Morning brew ... and beyond: Carbonated choices fizzle; coffee drinks, smoothies, teas sizzle

News

Restaurants are making some eye-opening improvements and eye-popping expansions of their breakfast-beverage offerings. The ideas are percolating at all levels, from the Consumer Reports-endorsed premium coffees in quick-service chains to the smoothie selections at bakery concepts.

"Beverages are becoming a bigger and bigger part of restaurants' mix," said Chris Campagna, vice president of marketing for the 140-unit Atlanta Bread Co. Bakery Café, based in Atlanta. "The mix is based on consumer demand, and there's a lot more occasions during the day for beverages than there are just for core meals."

Consumer Reports magazine, which independently judges various retail products, earlier this year rated McDonald's coffee the best in a four-way taste test against rival quick-service brands. McDonald's bested Burger King, Dunkin' Donuts and even Starbucks.

Since going to the premium-grade coffee, McDonald's has reported sales up as much as 15 percent. The company is testing other beverages, including espresso drinks, iced coffees, iced teas and bottled soft drinks at restaurants across the country. A number of McDonald's locations, especially those in South America and Spain, include espresso bars as part of their format.

But the interest in coffee has spread to the domestic shores as well, showing up in restaurant sales. Technomic Inc., a Chicago-based consulting firm, said that in the past three years, coffee sales at quick-service chains have climbed 8 percent. And in May Wendy's announced it would provide its customers with a new high-end coffee product — called Wendy's Custom Bean by Folgers Gourmet Selections — along with the debut of the chain's new breakfast menu this summer.

Kerrii Anderson, chief executive of Wendy's, made the announcement of the agreement with Procter & Gamble, explaining: "The Folgers Gourmet line is heavily promoted by P&G and actively supported through ongoing research and development. This will be an important menu addition to our restaurant system, as we work to make Wendy's a destination for great coffee." Wendy's expects to expand breakfast to 20 percent to 30 percent of its North American restaurants by the end of 2007.

"Coffee is an important player in our expanding beverage portfolio," Anderson said. "We believe we have the right partner and the right brand to significantly elevate our presence in the coffee arena, attract new customers and positively impact store margins." Meanwhile, because of concerns about calories and additives, carbonated beverages appear to be slowly losing ground to smoothies, coffees and teas.

Gary A. Williams, president of the Kanbay Research Institute, said his research firm recently surveyed 61 brands and found coffee leader Starbucks was rated one of the most desired companies of 2007.

"The company received high consumer ratings because they make an experience out of coffee drinking. Starbucks has found a way to lock in customers by continually creating new concoctions rooted in regional inspiration and authenticity," Williams said. He cited Starbucks' Dulce de Leche drinks, rooted in Central and South American cultures, as an example.

The KRI report indicated that growing health concerns have made consumers less interested in carbonated beverages, preferring instead to drink teas, water, coffee, sports drinks and energy drinks. Revenues for sodas grew more than 10 percent in 2006; however, year-over-year profit is declining. A recent survey of quick-service restaurant patrons, conducted by Sandelman & Associates, found that soft-drink purchases declined to 47 percent of visits in 2006, down from 52 percent in 2005.

The move away from sodas has not gone unnoticed. Burger King this spring offered a limited-time-only Mocha BK Joe Iced Coffee. Dunkin' Donuts, which upgraded coffee selections several years ago, has begun offering iced teas. Jon Luther, chief executive of Dunkin' Donuts, said recently at the Restaurant Leadership Conference in Scottsdale, Ariz., that he sees the coffee market continuing to grow, especially with "coffee extensions," such as iced coffee and flavored drinks. "There's a huge platform of expansion," Luther said.

Krispy Kreme now features Chillers frozen drinks, while Chick-fil-A has added new beverage options to its kids' menu and Sonic Drive-Ins, a pioneer in ice cream drinks and other carbonation alternatives, is offering a wide variety of flavors: Banana Pudding Shake; Hot Fudge Oreo Shake; Orange Float; Strawberry Cheesecake Shake; and Vanilla Coke Float.

