Water has become the drink of choice for many diners in an effort to save money and eat healthier, but businesses are feeling the sting on their bottom line.Getty Images/iStockphoto
Cautious consumers are buying fewer drinks when they eat out, squeezing a line of business that has traditionally been a strong profit centre for restaurateurs.
Many restaurant-goers are instead simply asking for tap water, a trend that is being driven by consumers' desire to save money and make healthier choices, restaurant executives say. But the shift away from buying drinks – especially soft drinks, but also alcoholic beverages – is putting pressure on profitability. Beverages tend to enjoy low production costs and high margins.
"We've noticed the declines," said Helen Langford, senior vice-president of food services at Richmond, B.C.-based Boston Pizza International Inc., which has 379 outlets across Canada. "Even though our guests [customers] are saying they're doing it because of health, there are people who are just saving money. They'll just order tap water."
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As restaurants struggle to bring in consumers in a slow-growth economy, they face the added difficulty of having to run promotions, offer discounts or find alternatives – including healthier, lower-margin beverages – to get customers to open their wallets for liquids.
"It does shrink the bottom line," said Mohamad Fakih, chief executive officer of Paramount Fine Foods, a growing chain of 36 outlets offering Middle Eastern cuisine.
Beverage orders (excluding tap water) have been declining by about 5 per cent a year for the past four years, resulting in a $75-million loss in revenues for eateries in the past year alone, according to researcher NPD Group. Alcohol orders have dropped about 3 per cent over that same period, it found. Tap water orders have been going up at a rate of 4 per cent a year.
Overall, consumers are heading to restaurants less frequently – down 2 per cent a year over the past four years, to 131 visits a person so far this year.
The sharpest drop in beverage consumption is in soft drinks and alcoholic beverages, said Robert Carter, executive director at NPD Group. Soft drinks, for example, generate fat margins of up to 90 per cent of sales, industry executives say.
The decline is also due to fewer consumers going out for dinner and the rise in ready-to-eat grocery meals, takeout, delivery and mobile app orders, which tend to entail fewer beverage orders, Mr. Carter said.
MTY Food Group Inc. in Montreal, which owns Cultures, Thai Express and other fast-food chains, is touting more pairings of foods with drinks to regain lost beverage sales, said Katherine Ma, senior director of procurement at MTY.
"Sometimes we pair our products with healthier options" such as Pure Leaf iced tea or bottled water in a combo promotion with a sandwich wrap, she said. "We find that helps to promote sales of beverages."
Boston Pizza has started to offer "quenchers," which are syrups such as cucumber-lime mixed with soda water made with no added sugar or artificial sweeteners for the same $3 it charges for soft drinks, Ms. Langford said.
The cost of producing quenchers is higher than that of soft drinks, yielding lower margins, she said. But the chain is counting on the quenchers making up about half of its 5 per cent annual drop in beverage sales, she said. "We're not going to recover the whole amount."
Paramount's Mr. Fakih has introduced fresh orange and carrot juices and other less sugary drinks to replace some of the waning soft drink sales, even though the new offerings generate slimmer margins. Orange juice is now overtaking Coke as the top drink ordered, he said. "I find a lot of people are going to water, tap or bottled," he added.
But he said Paramount won't raise prices or lower quality to offset the added costs, but rather will try to increase traffic and bring in more customers to shore up revenues.
McDonald's Restaurants of Canada Ltd. has held "dollar drink days" and, more recently "summer drink days," expanding them this year to include lemonade for $1 to draw customers, spokesman Adam Grachnik said.
Consumers say they increasingly find they don't need to shell out for drinks when they're eating out and can get free water, which is healthier to boot.
"I go out for lunch every day and I always order food and I never order a drink," said Michael Edwards, who runs a Toronto research firm. "You can always have a glass of tap water or drink from the fountain."
John Mohler, vice-president at researcher Ipsos Reid, said it has found over the past few years a very slight increase in alcoholic beverage consumption at home and a bit of a dip at other venues including restaurants, clubs, hotels, sports facilities and other people's homes. "These are really small numbers, but sometimes those small numbers make a big difference to large markets."