Trends. Our industry is famous for setting them. From food to style, restaurants lead the way.
Then how is it that almost all of you have completely missed the 11 year decline of soda consumption in the US?
The answer is obvious: profit. Given the Cost of Goods Sold (COGS) associated to soda and how often it is thrown-in with free refills offered, it should be no surprise that we have clung to its utility like a drowning sailor to a life raft.
Look at the math
The problem is believing soda is the only profitable item you can offer. It’s a flawed argument that fails when you do a little analysis. The math is straight forward. A soda sold for $1.99 returns about 95% gross profit margin. That margin depends on no refills, proper brix and no carbonation issues.
Very impressive, right? Eh, not when you really take a closer look.
The analysis fails when you realize that banks don’t allow you to deposit percentages. We should focus on the nominal (or dollar) margin of the product. In this case, soda returns about $1.90 in profitability. Still impressive, but are there any alternatives that you might include on your menu that can compete with soda’s returns?
Unless you have never stopped at a convenience store, you must know the variety of beverages available to purchase today is awe inspiring. This has created competition leading to the erosion of soda’s premier standing in our industry. Whether it’s Snapple Ice Tea or a Red Bull, in the packaged segment there are hundreds of cool choices.
Again, I will offer you some math. A wholesale case of Red Bull is about $1 per can. No guest would argue with a price of $3 for a single can of this ‘wing’ producing beverage, therefore you have a $2 gross profit margin on your soda sale. That represents a 10 cents or more improvement over soda’s margin.
Oh and there aren’t free refills with Red Bull.
Want better dollar margin? Make your own drinks
That’s not even the best news. You already have the makings for your own ultra-cool drinks. Your full bar can make alcohol-free versions of your favorite frozen drinks, flavored iced tea or maybe even house made root beer. This may sound familiar, especially if you have ever visited a Red Robin.
Their award winning beverage program is home to creativity, thoughtful allocation of resources and an intelligence on the demand for these beverages. Drinks like Freckled Lemonade and Raspberry Cream Soda sell for as much as $3.79 each. While I can’t guarantee it, my guess is they are getting more than $2 gross profit from each. Who says your bar can only make profitable drinks with alcohol?
Operators like Red Robin welcome people of all ages. These drinks, coupled with their line of shakes and smoothies, are very popular and extremely profitable. You may hear some groans from bartenders. That’s okay, because when they see the check increases, the improved guest satisfaction and their own business grow, they’ll get the idea.
When I first started in the restaurant industry in 1979, the average restaurant had few choices of soft beverages to offer their guests. Coffee, iced tea, water and, of course, Coke or Pepsi. Fast forward 35+ years and the options available for the average operator are nearly limitless. Yet, why are so many of you still relying on the same old stuff?