NPD: Guests cutting back on soda, filling up on teas, coffee

NPD: Guests cutting back on soda, filling up on teas, coffee

Americans can’t always agree on what they want, but these days they seem to agree on what they don’t want: more of the same. Given the emphasis put on change by both presidential candidates, that’s true of politics and, according to recent research, it’s true of beverages as well.

According to new data from market research firm The NPD Group, for the last five years consumers have been steadily cutting back on traditional carbonated soft drinks in favor of newer and more innovative offerings such as iced tea, specialty coffee, smoothies and slushies.

“While consumers have been purchasing more and more beverages from restaurants, they have been expanding their horizons beyond traditional carbonated soft drinks,” said Bonnie Riggs, an analyst for Port Washington, N.Y.-based NPD. “Consumers are thirsty for choice.”

According to NPD, total beverage sales grew 1 percent in the year ended in July. During that period, carbonated soft drinks accounted for a 41 percent share of all beverages, down from 46 percent in 2003. In contrast, iced tea captured an 11-percent share, up from 9 percent in 2003. Specialty coffee and bottled water each grabbed a 6 percent share, up from 4 percent.

“I don’t think operators or suppliers are aware of that big of a shift in share,” Riggs said.

Though carbonated soft drinks still account for the biggest share of the beverage market, the largest incremental-servings gains are coming from iced tea and specialty coffee. For the year ended in July, there were 474 million more servings of iced tea, a 10-percent increase over a year earlier, and 373 million more servings of specialty coffee, a 15-percent increase over a year earlier. During the same period, smoothies and hot chocolate also posted double-digit gains. Other top-growing beverages included frozen soft drinks, bottled water and traditional coffee.

While some of these beverages appeal to only a certain segment of the industry or particular demographic groups, the popularity of iced tea is widespread, NPD found. For the year ended in July, iced tea was among the top three fastest-growing beverages in the quick-service, quick-service retail, midscale and casual-dining segments. The data also reveal that iced tea is popular, and growing, with both men and women. In addition, adults under 24, the group cutting back on carbonated soft drinks most, are contributing most to the servings growth of iced tea.

Iced tea may be performing so well because it offers not only a wealth of variety, but it fulfills consumers’ desire for more healthful choices, another big beverage trend, industry experts say.

“Variety and health and wellness…[are] the key reasons we’re seeing some softness in carbonated-soft-drinks sales,” said Gary Hemphill, managing director for Beverage Marketing Corp., a New York-based research and consulting firm for the beverage industry. “We’re finding the growth is in more niche, small categories…teas, energy drinks and coffees.”

Though beverages are one of the first things consumers tend to leave off when trying to watch their wallets, that doesn’t seem to be happening as the economy slows this time around. Instead of dropping beverages, many consumers are replacing a food or snack item with a beverage, NPD found.

“The only [daypart] we’re seeing growth in is at the snack daypart…very unusual in difficult economic times,” Riggs said. “I think these are things [consumers] are craving.… ‘That’s my treat.’”

A growing number of quick-service operators, many of which used to rely primarily on carbonated soft drinks to bring in big beverage bucks, have been aggressively expanding their beverage menus in the hopes of finding new drinks that have price-value equations that please consumers and the bottom line.

For the last few years Miami-based Burger King [3] has been heavily exploring noncarbonated soft drinks, including flavored beverages, energy drinks, coffee and shakes.

“Sodas and carbonated soft drinks are still the lion’s share of our [beverage] business and what customers are looking for from fast food,” said John Schaufelberger, senior vice president of global product marketing and innovations for Burger King Corp. [3] “Customers are always looking for more choices.… They don’t always feel a carbonated soft drink is the right choice.”

Among the No. 2 burger chain’s most successful new beverage choices is the Mocha BK Joe, coffee blended with chocolate syrup and poured over ice, priced at $1.99, which Schaufelberger says has “exceeded all expectations.” In addition, the 7,700-unit chain recently launched the Oreo BK Sundae Shake, a dessert-drink hybrid made with soft-serve ice cream and chunks of cookies offered at $1.99 for a small and $2.49 for a medium. Burger King also is currently testing several energy drinks, Schaufelberger said.

Similarly, Oak Brook, Ill.-based McDonald’s [4] has been expanding its beverage menu for several years now, including adding premium roast coffee, iced coffee and sweet iced tea.

“Beverages are a great business opportunity for McDonald’s, given the overall size of the category. But in order to capture that opportunity, customers are looking for different beverage choices than what we offer today,” Alex Conti, senior director of menu management at McDonald’s USA [5], said in an e-mail.

So far, the new beverages have been successful for McDonald’s. Following the introduction of its premium roast coffee in 2006, McDonald’s says it saw double-digit annual increases in average monthly units sold, and year-to-date premium roast coffee sales are up versus the same period last year. In addition, since launching iced coffee and sweet tea last year, the company said most of its restaurants have shown significant positive sales growth.

In an effort to provide further value to consumers, the burger chain has used aggressive drink-pricing tactics. For example, Mickey D’s Sweet Tea has an everyday price of $1, and in many markets nationwide McDonald’s offered any sized drink or tea for $1 for a limited time this summer.

Consumers can expect even more variety in the near future, as the burger chain said it’s working with its beverage suppliers to test an array of new drink options, including bottled beverages and a greater variety of fountain drinks.

Major quick-service chains aren’t the only operators addressing consumers desire for new, noncarbonated beverages.

A few years ago the team at Max Amore in Glastonbury, Conn., one of several restaurants owned by Max Restaurant Group [6], began to notice consumers’ increased desire for more variety and more healthful drink choices. While the casual-dining restaurant didn’t drastically expand its menu, fresh-squeezed juices were added and bartenders and servers began creating more customized drinks, such as fruit juice cocktails and have-it-your-way specialty coffees. Today, fresh, house-brewed iced tea; lemonade; the Arnold Palmer, a mix of lemonade and iced tea; and more fresh juices are among the restaurant’s most popular cold, nonalcoholic beverages, said bar manager Jeff Obert.

“We see more people mixing up juices, [creating] fruit juice cocktails,” Obert said. “Sales have increased since we introduced fresh-squeezed juices.”

With better-for-you nonalcoholic drinks performing so well, a few months ago Obert began mixing fruit juices, especially pomegranate, into his martinis to create an “antioxidant martini.”

“[I tell them] it’s good and good for you,” Obert said.

Though operators need to address consumers’ growing desire for variety and healthful options, they also need to find ways to keep drink prices in check, Riggs said.

“Consumers know the profit margins [of carbonated soft drinks]…the price-value, it’s just not there,” Riggs said. “The key to whatever [operators] do is that the consumer sees the value in it. If the price-value is there, they will pay.”