Friends of Branded!
Happy Saturday and I hope you had a great week!
“I don’t drink any more,” says Schatzy, “I also don’t drink any less,” he quickly follows, and gives credit to his father for the (attempt at) humor.
Branded is all-in when it comes to the hospitality industry and for our portfolio of full-service / high-end restaurants, which now includes our friends & partners at LDV Hospitality, alcohol and wine play a big and important part of our business.
How big or how important are alcohol (including wine) sales to restaurants?
Great question!
Since I know the CEO of Branded’s portfolio company, Bite, Brandon Barton, prefers 140 characters or less answers, I’ll succinctly state that for full-service restaurants (that includes both fine & casual dining), alcohol can account for 20% to 30% of revenues!
For those that like a little more meat-on-the-bone when it comes to my answers (see what I did there?), alcohol sales are CRITICALLY important to the restaurant industry not just b/c of the sales, but even more so b/c of their profitability! Alcohol is an area where restaurants can drive both sales and margins, and it provides a sort of enhancer or leverage to the entire meal.
Below are some of the ways alcohol helps spike (😊) profitability for restaurants:
- High profit margins: alcohol is a restaurant’s “money-maker,” and alcoholic beverages are typically marked-up in a range of 200% to 400% (or more). The price of that glass of wine you ordered, that’s typically the price the restaurant paid for the bottle.
- Increases the average check size: alcohol not only increases the check size for the venue, but also drives greater gratuities for the staff. Most guests calculate the gratuity based on the total price of the bill and don’t delineate between the food and alcohol.
- Enhances the dining experience: at full-service restaurants, guests expect alcohol to be part of their dining experience and a well-curated wine list, craft beer selection, or signature cocktails can elevate a restaurant’s reputation and attract more patrons. A joint known for its adult-libation offerings can be a key factoid in driving guest traffic and often leads to repeat business and guest loyalty.
- Events (private or otherwise) & Occasions: You’re having a special event? You’re going to want some special libations. Alcohol is more often than not, central to events (personal or professional) which tend to be profitable for restaurants. These events often involve group dining, where alcohol consumption is higher. It’s not you or me of course, but we all know people that tend to indulge a little more at corporate events than they do when they’re dining with their families. Again, it’s not us, but we know them.
- Pairing with Food: Venues with a strong emphasis on their culinary craft often look to pair alcohol with their food to create a more unique dining experience for their guests. “Pairing” food and beverages is a solid revenue enhancer for venues as it leads guests to want to enjoy in higher-end or more expensive beverage options. Pairings = gold!
- Bar-Only Revenue: Alcohol and specifically the bar is not just a nice area for patrons to wait until their table is ready. The bar is a revenue generator for the patrons that are waiting for their table as well as for those that may not be dining at the venue at all. Full-service restaurants can also create an independent revenue stream for those that want to enjoy drinks and a social environment and have no plans to dine at the venue.
- Lower Overhead Costs: As a former mixologist, I can tell you that alcohol requires less labor and can drive meaningful revenues for a venue. Alcohol also has a longer shelf life than perishable food items, which reduces waste, and helps control costs. For restaurants, waste = losses, unless you engage with Branded’s portfolio company, Copia, in which case donating food at 2x your food costs are a money-maker (but I digress or did I). 😊
As I wrote above to Mr. Barton privately, alcohol can account for 20% - 30% or more of total revenue.
And that’s why the title of this week’s H^2 and the theme is “Last Call for Alcohol.”
Schatzy may not be drinking any more (or any less), but there are a whole lot of other people that are most definitely drinking less!
According to a report from Atrium Health, there’s a rising trend of going alcohol-free or being “sober-curious.” A 2024 survey by NCSolutions found that 41% of American adults plan to drink less in 2024. This is particularly true for younger adults: 49% of Millennials and 61% of Generation Z respondents said they wanted to drink less this year, with their mental health as a top reason for skipping adult beverages.
Sure, you read the above and will accuse me of selecting a “health” company to make my point.
Let me share a few takeaways from a best friend of the alcohol industry, IWSR, the global leader in data, analytics, and insights for the beverage alcohol industry.
According to IWSR, the US beverage alcohol market faced a number of headwinds during 2023, including imbalanced inventories, economic pressures on consumers and an increased focus on health and moderation, according to new data and forecasts from IWSR. As a result, the alcohol industry saw declines in spirits sales – the first in nearly 30 years – as well as declines for wine and beer. IWSR forecasts are predicting continued slow consumption declines in the years ahead.
But here comes the money-shot!
Consumer behavior in the US is shifting in a way unseen in previous generations. Younger legal drinking age adults are increasingly prioritizing health and wellness, moderating their consumption of alcohol or abstaining altogether. While this is driving down alcohol consumption, it is also fueling interest in certain segments, and particularly those aligned with moderation and wellness trends, such as no- and low-alcohol, low-sugar and low-calorie.
Alcohol sales are in decline and that’s a tough body blow to the hospitality industry at a time when we’re already experiencing more than our fair share of body blows. This trend is influenced by several factors as IWSR stated, above, it all starts with changing consumer preferences.
