Restaurant Business’ A Deeper Dive
Enliven’s CEO Tim Harms was featured in this week’s episode of A Deeper Dive, a podcast produced by Restaurant Business. Take a listen below
Episode Description
Originally posted by Restaurant Business by Jonathan Maze:
The pandemic has changed restaurants’ deals with beverage companies, maybe forever.
This week’s episode of the Restaurant Business podcast “A Deeper Dive” features Tim Harms, CEO of the consulting firm Enliven, to talk about the market for beverages at restaurants.
Enliven works with restaurants and other clients to negotiate their beverage contracts. Harms was recently named the firm’s CEO.
He discussed the state of beverage deals on the podcast, and how much the pandemic changed demand for restaurant beverages. Growth in takeout and delivery has led to decreased beverage attachment, which has changed the way restaurants have to think about their beverage contracts.
Harms discusses this and how restaurants can adapt to this new reality. He also discusses the general state of beverages and how consumers are broadening their drink options.
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Transcript:
Introduction:
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Jonathan Maze:
The pandemic has changed restaurants’ deals with beverage companies maybe forever. Hello, this is Jonathan Maze, editor in chief of Restaurant Business. And in this week’s episode of A Deeper Dive, I speak with Tim Harms, the CEO of the consulting firm Enliven. Enliven works with restaurants and other clients to negotiate their beverage contracts and Tim was recently named the firm CEO. We asked him on the podcast to talk about the state of beverage deals and he did not disappoint. Tim talks about the impact of the pandemic on those contracts and on consumer demands for beverages specifically, consumers are ordering fewer beverages because they’re getting more takeout. Tim talks about this and he recommends the strategies restaurants can use to adapt to this reality. We talk about the general state of beverages at restaurants and how that is evolving. It’s all about beverages this week on A Deeper Dive so please have a listen. All right. I am here with Tim Harms. Tim, welcome to the podcast, sir.
Tim Harms:
Hey, thanks for having me, Jonathan.
Jonathan Maze:
So why don’t you tell us a little bit about what you do and your background?
Tim Harms:
Yeah, absolutely. So I help run Enliven and we’re a consulting company that really focuses on just one thing and that’s negotiating and managing beverage partnerships. We’ve been doing it since 2005. So when I talk about that, we usually work with a variety of types of clients, both in the restaurant space, but as well as airports, theme parks, hospital systems, C-stores. We help them negotiate their partnerships with the big beverage companies. So typically Coca-Cola, PepsiCo, sometimes Keurig Dr Pepper, now BlueTriton, and then after we negotiate those partnerships, then we help manage it for the life of the agreement. So it’s been a fun ride. And yeah, we really love doing it.
Jonathan Maze:
So tell us a little bit about what’s the big change in that particular market right now, as far as restaurants are concerned?
Tim Harms:
Well, yeah, obviously the last couple of years have been massive in terms of change for the industry. You’re seeing a big shift in… Depending on the type of restaurant, from primarily fountain, fountain’s still important of course, but obviously bottles with the takeout business and delivery business have been very important. You’re seeing supply chain issues as the number of SKUs that restaurants typically have to order for the beverage program has increased with the bottle and can programs, seeing labor issues. You’re seeing a lot of that. I think in the industry a lot of these contracts are volume based contracts where the restaurant will commit to the beverage company to purchase a specific number of gallons or a number of cases of product. COVID really served to extend a lot of those agreements as contractual agreements so I think a lot of restaurant operators out there are facing longer than expected beverage contracts, figuring out how to switch what was a gallon focused bag in a box syrup focused contract to also incorporate the bottles and the cans. So there’s a lot of change.
Jonathan Maze:
See, do those contracts or the bottle cans type contracts versus a gallon, is that a significant change for the operator and then how do you deal with that?
Tim Harms:
It depends on the concept, of course. Some folks have been into bottles and cans for a long time. But a lot of those, typically we see, for a lot of restaurant concepts, that was an afterthought to the main agreement and now it’s being pushed to the forefront. And especially for those concepts that are in a long-term agreement that has now been extended because of volume commitments, they’re having to go and renegotiate the contract in the middle or add onto the contract. They don’t really have that many options because they’re committed to their beverage partner, as they should be, but they’re having to adjust midstream to a contract that more makes sense with the reality that we live in today.
Jonathan Maze:
Is there any advantages? You mentioned that shift towards takeout and delivery, which obviously has been big and restaurants, especially casual dining, have been really struggling to figure out how to get that beverage attached to those sales. Are there any advantages to doing more of the bottles and cans type service?
