Burgers and Beer: A New Trend in U.S. Fast Food?

With the goal of driving evening traffic and appealing to a wider range of potential customers, fast food operators have started testing beer and wine in U.S. restaurants.

The continuing lag in consumer spending has resulted in operators taking steps to drive traffic and increase average checks. Some have opted to remodel restaurants or increase beverage menus, while others have tried to capitalize on weak dayparts through enhanced breakfast menus and snack items. It’s a bold move and a clear departure from traditional fast food culture, but serving beer and wine may provide an opportunity to attain both goals with the added bonus of boosting profits through higher margins. It comes at a price, though: Adding alcohol will affect branding, and some family-friendly operators may not want to take the risk.

Attracting the dinner crowd

Beer, wine, and fast food isn’t an entirely innovative concept. First-mover Yum! Brands began offering beer at 100% home delivery/takeaway Pizza Huts in April, 2009, and Burger King’s upscale Whopper Bar concept has been expanding quietly since later that year. Situated in popular tourist locations like Miami’s South Beach and New York City’s Times Square, the concept was designed to compete with casual dining chains and appeal to a more mature demographic. Sonic Restaurants also recently announced two of the company’s locations would start selling beer and wine in efforts to increase evening traffic. In 2010, only 17% of Sonic’s value sales occurred during the after-dinner daypart, and in June, company executives reported that evenings were the chain’s softest daypart in its most recent quarter.

In perhaps the most surprising development, Starbucks recently began serving beer and wine in two Seattle test locations for a de-branded “neighbourhood cafe” concept. Evidenced by the fact that 70% of sales currently take place before 2 p.m., the evening daypart has always eluded the chain, despite attempts at happy hour promotions and afternoon “Treat Receipt” discounts.

Some might say three major players makes a trend, but there are a few reasons why this niche development may never go mainstream. Serving alcohol is a powerful branding message, and those that feel beer strengthens their existing position may see the branding and other benefits as a win-win scenario. Fast-casual chain Chipotle Mexican Grill, for example, has been successful in using alcohol as a branding tool. The chain serves margaritas and Mexican beers, reinforcing its positioning and adding appeal for its adult demographic.

Other operators whose branding clashes with the alcohol message, however, may be hesitant to make the change, despite any potential benefits. The easiest example of this is McDonald’s which, despite having served alcohol in select overseas markets for years, seems unlikely to be bringing beer-and-Big-Mac combos to the U.S. anytime soon. One of McDonald’s’ major U.S. strategic initiatives in recent years has been adding healthier menu items (think premium salads and smoothies) that appeal to moms whose kids are already drawn in by Happy Meals and other core items. Offering extremely fast service is also one of McDonald’s strengths, and the logistics that go along with serving alcohol—checking identification, etc.—don’t pair well with convenience. U.S. regulations also make getting liquor licenses both difficult and expensive, and the costs for such a large chain might outweigh any potential benefits.

New competition for a struggling sector

That said, there are benefits to serving alcohol that go beyond simple boosts to traffic and margins. This development has even greater implications, namely that fast food chains may be able to use it to better compete with full-service restaurants. While U.S. full-service restaurants currently comprise a US$184 billion industry, the sector has stagnated over the past three years, falling in value sales faster than all other categories with the exception of self-service cafeterias. During the recession, restaurants industry-wide suffered as consumers opted to trade down to less expensive options, ate out less, or stopped eating out altogether. Now consumers are starting to spend again, but they’re still prioritising value. With the addition of alcohol, fast food restaurants can reposition themselves as an alternative to casual dining restaurants—one with lower prices and a comparable evening dining experience.

One potential pitfall to this plan is the amount of alcohol being purchased by American consumers is actually declining. The total volume of alcoholic beverages sold in the U.S. has decreased 3% since 2008, and the total volume of on-trade alcoholic beverages sold declined 7% during the same period. However, similar to the way fast food has benefited from trade-down during the recession, those consumers who do wish to enjoy alcoholic beverages with their meals may be attracted to the idea of doing so at less cost. If fast food operators can offer consumers a beer and a burger of similar quality to those served at casual dining chains, they’ll stand a real chance of drawing some of the US$83 billion currently claimed by the higher-priced sub-sector.

In sum, adding alcohol is expensive, and it may not be an attractive option for those operators who have positioned their restaurants as family friendly. For those concepts whose key demographics are a bit older and who can seamlessly incorporate alcohol into their branding, however, alcohol serves as a valuable opportunity to increase top and bottom lines, sharpen competitive positioning, and appeal to a large pool of new potential customers.