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Analysts, operators optimistic about post-recession beverage sales

The prevailing wisdom that people turn to drink in tough times was disproved during the Great Recession, as tight-fisted consumers spurned all beverages, including alcohol, when they ate out. But, in a positive sign for restaurateurs, consumers appear to be thirsty again.

According to new data from market research firm The NPD Group, after two years of 
declining servings for nearly all beverage categories, seven of 15 beverage categories recorded growth in the quarter ended in June. With total industry traffic still down 1 percent, the growth in beverage servings could signal the start of the restaurant recovery, said NPD officials.

“Beverages had been declining so much, but now we are starting to see some positive [growth],” said NPD analyst Bonnie Riggs. “Consumers are slowly starting to drink again — and that’s a good sign.” 

QSR pours it on

Consumers are thirsting most for iced tea, specialty coffee and bottled water, according to NPD. In the quarter ended in June, there were 69 million more servings of iced tea, a 5-percent 

increase from the same period a year ago. There were also nearly 49 million more servings of specialty coffee, an increase of 8 percent. And there were nearly 35 million more servings of bottled water, an increase of
5 percent. Traditional coffee, noncarbonated soft drinks, frozen soft drinks and milk also experienced growth.

The quick-service segment is driving much of that growth through the many new products and promotions recently unveiled by major chains, Riggs said.

Other beverages also stand to benefit from QSR promotions. While servings of shakes, malts, floats, hot tea, smoothies, hot chocolate, alcohol, juice, diet carbonated soft drinks and regular carbonated soft drinks are still declining, NPD projects a reversal of fortune for some.

For example, though there were 10 million fewer servings of smoothies in the quarter ended in June, several new products from major quick-service chains, such as the smoothie line 

debuted by McDonald’s this summer, mean the product is poised to go through the roof by next quarter, Riggs said. 

One beverage category, however, appears to have lost its fizz: carbonated beverages.

“[Consumers are] still ordering a lot of carbonated soft drinks, but it continues to decline,” Riggs said. “It’s not going to grow.”

Women are the thirstiest American consumers, NPD found. According to the data, women are largely responsible for the growth in all beverage servings, with the exception of noncarbonated soft drinks, which is being driven by men of nearly all age groups.

Some may argue that the increase in beverage servings is largely due to consumers quenching their thirst during one of the hottest summers on record. While hot weather has been a contributing factor, Riggs and other industry experts believe that more than heat is at work.

“It’s our belief that beverages are likely to be one of the consumer products that benefit first [in a post-recession world],” said Gary Hemphill, managing director of New York-based Beverage Marketing Corp. “[Beverages] are a relatively inexpensive simple pleasure.” 

Driving them to drink

With beverages looking like an early beneficiary of economic recovery, restaurateurs need to contemplate how to get consumers lapping them up again. Here’s a sampling of what’s working for some quick-service operators across the country:

Taking it slow. At McDonald’s, the introduction of new beverages has been a slow, methodical process. The burger chain began revamping its beverage platform in 2006. That was the year the burger giant introduced its premium roast coffee. In subsequent years, McDonald’s has introduced iced Sweet Tea, which flowed out of the stores with its $1 price tag, and the McCafe line of gourmet coffee, which has given major coffee chains some serious competition. Earlier this year, McDonald’s debuted Frappes, and in July, the No. 1 burger chain introduced its Real Fruit Smoothies. The new blended fruit drinks have already been so popular that industry experts anticipate that the burger giant may do for the smoothie what it did for specialty coffee a few years ago. The secret to the chain’s beverage success is patience, said 
McDonald’s spokeswoman Ashlee Yingling. “Things have been in the works for beverages for most of the past decade,” she said. “All [beverage] categories for us have been growing.”

Keeping an eye on health. For Milford, Conn.-based Subway, a healthful focus has 
resulted in healthy beverage sales. The sandwich chain has seen consistent increases in beverage sales over the past 15 months, according to Subway spokesman Les Winograd. The chain attributes this increase, at least in part, to its overall health and value messages, as well as a beverage mix boasting more healthful choices, such as bottled water, low-fat milk and, most recently, Fuze fresh brewed iced tea. “We haven’t done anything specific with regard to health that I think could account for the uptick — just our overall ongoing message and reputation of having fresh food, low fat and calories, plenty of veggies, made-to-order, healthier options,” Winograd said.

Offering variety. To attract thirsty consumers, Canton, Mass.-based Dunkin’ Donuts has been mixing things up a bit — literally. This summer, the coffee and doughnut chain expanded on its popular Coolatta line of frozen slush drinks by adding a new Blue Raspberry flavor, bringing back last year’s limited-time 
Watermelon, and introducing new flavor combinations, including Coffee and Vanilla Bean, Watermelon and Strawberry, and Tropicana Orange and 
Vanilla Bean. “We’ve seen a significant double-digit growth [over a year ago] in the frozen and iced beverage categories,” said Dunkin’ spokeswoman 
McCall Gosselin. While the hot weather has certainly contributed to the increase in frozen and iced beverage sales, Gosselin said that is only a small part of it. “It’s definitely more about the products and the great value,” she said. “Our guests love the fact that we have a lot of variety in our frozen and iced beverages.”

Also trying to lure consumers with variety is Lexington, Ky.-based Fazoli’s, where beverages overall are up. “Variety is 
really big,” said Cathy Hull, chief marketing officer for the Italian quick-service chain. According to Hull, the more than 240-unit chain saw an increase in incidence after adding more drink options to its menu. For example, earlier this year Fazoli’s doubled its iced tea offerings by including flavored options. And, to create some excitement around variety, the chain introduced several limited-time beverage 
offers, something it hadn’t done in the past. Among those offerings was a Blue Raspberry Lemon Ice slushie drink. 

Another way Fazoli’s has enticed consumers to return to drinking is by offering meal bundles with a beverage included. In April, the chain offered a drink with its Ultimate Meatball Smasher sandwich for just $4.99 “We look at beverages as a value-add for our guests,” Hull said. “We see [bundling] as a good value.”

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