Tim Harms:
Well, I think obviously beverages are huge profit margin items, typically for restaurants. And so when you switch to a delivery or a takeout model and you lose that, you’re losing an important part of your ticket. And so finding ways to recapture that beverage is important. It’s really difficult when you’re competing with the bottle that’s in the fridge though. And so just finding ways to make that transaction seamless, making bundling just a really intuitive part of the ordering experience, it’s really important. And I would just say the beverage companies know this, all the beverage companies are equally as interested in ensuring to capture that order and so relying on them and leaning on their expertise is a really smart thing.
Jonathan Maze:
What do you think? What are companies doing, you think, to get people to order more beverages? That seems to be a key component, for both sides, is that they both want consumers to order more beverages and obviously that’s been diminishing. And you know, if especially we end up in an inflationary recessionary environment, we’re probably going to see that diminish even further. What are companies doing to try to get, prompt consumers, to start ordering more dreams?
Tim Harms:
Yeah. I think one of the benefits of having a robust bottle program is the added variety. And so as we know, even before the pandemic, there’s a huge shift towards variety in the beverage category, flavor extensions, et cetera. And so I think smart operators can take advantage of that and even offer recommended beverage pairings with specific meals. Again, bundling, making that, the ordering process as painless as possible, as frictionless as possible. But I think there’s an opportunity to introduce new beverages, to work with your beverage provider to offer something that may not be available readily at the grocery store. Someone may not want to buy a 12-pack of it but would be interested in giving it a try. And then also unique flavors or unique beverage creations that would only be available at that restaurant or with that experience, to the extent that operators can get creative and work with their beverage partners to pull that off. I think you see wins.
Jonathan Maze:
Yeah. We’ve certainly seen quite a bit of it. I think Raising Cane’s and companies like that have unique beverages that they have, we’re seeing a lot more companies really start to offer. I think Jersey Mike’s have some unique fountain beverage offerings that you can get. Where we’re starting, we’re really seeing a lot more unique options that are unique to the restaurant. It’s sort of a draw. I just started thinking about beverages right now and when we were growing up, when I was growing up, we had four options. It was Coke, Diet Coke, Sprite. And then one.
Tim Harms:
Yes, yes.
Jonathan Maze:
And if you went to McDonald’s, you get orange drink or whatever, you might get root beer. And that was roughly it. And my kids drink some things that I just taste and I’m like, “Where did this come from? Who invented this flavor?” It is like nothing I’ve seen. It’s weird. Sometimes it tastes like medicine. I have no idea what they’re drinking, really have no idea what they’re drinking now. But consumers drink so many different beverages these days and it seems like it’s really hard for a restaurant company to try to keep up with that.
Tim Harms:
Yeah, just a point on that, we work beyond restaurants and I was just reviewing some data from one of our big healthcare system account. You wouldn’t think… You would think healthcare system is pretty basic, nuts and bolts, but this healthcare system is partnered with a beverage company and they ordered over 530 unique SKUs across their system, just in 2021 alone, from one provider. And so that gives you a little bit of an insight in just how fragmented the industry has been. And so I think restaurants should be really diligent and data-oriented about picking the right lineup for their consumers. And honestly, some of the work we do with our clients is to help even by a store-by-store level, zip code-by-zip code looking at the demographics, the lineup on the fountain machine in an urban location in the Northeast should be different than a rural location in the Midwest. So being really wise about which beverages that you offer and how you merchandise those, how you display them on the menu can do wonders.
Jonathan Maze:
So yeah, so would you say that restaurant chains should consider maybe broadening their options based on location? Is that… And then how do you do that?
Tim Harms:
Yeah, absolutely. I think hopefully you can partner with your beverage provider to pull some data. You’ve got to know that they’re also wanting to… They’re in the business of building brands. They create and build beverage brands. And so they’ve got their brands that they’re trying to build so you’ve got to be aware of which ones they want to promote and which ones they don’t. But pull that data and then also pull your own data and the data can speak for itself in terms of what preferences should be. And we recommend our clients run lots of tests. And so benchmarks, always be testing. But you’d be surprised how much you can move the needle with a little bit of effort. Beverage incidents, increasing beverage incidents, it takes effort, there’s no magic bullet. But by providing the right beverages, by running promotions, crew incentives, that whole gamut, you can really improve beverage sales and it’s meaningful money. If you can increase attachment by 1%, that’s meaningful.
