out and be sociable. The latter choice seems to be winning people over.

“Logic says that these are tough times,” says Jursa of Liquid Intelligence, “but people still want to feel good. In an uncertain world situation, there is scariness out there, but the combination of drinks, good conversation and good friends makes you feel good.” The drink itself, he believes, serves as a conversation starter.

“Furthermore,” adds Euromonitor, Chicago, in its report The Market for Alcoholic Drinks in the USA, “fashion and trends are first formed through on-premise consumption. For this reason, manufacturers devote considerable resources to promoting their brands in bars and restaurants.”

If a drink says a lot about the drinker, as proponents of the badge value of consumer branding have always espoused, some kinds of drinks speak a lot louder than others. In 2003, spirits and wines cleared their throats and spoke up in on-premise situations. By contrast, beer was relatively quiet.

On-premise marketing perhaps matters more to alcohol than non-alcohol because bars are de facto sampling booths. Skyy Spirits, for example, issues drink recipes to bartenders along with educational programs to add flair and context. The Skyy Melonade, whose foundation is the new Skyy Melon flavored vodka, is concocted with pineapple and a splash of grenadine, served bright pink in a martini glass. It’s done in the name of increasing the Skyy call at the bar.

Though it may seem like chemistry homework, Skyy Vodka brand manager Jay Turner finds the story of vodka’s distillation—and Skyy’s purity level—wins over bartenders who in turn win over their customers. The Skyy salesforce packs a portable DVD player to educate its accounts on why Skyy is unique in today’s “cocktail culture.”

Jursa — predicting big things for gin in ’04 — cites Effen Vodka for coming into accounts and working with bartenders on drink recipes, and praises Brown-Forman as a company that understands what can be built on-premise by way of promotions that fit the venue because they have folks in the bars. For Jack Daniel’s, he says, “they’ve hired the right people to accommodate a lifestyle, as opposed to intercepting a lifestyle.” It’s a big change, he says, from “‘here’s a t-shirt, here’s a hat.’”

Instead, it’s “here’s a bottle you can deal with on the dance floor.” Phil Lynch, vice president and director of corporate communications for Brown-Forman, says Jack Daniel’s Hard Cola (the flavored malt beverage that B-F recently took over after ending a licensing agreement with Miller) takes into account how it will be consumed on-premise — held by the longneck to avoid spills — specifically when its consumers get their dance on.

And Dr. Atkins doesn’t have to be Captain Buzzkill. In Manhattan, a club called Trust has begun running Low-Carb Thursday Happy Hour. Michelob Ultra, Bud Light and Stoli cocktails are the featured attractions.

Even if there’s been a turn away from the corner bar image of glum workers drowning their sorrow (or, to be optimistic, toasting their good fortune) with a pitcher of suds, beer-makers are accentuating the positive, seeing to it that their product is enjoyed in its most glorious form. The crafters at the Brewers’ Association of America have been running an educational program in tandem with the Draught Beer Guild to ensure quality draught product flows “from keg to glass.”

Anheuser-Busch takes quality seriously and continues to take the issue public. April was Budweiser & Bud Light Freshness Month. Across those 30 days, select wholesalers and accounts offered the brands — longnecks and draught — that were packaged that very day. The Born On date made the effort certifiable. In Detroit, Anheuser took the concept to Comerica Park for the Tigers’ home opener. Were they so inclined, adult fans could be drinking day-fresh Bud packaged that morning in the A-B brewery in Columbus, Ohio.

About a year ago, industry observers sat up and took notice of an unadvertised phenomenon. Pabst Blue Ribbon was being revived in bars in big cities. Jursa’s company went into Pabst-happy accounts to find out what was going on. The answer, he said, was “it was an anti-brand… genuine.”

By comparison, folks in restaurants tend to feel a little uneasy when ordering wine, given the lingering intimidation factor. But wine is getting a boost on-premise with single-glass sales as an accessible point of entry. The knowledge gap is bridged when the restaurant waitstaff is trained in the ways and whys of wine. Palm Bay Imports, whose Cavit Pinot Grigio is the top selling import in the United States, has been diligent about educating waiters and waitresses at accounts such as the Olive Garden. It helps drive off-premise trade, the company says.

Come last call, whether we’re talking about beer or soft drink, water or wine, gin or Jones, it comes back to the end user. People go out for their own reasons. On-premise operators and beverage marketers and distributors who ignore those reasons do so at their own risk.

“Understand the consumer before anything,” Jursa urges. “You can’t just sit in a white room in Tulsa and ask about an ad. Get out there and listen to the conversations.”