“When the economy is great, people drink. When the economy sucks, people drink.” This quote from Tracy Finklang, corporate beverage manager at Rock Bottom Restaurants, is one of my favorites, not only for its color, but for its truth. That rosy statement gives us in the on-premise beverage business hope amid bleak economic and consumer behavior trends. Consider:
• Fuel industry experts predict gas prices should approach $4 a gallon in some markets before summer.
• Food prices rose nearly five percent in 2007, according to the U.S. Department of Agriculture.
• The largest share of disposable income on record now goes to food, fuel and medical care, according to Merrill Lynch—36 percent.
• The firm also finds aggregate mortgage debt now is larger than total home equity, with defaults and foreclosures rising.
But wait, there’s more.
• 54 percent of restaurants reported traffic declines in January, according to the National Restaurant Association (NRA).
• 59 percent of consumers surveyed expect to dine out less at full-service restaurants in the months ahead, according to Technomic, which also reports on-premise consumption dropping. Its survey of 2,500 consumers shows 42 percent ordering beverage alcohol in a bar or restaurant a year ago, compared with 31 percent in the first quarter of 2008.
Now’s a good time to furrow your brow, but we’ve seen hard times before. Remember the early ’90s, when higher excise taxes and lower drunk driving BAC levels dramatically altered consumption rates? Some operators turned away from their bars and remade their concepts as family-friendly venues; several have had to invest millions to rebuild their beverage businesses in recent years, realizing beverages are crucial to the guest experience and the bottom line. Others followed the lead of spirits, wine and beer marketers to embrace the “drinking less but drinking better” mindset, setting off the shift to premium. Look at your back bar and your profit margin for the long-term results of that winning survival strategy.
So, what’s the strategy today? Read Finklang’s quote again. The trick is figuring out what your guest will drink now. Some will trade down; serve them with a smile (hey, they could have stayed home). But some will seek value in drink quality, flavor or inventiveness, while others will expect it in the total dining experience, of which drinks are a crucial part. By not sacrificing quality or service while delivering on value, this industry can remain a sought-after affordable luxury.
Rest assured that the pendulum will swing back; some economists anticipate the positive economic shift to begin in 2009. Will you continue to support your beverage program or find yourself working to recapture lost drink sales in 2010?