The soda industry’s struggle is real. Once beloved beverages, like Coca Cola and Pepsi, have been falling out of favor for some time. And their low calorie and diet counterparts haven’t exactly been picking up the slack, amounting to a staggering stretch of more than 15 years in which overall soft drink consumption has declined.
But it could be getting worse.
That, at least, is what a new report by market research firm Mintel appears to suggest. As part of the study, analysts asked a nationally representative group of people how their restaurant ordering habits had changed over the course of the past year. And one thing in particular stood out: Almost a quarter of Americans said they are ordering soda less often then they were at this time a year ago.
At first glance, this might not seem terribly foreboding. If Americans are consuming less soda overall, why wouldn’t they be drinking less of it at restaurants too? But there’s a nuance here that matters: People behave quite differently at restaurants than they do at home.
“When people go out to eat, they tend to view it as an indulgence,” said Caleb Bryant, who is an industry analyst at Mintel and the author of the new report. “Ordering habits kind of reflect that. You’re more likely to order a Coca-Cola at a restaurant than you are to open one at home.”
In that light, the drop in restaurant soda drinking is much more ominous. It’s one thing for people to shy away from opening a can at home, to tweak their daily habits in the interest of maintaining a healthier lifestyle. But it’s another thing for them to lose interest in ordering a glass while out, to avoid the carbonated beverage even while treating themselves to a respite from the usual routine. Especially when the behavioral shift applies to such a significant portion of the population.
If as many Americans are opting to order something other than soda while out at restaurants as Mintel’s report indicates, the industry could be facing a difficult truth: Soda is even losing its appeal as an indulgence.
Bryant agrees, but points out that the trend isn’t only disconcerting for big soft drink companies. Restaurants, he says, probably don’t like it either.
“It’s no secret that some of the biggest margins at restaurants are on beverages,” he said.
For fast food outlets, this is particularly problematic. Soda fountains are notorious cash cows, significant drivers of profit for companies like McDonald’s, which Eric Schlosser explained poignantly in 2001 book Fast Food Nation: The Dark Side of the All-American Meal. This is how he put it in perspective:
“The chicken nuggets, hamburgers, and other main courses sold at fast food restaurants usually have the lowest profit margins. Soda has by far the highest. ‘We at McDonald’s are thankful,’ a top executive once told the New York Times, ‘that people like drinks with their sandwiches.’ Today McDonald’s sells more Coca-Cola than anyone else in the world. The fast food chains purchase Coca-Cola syrup for about $4.25 a gallon. A medium Coke that sells for $1.29 contains roughly 9 cents’ worth of syrup. Buying a large Coke for $1.49 instead, as the cute girl behind the counter always suggests, will add another 3 cents’ worth of syrup-and another 17 cents of pure profit for McDonald’s.”
But for sit-down restaurants, declining soda orders aren’t a welcome sign either. Many of them, after all, serve fountain soft drinks, too. Even those that opt for bottles and cans still pad their prices enough to make bubbly beverage orders a lucrative venture. In an industry shackled by razor thin margins, even the most innocuous-seeming shifts matter.
Of course, a growing disinterest in enjoying a Coca-Cola along with whatever else is being ordered doesn’t mean people are ordering nothing to drink at all. “There’s some replacement happening,” said Bryant, who noted that demand for tea, both hot and cold, has been rising. “Almost a third of consumers now say they’re interested in more iced tea offerings.”
But many of those who are skipping out on soda could just as easily be switching to water, a shift the restaurant industry could probably do without. That is, unless that water is bottled. Both your server and the likes, Coca-Cola and Pepsi, which own many of the top selling bottled water brands, wouldn’t mind that at all.