On Monday, the Texas-based burger chain Whataburger introduced a new Refresher drink, specifically a Prickly Pear Raspberry Whatafresher, which will be priced at $3.69 for 16 ounces.
This followed a move last week by Taco Bell to release a line of Refrescas at $3.79 to $4.49. And it comes as the Mexican chain plans to test its Live Mas Café concept in another 30 locations, while giant McDonald’s is pushing into beverages with a broader test of a line of drinks “inspired” by its recently-shuttered CosMc’s test.
This all comes as drink chains are gaining a lot of steam. Several of the fastest-growing chains in the U.S. serve beverages, mostly from drive-thru locations. And now a pair of Chinese chains are starting to get in on the act, as high-growth brand Luckin and the tea concept Chagee are looking to the U.S. for expansion.
All of which has made beverages a vital front in the ongoing competitive battle in the quick-service space.
Beverages are a potentially rich source of both sales and profitability, and the fast-food brands specifically have the opportunity to undercut prices charged by traditional coffee chains.
Consider that, at quick-service burger chains, the price of a medium iced coffee averages $2.51, according to Technomic Price Pulse data. At coffee chains that price is $3.62. (Technomic is a sister company of Restaurant Business.)
Fast-food chains can theoretically gain share simply because its beverages come in at a lower price. A medium energy drink at coffee chains costs $4.71, according to Technomic. A medium cold specialty tea is $5.31.
The challenge for such chains is to prove to the U.S. consumer that they are legitimate stops for beverages.
Consumers have increasingly gravitated to specialized brands for what they want, based on a perception of higher quality. The risk for these chains, in other words, is that their push into specialty beverages won’t work.
Yet beverages are probably different. People frequently get drinks with their meals, after all. Coffee and other drinks have long been an underrated driver of traffic to McDonald’s restaurants, after all. Customers come in on their way to work for a coffee. Or they might get a Diet Coke.
Younger consumers, however, have clearly broadened their beverage preferences. My own, in-house members of Gen Z drink all kinds of liquids, many of which didn’t exist a decade ago.
That practically begs for a broadened set of beverage offerings on the part of major fast-food chains. And these days the industry isn’t exactly awash in excess traffic. The chains need to figure out new ways to get customers either to come in more often or spend more in the process that doesn’t involve more discounts.
The chains also risk adding complexity to their operations by adding beverages, especially if they get into the customization game. But that will intensify the need for these to generate incremental sales. All that effort and complexity had better be worth it.
The incursion of fast-food chains further into the beverage world is not necessarily a competitive problem for major beverage companies. Most of the growth of beverage brands Starbucks and Dunkin’ came after McDonald’s upgraded its coffee a couple of decades ago, after all. And when McDonald’s added smoothies to its lineup, sales at traditional smoothie chains like Tropical Smoothie and Smoothie King increased.
There’s no reason to think this will be any different. The simple fact is, consumers are drinking a wider variety of beverages, and it’s probably long past time chains broadened their offerings.