Lane Cardwell

NA Bev on the Rocks

"You can see a lot just by observing." Yogi Berra

Using the Yogi Berra school of marketing research, non-alcoholic beverages are on the decline in many family and casual dining restaurants. I started watching what beverages were on the tables of diners on my way in and out of restaurants, as well as on tables around me, a few years ago. In the past year I have noticed a big decline of purchased beverages in favor of tap water. Two factors appear to be driving this trend: cost and environmental concerns. Be warned: when a customer can save money, as well as appear to be eco-friendly, this trend might have some legs on it.

Let’s be honest with ourselves. Many restaurants have fueled this fire by going back to the well too many times as an “easy” way to slide in a price increase that hopefully wouldn’t be noticed. The price increase impact formula has always made non-alcoholic beverages the go-to category when a price increase is in order. Don’t remember the formula? Let’s review it: 
                        Price Increase Impact  =  % Who Notice  X  % Who Care

The way the formula works is that if you can minimize the percentage of diners who notice the increase, there will be little or no impact. After all, if you multiply any number by zero or a low percentage, you get a zero or low impact. Conversely, if you raise a popular menu item from $12.25 to $12.45, while many diners might notice, they might not care. The resulting impact would also be low.

Many restaurants (and shame on them) do not put a price on the menu for non-alcoholic beverages. Many do not even list it as a category on the menu, letting customers “discover” the cost at the end of the meal. What many 401-K challenged customers are increasingly discovering is that they are paying the equivalent price of an entrée in some restaurants for iced tea, soft drinks, or bottled water for a party of four.

Non-alcoholic beverage pricing in most restaurants can range from a low of $1.60 to $2.95. Many bottled waters might even be priced higher, and there are no free refills. Most casual dining chains broke the $2 barrier on NA Bev years ago, and are now at or near the $2.50 mark. I just paid $3.95 for iced tea at lunch in New York City today, but that’s another story and another country.

Houston’s charges $2.75, as do many other upscale casual restaurants. Four iced teas at $2.75 are $11. Throw in a 20% tip and you are at $13. It doesn’t take a rocket scientist, or an economist, to spot a quick way to shave $13 from the family dining bill. Even at a “modest” $2 for a beverage a family of four can save almost $10, including tip.

Ordering tap water as a beverage used to make many customers feel a little cheap. They would still do it, but they only had their wallets to fall back on. We are now in an era where customers are being told that they are helping the environment by drinking tap water. I can save the planet, and reduce my check by the amount of an entree by drinking tap water? Sign me up, and let Al Gore know that I am doing my part.

I write this dreading that the real numbers from the NPD CREST diary panel of consumers won’t support my observations, but I feel that I am on solid ground. Last month The New York Times ran an article titled “Tap Water’s Popularity Forces Pepsi to Cut Jobs”. Excerpts that support my concerns:

“Consumers are increasingly choosing tap water over other beverages at restaurants and at home to help save money and the environment, according to PepsiCo and industry analysts. Research by William Pecoriello, an analyst at Morgan Stanley, found that 34% of consumers say that they are reusing plastic bottles more often and 23% say they are cutting back on bottled beverages in favor of tap water or beverages in containers that create less waste.”

“Because of the economy, there is some movement, probably temporarily, back to tap water,” said John Sicher, publisher of Beverage Digest, an industry publication.”

The sale of non-alcoholic beverages has always been the closest thing that the industry has had to a cover charge, with a high proportion of the selling price dropping straight to the bottom line. Don’t take this business for granted. Make sure that your guests see the value in your NA Bev program. Give customers the cloak of environmentalism to wrap around their cost savings, and cocktails won’t be the only things on the rocks.

Posted by Lane Cardwell on November 14, 2008 | Comments (8)