Jonathan Maze:
Right. Right, it’s a penny business and that matters for sure. So what are the absolute best ways that companies can increase beverage attach? From your standpoint, what are the best promotions that work?
Tim Harms:
We worked with one client, I won’t say the name, but they entered into an agreement with one of the major beverage suppliers and they really challenged the beverage companies. They thought, “Our beverage program is getting a little stale. We want to bring some excitement to it.” And our goal is to bring brand awareness for the beverage company and for us, beyond the four walls of our properties. And so as a part of the proposal process, one of the companies proposed an idea for this cocktail that mixed more of a traditional cocktail with one of the beverage company’s products and they did a big splash around it. The results were phenomenal. This was the best-selling drink in this concept’s history. It indexed almost two times what the baseline was and then also honestly it got tons of impressions. I think over 600 media markets picked up press about it. They can’t buy that kind of coverage. They can, but this was just as a part of their traditional beverage partnership.
Tim Harms:
And so I think that’s one example of partnering with a beverage company as a part of your existing contracts to think, “What can we do together?” We talk a lot to our clients about recognizing how the beverage companies view themselves. A lot of people can go into these negotiations just trying to beat up the beverage companies for money, beat them up for the lowest costs, and beverage companies, they don’t view themselves at their core as beverage distributors. They create brands, they’re marketing companies, they create these billion dollar brands. They create them, they market them, they build them. So if you can partner with them in a way where you can both build their brand and your brand together, find ways to bring more traffic into your doors together, they’re really interested in that. There’s a lot of money in that. There’s a lot of value in that. There’s a lot of fun ideas that can happen through those conversations. So that example that I just mentioned was a result of just brainstorming together during the proposal process.
Jonathan Maze:
Right. So work with your beverage companies to try to find some new and creative ideas to get people interested in beverages because it does seem like you’ve got to really think creatively to get people to order beverages these days.
Tim Harms:
Yeah. There’s that side of it. There’s also just a blocking and tackling, crew incentives, suggestive ordering, meal bundling, running promotions, making sure you have the right fountain set, making sure you have the right bottles and cans in your bottle program, putting them at eye level. There’s some basic stuff, it’s not rocket science. But it is hard work and it takes effort. So whether you have someone on your staff doing that, you hire someone to do that for you, or you empower and challenge your beverage partner to help you think through, weed through the data, run the tests, it all adds up to really meaningful and significant results.
Jonathan Maze:
How are the contracts looking like these days? Are restaurants able to get any decent deals out of these companies? Historically we’ve seen some of these big beverage companies really be very aggressive and competing with one another. Is that still the case?
Tim Harms:
Yeah, I think competition is alive and well in the industry. The industry has changed though. Obviously, restaurants went through the pandemic. I think what you’re seeing is, depending on how their beverage partner treated them during the darkest days of the pandemic, you’re seeing partnerships that were once very loyal, very strong, get frayed if they couldn’t get product or they couldn’t get rebates or they weren’t willing to work with them. And simultaneously on the other side of it, the beverage partners that really stepped up and the beverage teams within those beverage partners that really stepped up for their customers have strengthened that loyalty. But I think in general, there’s definitely still that competitive spirit. I would say, again, we’re seeing the most value when restaurants approach their beverage negotiations and beverage partners with that spirit of partnership, they’re not just trying to beat them up for the lowest cost. They end up getting a really competitive program and attractive program. But if they come and be a collaborative partner with the beverage companies.
Jonathan Maze:
Well, it seems like you’d be able to accomplish more if you have more of a collaborative partnership where versus just something that you’re just doing to throw onto your menu to satisfy customers. And I don’t know, it just seems like you’re going to get farther if you’re more willing to work with the beverage companies than just trying to get the lowest cost no matter what.
Tim Harms:
Yeah, absolutely. And if you can tap into those, your brand investments at the beverage companies, you end up having a very lucrative program, but it’s a win-win. It’s actually a win-win-win. It’s a win for the beverage company and so they get to expose their brand and build their brands. It’s a win for the restaurant. They get low costs, a good product. But it’s also a win for the customer. They get, hopefully, either a new product they can’t get anywhere else, a better experience. There’s marketing activations or marketing dollars that are used in really creative ways. So hopefully, yeah, that’s what we’re about. Building partnerships that are truly collaborative and greater than the sum of its parts.
