When life gives you such lemons as rising energy, labor and food costs and falling consumer confidence and spending, make lemonade — or rather Mint Lemonade, Freckled Lemonade, Berry Good Lemonade, and lemonade and vodka, or mix lemon and grapefruit juice with gin, tonic and a touch of honey and serve over ice.
During these challenging economic times, restaurant operators are putting a new twist on the old adage. As escalating costs put the squeeze on profits, operators are stirring up their beverage menus and drink promotions and creating more premium offerings that allow them to charge premium prices. With already high profit margins, beverages, both alcoholic and nonalcoholic, are helping to improve sales in their restaurants, operators report.
The typical margin on fountain beverages is about 85 percent, notes John Drinkard, marketing director for Villa Enterprises, a Morrison, N.J.-based, multiconcept operator or franchisor of more than 300 quick-service restaurants, including the predominately mall-located Villa Pizza and Villa Fresh Italian Kitchen.
Margins can be pushed further by offering specialty drinks, Drinkard says. For example, a 20-ounce fountain drink sells for $1.59; Villa has developed a line of drinks called “Spruzzata,” which is Italian for “splash,” that sell for $2.49. The Spruzzatas are a mix of various soft drinks and fruit juices or flavored syrups. They are served in special cups and are more time consuming and costly to make.
The cost of goods sold on a fountain drink is approximately 31 cents, while for a Spruzzata it is 40 cents, he explains. But while the specialty drink costs Villa 9 cents more to produce, its higher price brings in a bigger profit. In addition, free refills are not offered on the Spruzzata drinks as they are with the fountain beverages.
“We’ve had double-digit increases on some of the Spruzzata since we started doing them last year,” he says. “And aside from the obvious bottom-line money factor, [special beverages] give you a point of difference from your competitors.”
Drinks are one way to attract already cost-conscious consumers and get them to spend more, operators and industry consultants say.
“In today’s economy, consumers are spending very wisely,” says Tony Garcia, a consultant for Patrick Henry Creative Promotions Inc., a Houston-based food-and-beverage marketing agency. “Any time you can trade up their beverage from an iced tea, coffee or soda, it is incremental dollars and a benefit to your bottom line.”
Operators should take advantage of the opportunities beverages offer, says Harry Balzer, vice president of Port Washington, N.Y.-based NPD Group.
According to data collected by NPD, soft drinks, water—both tap and bottled—coffee and iced tea are the leading beverage choices for consumers when they dine in restaurants.
“There is a lot more diversity in our foods we eat and not quite as much in beverages, yet one of the driving forces in our lives is to try new things,” Balzer says. “Find out what people do most and offer new things; generally, that’s how you succeed.”
Tracy Finklang, manager of beverages for Louisville, Colo.-based Rock Bottom Restaurants Inc., spends her days thinking of new drinks to draw customers into the company’s concepts, the 63-unit Old Chicago and 38-unit Rock Bottom Restaurant & Brewery chains.
A drink promotion Finklang created a year ago was such a success that she developed a new seasonal beverage menu for the restaurants to give nonbeer drinkers more options, she says. Rock Bottom brews its own craft beer and Old Chicago offers more than 100 beers on tap.
“Fifty percent of the people who come in don’t drink beer,” Finklang says. “We want to capture them and keep them off the iced tea and water. So far it’s worked incredibly well. We’ve had positive comp sales [on beverages] ever since we rolled out the beverage menu.”
Currently, the restaurants are selling such nonalcoholic drinks as a piña colada with strawberries and pineapple juice, a strawberry and cranberry juice drink with ginger ale and fresh lime and the “Berry Good Lemonade,” which is a combination of strawberry mix and lemonade. Again, the refills are not free.
“With every refill, the cost of goods goes up,” Finklang says. “We want to come up with drinks people will enjoy, that are fresh, fun and sexy, but don’t have unlimited refills and cost more than teas do.”
For cocktails, the drinks include a margarita; a black raspberry liqueur that is served on the rocks in a glass rimmed with sugar; a Cosmopolitan made with pomegranate syrup and cranberry and lime juices, also served in a glass rimmed with sugar; and a drink of gin, lime juice, fresh limes and club soda.
“Cocktails are really king right now,” Finklang says. “Just look at how many vodkas are made with different flavors. Flavors are big. Most of the drinks I make are easy to drink.”
The beer side of the business, however, has seen beverage costs rise dramatically, says Kevin Reed, director of brewing operations for Rock Bottom. He estimates beer costs are up nearly 50 percent due to escalating commodity prices and hops shortages. The increases could have been more severe if Rock Bottom had not secured its current supply of hops through multiyear contracts, he says.
“We’re somewhat insulated,” Reed says. “Your favorite six-pack may go up $1.50 at the grocery store, but we did take an increase of more like 10 cents to 15 cents per beer, for a 16-ounce beer.”
The greater challenge is overcoming a decline in foot traffic as cost-conscious customers, who now pay more than $4 for a gallon for gas, are dinning out less frequently, Reed says. But once within the four walls of the restaurant, consumers are looking to treat themselves, he adds.
The good news for the restaurant chain is that craft beer continues to pick up market share against major breweries, so consumer interest is still thriving. For that reason, Rock Bottom is focusing on ramping up its beer choices, offering more beers on tap as well as increasing the variety of brewed beers, such as barrel aging beer in fresh oak and bourbon barrels or wine barrels.
“Like with all downturns, you have to weather it,” says Reed, who has been with Rock Bottom for 15 years. “People who execute the best are those who have cultured some brand loyalty.”
Operators are looking for unique and unusual beverages to attract customers.
