Fast-food chains are increasingly serving alcoholic drinks to lure in new customers. In this highly competitive industry, companies are continually looking for an edge over other players and adding alcoholic drinks to their menu is a sure way of increasing their margins (mixed drinks offer profit margins of up to 90%). It could also be one way for fast food chains to keep up with with their higher-end fast-casual competitors, which are becoming increasingly for quality-conscious consumers globally.
Fast-food chains have been making inroads into the alcohol space for years
The higher prices of alcoholic menu items helps increase the customers’ average check and restaurants serving alcohol are more likely to attract customers at night which counterbalances typical fast food sales patterns, often heavily reliant on breakfast and lunch business.
Already in 2013, Chipotle started serving Margaritas in some of its locations. Taco Bell took a different approach by choosing to add alcoholic drinks to the menu of their newly created upscale Cantina restaurants. The unspoken rule of not serving boozy drinks was also broken by Burger King at some of their Whopper Bars, as well as Starbucks with their evening concept in 2010, serving beer and wine at select locations.
If serving alcohol at fast food restaurants has proved trendy, most efforts have remained modest with no global roll-out in sight. And there are many reasons for this.
Licensing costs and logistical hurdles
In the U.S for instance, liquor licenses in the U.S are not only expensive and complicated to obtain, but also carry hefty annual renewal fees in many states. Additionally, offering alcoholic beverages comes with large logistical efforts and to make matters worse, many states have geographical restrictions on the sale of alcoholic beverages. Regulations often make it harder to find real estate, as there might be limitations on the allowed distance to churches and schools if an establishment wishes to serve alcohol. This is why for many fast-food chains, alcohol is frequently relegated to "special" locations, seemingly designed around the novelty of serving alcohol.
Potential problems and customer perception
Public authorities have also been warning that the addition of alcohol to thousands of fast-food locations could be a source of new problems such as drunk driving, violence, and alcoholism. Case in point, Burger King were turned down in 2016 when applying for a license to sell beers at their branches in Victoria and Paddington in the U. K after police raised safety concerns.
Fast-food executives argue that their typical customer usually sees the consumption of their products as a social occasion with a group of friends. To limit the negative effects, fast-food chains are taking measures to ensure a responsible serving policy to retain a family-friendly environment (such as clearly marked glasses or not serving alcohol at drive-thrus) and capitalize on an overall positive perception from their customers.
The strategy seems to have shifted towards making alcohol available in highly targeted locations with a higher density of younger, urban consumers, with less regulatory hurdles to overcome or investing in new delivery channels altogether.
Case in point, although Starbuck's Evening concept was decommissioned in 2017, the coffee chain has not entirely stopped serving alcoholic beverages. Instead they will focus this area of their business on their new upscale retail and bar concept Starbucks Reserve. So far, only four Reserve locations have opened in Milano, New York, Seattle and Shanghai but the company aspires to open more than a thousand sites worldwide.
Fast food chain Pizza Hut chose yet another way to enter the game by expanding their beer delivery services to almost 300 restaurants across seven U.S. states in January with a communicated plan to extend this service to up to 1000 locations by summer 2019.