Jonathan Maze:
What do you think? What are your thoughts? We have one particular major restaurant chain based in Chicago that likes to run dollar beverage offers, those days are probably gone here in the near future or at least the base price is probably going to increase for various reasons. But I always find that an interesting strategy, especially for a company like that one where you use price as a way to get customers to order more beverages. And what are your general thoughts about a strategy like that, of just using dollar drinks or low price drinks? Does that work and also-
Tim Harms:
No, I think it’s probably dependent on the concept. I’ll tell you the beverage companies love it. They sell a lot of product and if you get your cost structure right, it can really make sense. I’m sure it drives a lot of traffic. Especially during maybe those afternoon slumps. So I think it’s a good strategy. On the other side of the spectrum, you see, if you look at menu prices for soft drinks, maybe for some of the more fast-casual or some of the more upscale burger places, the prices on drinks are much higher than they used to be. And as we’re seeing, I think some of the beverage companies are thinking the price elasticity, there’s a limit to that. But if you listen to the last earnings reports, they’re both saying, “Rephrase prices,” and we haven’t really seen any pushback. I think it depends on the consumer that you’re going for.
Jonathan Maze:
Right. Well, they’re saying that they haven’t really received any pushback, but we’re also seeing lower beverage attach. And I still wonder if ultimately… I get sticker shock at a lot of the beverage costs on a lot of menus these days. And you start wondering, “Why am I buying this? Why am I paying for it?” And certainly, delivery and that sort of thing tends to be a very expensive proposition anyway, and beverages are really easy to drop, especially when they’re really expensive like that.
Tim Harms:
Yes. Yeah, I think for some concepts out there, beverages for a family of four can be $15. It’s a real proposition I think on just to sympathize with the restaurant operators, you see the price of a bag and a box syrup outpacing inflation for the last several decades. I think it’s put them in a hard spot. I think that’s why getting your partnership dialed in correctly where it is a win for the operator who’s ultimately responsible for the end customers, they’re ultimately responsible for bringing the customers to view a branded product that’s not theirs and experience and consume a branded product that’s not theirs. I think dialing that partnership is really important. There’s a value, a real big value that they bring to the beverage companies and they should make sure that it makes sense for all parties.
Jonathan Maze:
So before the pandemic, we saw a lot of innovation on beverage machines. I think you had the Coca-Cola freestyle going back a decade and then Pepsi had one and then we saw some sort of innovation on that front. What did the pandemic… Did the pandemic change that at all, in terms of like the machines? Or are self-served beverage machines going away permanently, you think?
Tim Harms:
It’s a good question. I’ll say just even before the pandemic, I think there was a lot of initial interest in these touch screen machines, whether it was Coke’s version or Pepsi’s version. To be honest, we’ve seen a lot of customers back away from that technology for a lot of reasons. There was price differences in the product. I think that’s gone away a little bit. But the machine being down only having one nozzle instead of eight, it decreases the flow. Not to mention the costs on those machines at a different cost structure. So I think just in general, you were seeing people move away.
Tim Harms:
During the pandemic, you saw some creative things with QR code scanning. I don’t know how efficient that is. In fact, it’s not efficient. So I think we remain skeptical. It makes sense for certain environments but you can accomplish a lot of the same end result with just added flavor shots. So in general, we tend to shy our clients away from that new technology. As far as how the pandemic has changed things, you see sensors being added to beverage machines where a customer can just put their finger under it and it automatically triggers. I think it is yet to be determined. I generally think that the predictions of the death of the self-service machine and that everything’s going to change, I think give it a few years and we’ll revert back to some sort of normalcy.
Jonathan Maze:
Right, right. I generally tend to agree, but I think a lot of it really is going to depend on where the fast-food dine-in customer really settles in, how much that goes for. And that’s where the big question is, to whether if people are eating inside fast-food restaurants, then I think a lot of the self-serve machines make a lot more sense. But ultimately at the end of the day, if people are just taking it with them, you can make an argument that it makes a lot less sense at that particular point. And I think a lot of customers aren’t ordering it anyway. So it’s going to be fascinating to see where that particular thing goes. But it really does seem like the pandemic really changed a lot in terms of beverages, for sure, without a question, that it’s really altered the future. And I don’t think anybody knows really where it’s all going to end up.