Younger generations, particularly Gen Z and some Millennials, are drinking less alcohol compared to older generations. They are more health-conscious and tend to prioritize wellness and mental health, which often leads them to reduce or avoid alcohol consumption.
This move toward health and wellness is not unique to younger generations, but it’s clear that these younger generations are more health-conscious and alcohol is often one of the first things to be reduced or eliminated from diets.
I have nieces and nephews of high school, college and now just out of college age, I can see how they’ve been educated (inundated?) with information around the concerns about the long-term effects of alcohol on physical and mental health. I draw a parallel to the education I received (I’m a Gen X) about smoking cigarettes and how it influenced my behavior.
As I wrote last week, the Branded Team had a fantastic experience out at FSTEC 2024, but what I didn’t share (until now) is that at our Culinary Connections dinner, not to be confused with our Cocktails & Connections party the night before (I guess it can be a little confusing), I had the privilege of sitting next to Emily Williams Knight, the President & CEO of the Texas Restaurant Association. Ms. Knight is a force in the industry and one of the great allies & friends to the restaurant industry, not just in Texas, but in America!
It was Emily that brought to my attention how alcohol taxes collected were declining and specifically over the past 3-months which has industry folks concerned. She was speaking with industry folks (as she always does) and the industry is taking notice of how the younger generations are not drinking as much (as I’ve tried to highlight above); but also, about the impact that GLP-1 medications are having on alcohol sales.
GLP-1s drive down cravings for fat, sugar and alcohol and the industry sees these medications as a real factoid in the drop in alcohol sales. With the price of these drugs on the decline and specifically how in compound form, they will be much more accessible, it’s safe to bet that the consumer base using them will expand. This expected increase in consumers using GLP-1s is yet another headwind for alcohol sales.
None of this should be taken as doom & gloom. That’s not how Branded rolls.
Information is power, as long as you can transform it into action!
Restaurants have been leaning on pricing strategies (aka: increases) in response to the increases in labor and food costs. Alcohol was one lever that full-service restaurants had at their disposal (versus quick-service restaurants) and while they still of course have that lever to drive sales, it’s on the decline. Speaking with friend & partner Gregg Majewski, Founder and CEO at Craveworthy Brands, the guest is being pushed too far when it comes to continuous price hikes and it’s not sustainable. The balance we need to strike is to maintain business profitability while also ensuring guest satisfaction (yes, striking such a balance is far easier said than done and let’s face it, most things are easier said than done and when it’s over, usually more has been said than done, but I digress). 😊
In the spirit (pun intended) of this week’s Top of the Fold, where the focus has been on declining alcohol sales and therefore the impact that will have on full-service (casual and high-end) restaurants, there are other means by which operators can surprise & delight guests.
The rise of non-alcoholic alternatives to meet the needs of the "sober-curious" movement as well as the increasing availability of non-alcoholic beer, wine, and spirits are all going to help drive value to operators and guests. As consumers are seeking out these alternatives in social settings, your venues not only need to keep up, but are afforded the opportunity to be recognized and valued for the intentionality in which you curate these offerings.
Finally (yes, finally), there’s no question that a factor that has impacted alcohol sales is the embracement and legalization of cannabis.
In states where cannabis has been legalized for recreational use, alcohol sales, particularly beer and spirits, have seen signs of decline. For example, studies from legal cannabis markets like Colorado and Washington have noted decreases in alcohol consumption, particularly in younger adults. While it’s a little dated, a 2022 study found that alcohol sales in U.S. states where recreational cannabis was legal, on average, had 13% lower sales than in states where cannabis is illegal.
There is also a strong belief or at least perception that cannabis is a healthier alternative to alcohol. Since cannabis use is less associated with hangovers and some of the long-term health risks linked to heavy alcohol consumption, there are consumer groups that prefer it, especially as part of a wellness-oriented lifestyle.
And with the above in mind, there’s no question that cannabis and alcohol are going to be seen as complimentary to one another and products are, and new products will, cater to this trend. Cannabis infused beverages or cannabis-friendly bars and lounges will have a place in states where it’s been legalized for recreations use. Beverage companies are taking notice and hospitality operators are as well.
Things change and that of course that includes consumer behavior and preferences. Branded believes that the consumer preference data captured from restaurants is among the most valuable datasets! The younger generations are dining differently than their older counterparts and we, as operators, need to meet them where they’re at. These younger generations are also specifically drinking differently and as these generations become an even larger percentage of the US consumer market (Millennials are already the largest and Gen Z is poised to grow in influence in the coming years), we as operators need to be focused on their needs and expectations.
It takes a village.
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This week’s first Shoutout goes to one of our corporate partners, PepsiCo, a proud supporter of our Hospitality Hangout podcast!
PepsiCo is leveling up on flavor and giving consumers more ways to enjoy some of its best-selling products with DRIPS by Pepsi™, its new crafted beverage offering.
Tapping into the growing trend of consumers creating unexpected twists on their favorite beverages, DRIPS by Pepsi gives fans a premium experience with the brands they know and love in unique recipes crafted by expert mixologists. Fans can savor iconic PepsiCo products, from PEPSI® and MTN DEW® to ROCKSTAR® and Lipton® Iced Tea, enhanced with a selection of fruit syrups, creams, popping boba, fruits and berries, or other delicious mix-ins.
