Of the many industries hit hard from the economic slump, restaurants have taken some of the worst hits. In cities and towns across the country, fewer consumers are eating out at restaurants, and with less traffic, sales are down and restaurants are closing. So what is the key to weathering the storm? Some experts say discounting or bundling items, and others say adding more variety will bring consumers back.
Fine dining, full-service, fast-casual and quick-service restaurants sometimes have different clientele, but at the end of the day, finding ways to entice consumers back to foodservice locations is the goal. David Henkes, vice president of Technomic Inc., Chicago, says foodservice operators need to tap into the consumer demand for beverage variety.
“I think variety is always important, and consumers are looking for more choices rather than less,” Henkes says. “Having not just the five or six flavors on the fountain, but increasingly operators are looking to have some of those other type of things in bottles and cans.”
Back in the “good old days,” consumers could find soda fountain shops, and could add multiple flavors to one soda. More variety and customization of beverages is the consumer demand once again, says Michael Schaefer, consumer foodservice industry analyst at Euromonitor International Inc., Chicago.
“We are seeing more bottled beverages, more variety, more places offering things like fresh juices or flavored soft drinks,” he says. “The first and biggest trend is more variety, more customization. So you have a chain like Sonic Drive-in, a pretty fast-growing burger chain that has a huge beverage selection. Whatever you like, you can add in to your beverage to customize it. It’s going back to the old soda fountains of years past.”
Coca-Cola North America, Atlanta, picked up on the trend toward more variety and introduced Coca-Cola Freestyle, its new proprietary fountain dispenser. Coca-Cola Freestyle entered the foodservice channel this summer.
“Coca-Cola Freestyle brings to life the refreshingly positive outlook that has always been associated with Coca-Cola,” said Chandra Stephens-Albright, group director of marketing and business development for Coca-Cola. “It brings back the magic of the fountain of the past, re-imagines it for the future and then takes it a step farther by celebrating the idea that consumers can truly have their say at fountain â€” with choices tailored completely for them.”
Freestyle machines are touchscreen operated, and consumers can choose from more than 100 regular and no-calorie brands, including water, juices, teas and sparkling beverages, even some that have never been sold in the United States. The self-serve fountains have been in development for four years.
“I think what is really interesting about the Coca-Cola Freestyle system is that kind of customization it offers,” Euromonitor’s Schaefer says. “Not just a large selection of beverages â€” although it is a much larger selection of beverages â€” but the way it allows people to design their own drink.
“I think it’s huge. That kind of thing could really drive traffic. If one store has that and another one does not, that can get people in the door. It’s that kind of ‘having it your way.’ Yes, it costs more, but that’s what consumers are demanding.”
The Coca-Cola Freestyle dispenser uses PurePour Technology to make dozens of branded beverages fresh to order, in the same amount of space as the current eight-valve machine, the company says.
“The Coca-Cola Freestyle is fun, provided it doesn’t slow down service,” Schaefer adds.
In addition, the Coca-Cola Co. introduced its new Coca-Cola cup for foodservice customers. The cup is made from 50 percent recycled material and the new lid is designed to prevent spills, the company adds.
According to Technomic, the foodservice industry saw less than 1 percent nominal growth in 2008, but as of May 2009, the U.S. foodservice industry declined 2.6 percent. Revenue has been falling and there has been an increased emphasis and focus on trying to maintain profitability, Henkes says.
“Restaurant operators are trying to buffer or enhance their profitability, or maintain their profitability wherever they can, so when the economy does turn back around, they are in a better position, at least from a profitability perspective, to grow their business again,” he adds.
According to Technomic, full-service restaurants declined 2.5 percent in nominal growth in 2008, and through May 2009 declined 7.5 percent. Quick-service restaurants and fast-food restaurants are faring better, which may be due to consumers trading down, Henkes says.
“A lot of that has been driven by McDonald’s, which continues to post very strong same store sales in a very weak environment,” he says. “But even some of the fast-casuals like Panera, Chipotle and Fuddruckers are doing pretty well. It’s not an upscale experience, but it’s a nice experience at a lower price point.”
In this economy, the cost of a beverage or meal at restaurants is important to consumers. Henkes says he is not sure if consumers’ trading down behavior will ever go back to the way it was before the recession.
“If you are still working and you go out to eat, rather than go to a high-end place, maybe you go to a fast-casual or casual dining or fast-food restaurant,” he says. “Some of that behavior could be longer lasting than just once the recession ends. This has been a fairly significant event for a lot of people, and some people’s behavior may never go back to where it was two or three years ago.”
According to a Technomic report on the top 100 fast-casual restaurants, those chains grew 10.8 percent in 2008, totaling $16.7 billion in the United States. Panera Bread/Saint Louis Bread Co. led the top 100 with total sales of $2.6 billion in 2008, a 16.2 percent increase from 2007.
“The difference with this economic setback vs. some other ones is this has been a top-down recession,” Henkes says. “The high-end people have been hit just as hard, and in some cases harder, than the lower people. Everyone is just kind of nervous and cautious of what they are doing. A lot of that has led to trading down behavior.”
If he had to give advice to restaurateurs to help them survive in this recession, Henkes says he would tell them that beverages are incredibly important to drive profits.
“Whether it is alcohol or non-alcohol, beverage in general is such a driver of profitability,” he says. “Don’t necessarily lose sight of the beverage dollar or beverage program. Focus on back-of-house efficiencies or maintaining the profitability as much as possible for the operation.”
Carbonated soft drinks, sports drinks, bottled waters and iced teas continue to grow in the foodservice channel, Henkes says. Frozen beverages and milkshakes have seen a bit of a slowdown.
“In a tough economic environment, some of those higher-end beverage products are probably a little more vulnerable than the carbonated soft drinks,” he says. “People are trading back to carbonated soft drinks from the [more expensive] beverages.”
Consumer satisfaction continues to be a top priority, even though overall sales are sluggish across the foodservice channel.
“We have been saying that flat is the new up,” Henkes says. “For any operator or supplier, if your sales are flat, you are doing pretty good right now. It’s kind of treading water or trying to keep your head above water. So when you look at what operators are doing, there’s a lot of discounting, bundling and other attempts to try to get people into their restaurants.
“And I think beverage, at the end of the day, does play some kind of role in differentiating the restaurant or an establishment, which leads to guest satisfaction and contributes to the overall experience of the restaurant.” BI
Beverage Industry’s October issue features a cover story on our 2019 Executive of the Year, Jim Koch of the Boston Beer Co. This issue also features a category focus on bottled water and the innovations that abound in flavored, functional and sparkling waters. The issue also includes an ingredient spotlight on the beloved chocolate ingredient as well as voice-picking solutions aimed at streamlining beverage warehouses. As usual, we rounded up the latest trends in products, packaging and ingredients.
Check back throughout the month for additional content.