Heads turn when the Beer Goddess leaves the bar at Heartland Brewery, a five-unit brewpub based in New York City. The Beer Goddess is a three-liter, hand-blown Pilsner glass containing 6.3 pints of craft beer. The glass is so big, only two-thirds can be filled from the bar tap and the rest is poured in from a pitcher. It’s been selling for $49 a glass since Heartland launched the promotion in July.
“Right now they are selling nicely,” says Heartland founder Jon Bloostein. “If we happen to sell five or 10 a night, we’ll be doing well. Everybody looks at it. It’s like that sensational dessert or tower of shellfish that goes out. Everyone asks, ‘What is it?’ ”
His cost of making beer has doubled, but the profits in beer and other beverages are still higher than his food margins, Bloostein says. So the breweries continue to create new drinks and brews, such as cask conditioning the beer for three months in whiskey barrels. Heartland also makes its own sodas, such as orange cream and black cherry. The drinks are popular with children and can also be used in alcoholic drinks.
At Berryhill Baja Grill, a 15-unit fast-casual Mexican chain in Houston, the signature drink has become the Mint Lemonade, a blend of freshly squeezed juices and mint. The lemonade is displayed in a large glass container on the counter next to the cash register so customers cannot miss it when they place their orders, says vice president Kristine Troger.
The Mint Lemonade sells for $2.50, versus $1.89 for a fountain drink. Even with $1 refills, the Mint Lemonade has a higher dollar margin than sodas, Troger says. The drink is also used in cocktails.
Since January, Berryhill has sold more than 3,000 Mint Lemonades, Troger says. The chain is doing a fundraiser promotion this month. Proceeds from lemonade saleswill go to Habitat for Humanity. Customers are being encouraged to create their own lemonade drinks or choose such Berryhill creations as Main Squeeze Melonade, a mixture of lemonade, vodka and a melon liqueur, or Mexicana Lemonade, featuring lemonade, tequila and curaçao.
“It definitely brings more customers in,” Troger says of the Mint Lemonade. “And it sets us apart in the marketplace by offering these drinks.”
Fresh fruits and juices are popular ingredients in specialty drinks, both alcoholic and nonalcoholic, observes consultant Garcia.
“The latest trends are cleaner, fresh flavorful drinks that are refreshing without being overly sweet,” he says. “Today’s consumers want value and drinks that have that special handmade feel. In addition, fun new flavors and twists on the classics are making a big splash. Unique pairings like blackberry-orange, apple-pear or blueberry-pomegranate give consumers a familiar but new experience.”
At Red Robin Gourmet Burgers, the 400-unit casual-dining chain based in Greenwood Village, Colo., customers like “intense fruit flavors,” says Jerrod Janakus, vice president of marketing.
The chain offers free refills on its fruit flavored limeades and lemonades, which are priced at $3.99, much higher than straight fountain drinks. Red Robin also offers specialty cocktails, rotating new drinks with the seasons. A new promotion that begins in August will include such drinks as the Peachy Keen Splash made with diced peaches, peach syrup, soda, lemonade and rum.
“Right now food cost is an issue for everybody,” Janakus says. “Enhanced beverages absolutely can help out.”
Classic cocktails are a big trend right now as well, says consultant Roger Fields, a former restaurateur in both New York and San Francisco and author of the book “Restaurant Success by the Numbers.”
“Bartenders are now called mixologists,” Fields says. “Chefs and bartenders are collaborating and using fresh ingredients. Even when you get into additional costs producing fancy cocktails and that sort of stuff, pricing allows you to offset the costs.”
The industry is seeing a resurgence in cocktails and bar business, with customers even preferring to eat at the bar, says Patrick Henry, chief executive of his eponymous food-and-beverage marketing agency in Houston.
“The bar is the center of activity and guests enjoy watching so many innovative and colorful cocktails being created at the bar,” Henry says.
The bar business has grown at The Palm, the more than 25-unit Washington, D.C.-based upscale chain well known for steaks and lobsters. To enhance the bar portion of the business, this spring the Palm developed a bar menu and also hired two celebrity mixologists to develop a specialty drink menu.
Mixologists Willy Shine and Aisha Sharpe created five specialty drinks, or as The Palm describes them, handcrafted cocktails, that sell for around $14. The most popular is the Screaming Mimi, notes executive vice president Bruce Bozzi Jr. The drink is made of vodka, orange liqueur and a blend of strawberry purée, lemon juice and Champagne and topped with strawberries.
Since launching the menu in April, The Palm has sold $4,000 worth of Screaming Mimi drinks and cocktail sales in the bars alone have reached $125,000, Bozzi says.
“As we got bigger bars and more people hanging out in the bar after work, we said, ‘OK, let’s offer something unique,’ ” Bozzi says. “When most people think of The Palm, they think of a juicy steak and glass of red wine.”
The staff went through an extensive training with the new food and beverage menu for the bar, he says. And while the new drinks take longer to make, bartenders embraced the change.
“They were into it,” Bozzi says. “It was something new and different. They were like, ‘Let’s shake it up.’ They were happy about it, which is good, and so is the customer.”
Rock Bottom beverage manager Finklang, whose 35-year industry career began as a cocktail waitress in Florida says customers often use drinks to treat themselves. When a simple rum and cola already costs $4, customers can be persuaded to pay more for a specialty drink.
“People will say, ‘Hey, I work hard. I had a tough week. I deserve to have a fancy cocktail,’” Finklang says. “When the economy sucks, people drink, and when the economy is great, people drink. It’s one of those affordable luxuries.”