"Limited service beverage" is becoming a misnomer as many operators in this segment continue to expand their menus to include sandwiches, salad and other more substantial food items. Lower purchase points for many menu items have helped a number of these operations successfully weather the turbulent economy.
U.S. sales of coffee and other beverages totaled more than $15.8 billion last year, a 4.2 percent increase from 2009, according to the 2011 Top 500 Chain Restaurant Report by Technomic, a Chicago-based foodservice research firm.
"Most coffee operations haven't taken as big a hit as other restaurants," says Ed Arvison, president of E&C Consulting in Bend, Ore. "This is because coffee is a drug that most people use to get going in the morning." Arvison is also an instructor at the Los Angeles Coffee Business School and author of the book "Coffee Business Success in a Turbulent Economy".
Despite the popularity of gourmet coffee, many operators in the beverage segment realize the need for higher check averages to pay the bills. "Coffee retailers can generate increased revenue by being more diverse in their offerings," Arvison says.
Due in part to expanded menus, food and drink sales at snack and nonalcoholic beverage bars are projected to total more than $26 billion in 2011, a 4.4 percent increase from 2010, according to the National Restaurant Association's 2011 What's in Store Restaurant Industry Forecast. "The coffee bar operators that have survived in this economy have good control on the fundamentals, such as quality product, customer service, expense control and guerilla marketing," Arvison says.
In a tight economy, consumers are also more likely to justify the extra $40 a month for gourmet coffee they favor, rather than settling for the mediocre java brewed at home or in the office. Yet, with quick-service restaurants like McDonald's entering the coffee arena, competition has never been greater.
"The foodservice business lives and dies by volume. If McDonald's peels off 10 percent of your business, it's 30 percent off your net profit," Arvison says.
This is why a number of operators realize the importance of offering more than just coffee and pastries. "Not only do consumers expect more, but it's a matter of necessity due to the number of premium locations," Arvison says. "Now to survive in lesser locations, coffee retailers have to extract more income from each customer coming in and become a viable place for them to visit more than once a day."
Arvison estimates that the average purchase at limited service restaurant beverage operations is between $2.85 and $2.95 a person. Factoring in pastries, the check average increases to $3.50 per person. Check averages are pushed to approximately $5.50 at operations with menus that include sandwiches, salads and desserts.
One emerging trend is adding fine wine onto coffee bar menus. Restaurants that offer alcohol not only attract a larger demographic, but also push check averages up to between $7 and $8 per person, according to Arvison.
In the beverage segment, the juice and smoothie market includes juice and smoothie bars; frozen dessert stores; and quick-service outlets or major fast food chains with smoothies on the menu. Retail sales in all three segments totaled approximately $3.54 billion in 2010, with juice and smoothie bars accounting for more than 56 percent of sales, reports Juice Gallery Multimedia, a consultancy based in Alta Loma, Calif.
Unlike coffee, smoothies represent a product segment that faces challenges due to seasonality. These products are a tougher sell in cold climates during the winter. Quick-service restaurants (QSRs) have recently capitalized on smoothie popularity, increasing the segment's revenues by almost 40 percent, according to Juice Gallery Multimedia.
"Smoothies were first a meal replacement, then a meal enhancement and have now become more of a dessert item," says Dan Titus, principal at Juice Gallery. "Two-thirds of a typical juice bar's revenue is from smoothie sales." The evolving LSR beverage segment may be redefined, but much of the focus will remain on what makes it unique — quality hot and cold drinks and the value today's consumers are looking for.