"Our data also shows that pricing power — the willingness for consumers to pay more — has stayed fairly stagnant for sodas over the past year, which indicates a continued move towards a commoditized industry," Williams said. "Consumers say that soda companies are delivering well in terms of uniqueness, reputation and brand coolness but fail to deliver on quality and fair-pricing."

As the summer season gets into full swing, smoothies are getting added attention among breakfast providers. Campagna of Atlanta Bread said fruit smoothies and iced coffee drinks get a big uptick seasonally.

"It depends on the time of year; during the spring, summer and fall, we get a push for the smoothies and Cafechillos," Campagna said. "The lattes have done extremely well all year long. The consumer is really pushing for more diverse tastes, whether it be mocha or caramel. That's what we really get. The best way to put it is: They are looking for more, bolder flavors. They don't want just a regular latte."

Falling into the bolder-flavor category is the spiced chai Cafechillo, Campagna said. Atlanta Bread Co.'s frozen Cafechillos also are offered in the flavors of: Kona Mocha, Vanilla Latte and Caramel Latte. In addition, the available smoothies are: Strawberry-Banana; Pineapple- Mango-Banana; and Strawberry- Blueberry-Banana. "All of our smoothies now have a banana base, and we're looking to develop a non-banana-based smoothie," Campagna said.

Restaurant marketers also are putting promotional muscle behind the new beverage offerings.

"We've always had smoothies and Cafechillos in the cafés," Campagna said. "Now we're really trying to build the awareness for those items. We're trying to push the trial on those items, because when consumers try them, they really like them."

He said he thinks the quick-service restaurants were the ones to first plow the fertile territory of the beverage arena.

"QSRs really educated the public," Campagna said. "They have pushed the envelope on coffees and beverages throughout the day. QSRs have done a great job with the mix of their beverages and the quality. That's good for the bakery café segment. We've always offered quality beverages, whether it be a smoothie or a coffee. But I think consumers' expectations for quality of beverages has really risen in the past two years.

"Consumers are getting extremely savvy with all the television shows that center on food," he speculated. "There's a whole Food Network now. There are reality shows based on restaurants. With the Internet, people are becoming much more knowledgeable about food and about tastes and different tastes from different parts of the world. They are reading about this on the Internet, they are seeing it on TV. It's intriguing to them, and that's translating to what we are hearing in our cafés and seeing from consumer comments online."

While he has been in the restaurant business for 15 years, Campagna said that "in the past four years the consumers' tastes have really risen not just one notch but several notches.

"I see people hanging out in our cafes much more than I used to," he added. "We offer free wireless [Internet connections]. I was just in our café in Atlanta at 3:30 in the afternoon, and there were seven people in there, all with laptops. Customers want to use the restaurant at that time as a place to chill out, get a cup of coffee or a latte or something more specialized. There was a teacher there grading papers, and she had a caramel latte and a bakery item.

"Consumers are challenging restaurants and food establishments to offer great food items and beverages that satisfy them while they are chilling out." In the stores' 9 a.m.-to-11 a.m. and 2 p.m.-to-6 p.m. periods, when the dining room real estate is less congested and can use the incremental addition of business, many operators are finding it to be a good time to appeal to the casual user.

More operators are finding the post-breakfast rush period to be a good time to capitalize on home-office workers and late commuters. Restaurateurs are beefing up offerings of late breakfast snack pastries, such as those on the growing menu at Starbucks, and the enhanced variety of coffee drinks and other beverages that appeal to those customers who might have a laptop or paperwork over which to linger.

"A lot of people work at home, but they don't want to hang out by themselves at home," Campagna said. "They are trying to go to places that really not only fit their lifestyles, but places that fit the different moods within their lifestyles."

He added that Atlanta Bread is actively going after those consumers. The company's new prototype in Atlanta, Campagna said, "is aimed at capturing that audience. We're introducing a lot more colors into the stores, there are more areas where consumers can just 'chill out.' We're introducing some big overstuffed chairs into the café where a person can put a laptop or papers.

"It's pushing us to develop more bakery items and beverages that fit into the lifestyle. You will continue to see us push different flavors," he added.