Tim Harms:
Yeah, I think you’re right. And I think I’m going to go back to a point I made earlier. It highlighted maybe a lot of things that weren’t working in beverage partnerships, whether that’s from service levels and delivery or whether that’s in contract terms that get elongated, it’s supposed to be a five-year deal now it’s an eight-year deal. There’s lots of different things that get highlighted. As well on the positive side. We saw beverage companies stepping, up ordering gift cards from their customers to give to other customers, maybe they’re partnered with a local hospital system and a local restaurant chain, buying gift cards to the local restaurant chain and giving them to the nurses at the hospital. Those go a long way as well to solidify and strengthen bonds. So yeah, it’s a fascinating time to be in the industry. Things are always changing. They’re changing at a dizzying pace. Both Coke and Pepsi are now getting into alcohol, which hasn’t happened before. It’s a whole new whole another conversation, a whole nother podcast. But yeah, it’s exciting. It’s very exciting.
Jonathan Maze:
Right, right. Right. Alcohol and Mountain Dew is… Yeah, I don’t know. Just people have been putting booze in Mountain Dew and Coke for years, we might as well just eliminate the middle man at some point down the line. Well, at some point they should start. You wondered why they hadn’t been doing this before. Two real quick questions before we’re done.
Tim Harms:
Sure.
Jonathan Maze:
First off, when are we going to start seeing more energy drinks at the restaurant level? That’s what my question. I see the energy drink market has just completely exploded and we don’t… I don’t know. Maybe I’m missing something and maybe I am. But when are we going to start seeing a lot more of that? When is a McDonald’s going to start serving some energy drinks on a regular basis?
Tim Harms:
That’s fascinating. I haven’t actually thought about that. I think that would be a fantastic test to run and just see if it makes sense for a certain segment, obviously there’s some concepts where you can see that working better than others, some budget, late night concepts. But I think both Coke, Pepsi, and other challengers have great products that demand huge market share. You see, you mentioned Mountain Dew, they’re blending the category into energy. That could be an interesting play. Yeah, absolutely.
Jonathan Maze:
Yeah. Yeah. 20% of Dutch Bro’s coffees… Well, it’s not. Dutch Bro’s sales is energy drinks. They sell 20% is energy drinks. It’s fascinating. Technically coffee is also an energy drink, but then again, so is most soda anyway. But it gets back to that whole there are just so many varieties today. It seems like it’s really impossible to keep track.
Tim Harms:
Yeah. Sorry. One thing I didn’t touch on, a lot of restaurants have trouble offering a huge portfolio of bottles and products because of just base constraints. So as I think about our C-store clients, as well as even our hospital clients, energy drinks are a huge percentage of the sales. You just have to be smart about how you introduce it when storage capacity is low at the restaurant level.
Jonathan Maze:
Right, super. One last quick question. We also do see some… Historically, there’s always pressure on many brands to get rid of sugary sodas. Are we still seeing that? Are we seeing any sort of shift away from that but also still being able to offer beverages, besides water, that is?
Tim Harms:
Absolutely. Obviously you had soda taxes and municipalities from one level as well as just the consumers are heading there. And I think that’s why you see a hospital system offering 530 unique SKUs because the new innovation that’s coming out are sparkling waters, juices, kombuchas, energy drinks, coffee focused drinks. I think that’s a real concern. I think restaurants are feeling that as more and more people are reaching for the tap water. I think BUBBL’Rs, a really healthy tea program, even offering flavored sparkling waters, I think are really important things to consider and really think through the presentation of those, that equipment is really important on the order guide on your phone or what have you. So I think teas, BUBBL’Rs, Aguas Fresca’s sparkling waters are all really, really important, really for everyone to be considering.
Jonathan Maze:
Super awesome, sir, this was fantastic. Didn’t even ask you about boba tea or anything like that yet. But thanks for… We’ll have to have you on again. We’ll start talking about all these other weird options that are suddenly available. As I said, beverages just go on and on. Thank you very much for joining me this week on the podcast.
Tim Harms:
You bet. Thank you for having me, Jonathan.
Jonathan Maze:
And that should do it for this week’s episode of A Deeper Dive, which was edited, as always, by Kimberly Kaczmarek, artwork by Nico Heins. You may find this and other episodes of the podcast on our website at www.restaurantbusinessonline.com/article/deeper-dive. You may also find them on Apple podcast, Spotify, or anywhere else you find your podcast. I’m Jonathan Maze, your host, podcast producer, and the editor-in-chief of Restaurant Business. Thank you for listening
Outro:
From expert-led education and invaluable peer-to-peer connections to exciting new flavors and cutting-edge products. The 2022 National Restaurant Association Show is the only place where you’ll find everything you need for growth. Register today to join us in Chicago from May 21st to 24th, 2022, visit www.nationalrestaurantshow.com/registration and use code podcast22 to save $20.