You can view a short clip with Scott Finlow, PepsiCo’s Global CMO Foodservice, on FOX showing the DRIPS truck and more info here: DRIPS by Pepsi offers a brand-new line of crafted beverages
If you find yourself in or around NYC/Brooklyn (or care to take a short trip) this weekend, the Pepsi DRIPS truck will be parked in Domino Park in Williamsburg from 1pm-7pm on Saturday and Sunday. See you there!
This week’s second Shoutout goes to one of Branded’s newest partner companies, ComAve, which is redefining the e-commerce experience with its innovative online platform that will include shopping experiences for the global sports fan community.
ComAve’s mission is to redefine the retail experience and strengthen supporter engagement with sports clubs and their fans all over the world.
This week, ComAve and Arsenal announced a multi-year partnership will see the global e-commerce platform become Arsenal’s Official E-Commerce Marketplace partner.
ComAve will establish an innovative online platform that will include shopping experiences for Arsenal supporters globally.
Through ComAve, Gooners fans worldwide will have access to:
🎮 Interactive games and activities
🛒 Official merchandise and many more
🎁 Loyalty points for exclusive experiences and discounts!
Juliet Slot, Arsenal’s Chief Commercial Officer, shared: ““We’re proud to welcome ComAve as our first Official E-Commerce Marketplace partner. This new partnership supports our ambition to strengthen our connection with supporters globally by providing them with new and unique opportunities to engage with our club.”
Jassim Sulaiti, ComAve’s Regional Managing Partner, shared: "Arsenal is a leading global club, and partnering with them is a major milestone for ComAve. We are excited to offer supporters an unparalleled shopping experience and strengthen their connection with the club.
As for Branded, stayed tuned my friends. ComAve ambition is a truly global one and while I like to walk with a small stick, I don’t believe it’s a bold statement when I say that the US is a market that loves its sports, and our leagues and players have a truly global fan base!
You may remember reading about ComAve in the H^2 in connection with Conmebol Copa America USA 2024 and The Tamias Fan Zone fueled by ComAve.
And finally, yes, a third Shoutout only b/c this Branded portfolio company keeps making news!
I want to simply share an article from Entrepreneur on how Shaquille O'Neal Used an Unconventional Strategy to Start His Chicken Restaurant — Here's Why It Worked
Friend of Branded, Mr. Shawn P. Walchef captured this article and story wonderfully in his LinkedIn post this week and I wanted to share it here: Shawn P. Walchef + Shaquille O'Neal
How excited is Branded Hospitality to be partners with Big Chicken and working with this fast growing and emerging restaurant company, VERY!!!
Have a BIG day!
Branded invites readers of the H^2 that are interested in learning more about our portfolio companies, and investment strategies to become part of our Access Hospitality Network.
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Featured Rewind:
Join Michael Schatzberg, “The Restaurant Guy,” and Jimmy Frischling, “The Finance Guy,” sit down with Lauren Bailey, CEO & Co-Founder of the Upward Projects Restaurant Group. Bailey shares her journey into the restaurant industry and the valuable lessons she's learned along the way. Steering five unique brands and 30 restaurants, Bailey offers insights on managing teams, embracing the unknown, and the importance of communication in a tech-driven world. From her hands-on leadership style to a fun encounter with Jimmy Buffet while bartending in Nantucket, Bailey’s stories are full of inspiration and humor. Tune in to discover her secrets to success and hear how she challenges Jimmy and Schatzy’s camaraderie with a playful quiz.
Tune into the episode and subscribe to our channel here: Hospitality Hangout REWIND with Lauren Bailey
Re-Run of the Week:
Throwback to an exciting episode of Hospitality Hangout as Michael Schatzberg and Jimmy Frischling are joined by Lisa Robinson VP of Global Food & Safety and Public Health of Ecolab. Lisa discus's her journey through academia and into the food safety industry. With a Master’s degree in Food Safety to a career dedicated to public health, Lisa shares her expertise in improving food safety practices across major food and beverage companies. Known for Ecolab's innovative, data-driven solutions, Lisa elaborates on the company's role in ensuring the safety and hygiene of restaurants, hotels, and other food service establishments worldwide. Tune in to hear about Ecolab’s cutting-edge programs like EcoSure, which help businesses build strong food safety cultures.
Tune into the episode and subscribe to our channel here: Hospitality Hangout With Lisa Robinson
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That’s it for today!
See you next week, same bat-time, same bat-channel.
It takes a village!
Jimmy Frischling
Branded Hospitality Ventures
jimmy@brandedstrategic.com
235 Park Ave South, 4th Fl | New York, NY 10003
Branded Hospitality Ventures ("Branded") is an investment and solutions platform at the intersection of foodservice, technology, innovation and capital. As experienced hospitality owners and operators, Branded brings value to its partners through investment, strategic counsel, and its deep industry expertise and connections.
Learn more about Branded here: Branded At-A-Glance