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Beverage

With Americans drinking less soda, restaurants get creative

Shifting beverage consumption leads chains to change their drink offerings.
stubborn soda

For much of its history, California Fish Grill had a typical soft drink offering inside its fast-casual locations: a self-serve fountain of Coke products, with iced tea on the side.

Yet that offering didn’t quite align with the chain’s healthier branding. And drink sales were declining.

So the 21-unit, California-based seafood concept switched to a craft soda, the Pepsi-owned Stubborn brand. And then something interesting happened: People posted it on Yelp, helping the chain reverse its declining soda sales.

“People started taking pictures of our soda machine and commenting on the uniqueness of our offerings,” said Paul Potvin, the chain’s CFO. “You don’t see that with Coke. Nobody’s taking a picture of a Coke machine on their Yelp reviews.”

The chain’s change in its soda tower reflects a rapidly shifting dynamic in the beverage business inside of restaurants.

With consumers’ tastes changing, chains are getting creative in what they’re putting on their drink towers — no longer content with simply offering Coke or Pepsi. Companies are adding new varieties. They’re including more lemonade and iced tea and giving their customers more choice, all in a bid to recover lost beverage sales.

“I have never seen such change in the industry as I have in the past 24 months,” said George Hiller, a consultant who helps restaurant chains negotiate contracts with beverage makers. “In the past, you might have had a new brand or you might have had a new technology come up, but nothing like this.”

Consumers are drinking less soda. Per-capita soda consumption hit a 31-year low, according to Bloomberg, citing 2016 data from the publication Beverage Digest.

That’s true in restaurants as well, where beverage mix has been trending downward, prompting chains to get more creative with their offerings.

It’s also prompting the soda makers themselves to get creative, too. PepsiCo and Coca-Cola have been broadening their variety and investing in craft soda brands. They’re also working to reduce sugar in their drinks to address health concerns.

But the soda makers are also more willing to make deals with restaurant brands to secure the rights to in-restaurant brand sales.

“The cola wars are truly alive and well,” Hiller said. “That is certainly a benefit to the rest of the companies when they’re looking at their next contract negotiations.”

Hiller said the decline in soda consumption and the increase in demand for other drinks, such as lemonade or iced tea, along with soda taxes in many markets, has created “a perfect storm” that has created a favorable environment for companies to get what they want from beverage makers.

Hiller said that consumer demand for variety is helping drive much of this change, forcing both beverage companies and restaurant chains to adapt. And he believes the trend will continue.

While restaurant companies can get good deals from beverage makers, Hiller said companies should find more creative strategies to generate sales. “It’s not only about how well you buy, but how well you sell,” he said.

McDonald’s over the past year has found success in selling soft drinks for $1 during the summer and coffee drinks for $1 in the winter months.

The fast-food chain A&W last spring went back to making its own root beer in house — something it had done for most of its history before shifting to traditional bag-in-a-box root beer in the name of efficiency.

Smaller chains, meanwhile, are experimenting with offerings that fit more with their brand, eschewing the traditional soda fountain in some cases, as California Fish Grill did, or simply expanding their offerings. The Italian chain Piada, for instance, offers Italian sodas in addition to traditional soda inside its restaurants.

The 67-unit Slim Chickens, a fast-casual chicken chain based in Fayetteville, Ark., recently added a lemonade bar to its restaurants, with fresh squeezed lemonade.

That fit more with the chain’s Southern roots. Lemonade, after all, pairs nicely with chicken. But it also helped the chain broaden its offerings.

“It allowed us to take the bag-in-a-box lemonade off the tower and offer a greater variety of carbonated beverages,” Slim Chickens CFO Seth Jensen said.

He also said it allowed more “guest interaction” inside what the chain calls its “drink shack,” where it also offers iced tea in addition to the carbonated offerings.

“People are coming in and making their own,” Jensen said. One of the things they’re making: an Arnold Palmer, which mixes lemonade and iced tea.

“It’s table stakes,” Jensen said. “Guests are asking for more and more better-for-you options. They’re looking for something that isn’t necessarily carbonated. These are macro trends we’ve seen for decades now.

“You have to have more than just take-it-or-leave-it carbonated beverages.”

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