Alcohol sales have been a source of high-margin income for restaurants for decades. They can account up to 30% in fine dining.
Alcohol is a great financial tool for restaurants. It has a longer shelf-life than perishable foods and lower labor costs.
Vivek Murthy, the US Surgeon General, has issued a new warning that alcohol is a preventable cancer cause. This could lead to a shift in drinking behavior, especially among younger demographics.
According to a report from The New York Times, this has left restaurant owners struggling with the prospect that alcohol sales are dwindling and exploring alternative strategies in order to stay afloat.
Gen Z and’sober curiosity’
The younger generation is already reshaping beverage industry.
Gen Z is prone to moderation and replacing alcohol with alternatives such as cannabis.
According to a survey conducted by Datassential in September 2024, 32% consumers who drink have reduced their alcohol consumption since the pandemic.
This cultural shift creates challenges for restaurants that heavily rely on alcohol sales.
Owner Tracy Vaught reported that alcohol revenue at Houston’s Hugo Ortega Restaurants has decreased from 31.5% to 27.5% over the past year.
“It may not seem like much but it makes a big difference,” she said.
Non-alcoholic options are now in the spotlight
Diversifying beverage menus is a common practice in restaurants to counter the decline in alcohol consumption.
Nonalcoholic beverages now account for 15 percent of all beverage sales at the Amway Grand Plaza Hotel, Michigan.
As an alternative, high-quality mocktails such as the $15 Copa Verde have become a popular choice.
Kevin Gillespie owns Gunshow, a tasting menu restaurant, and Nadair. He said, “Margins on food have been so drastically reduced over the past four years that restaurants cannot survive without a solid drink program.”
“But there are creative ways out of this,” said he.
Gillespie said that customers may not want alcohol, but still enjoy a cocktail. If a non-alcoholic drink is done well, it can cost almost the same as its alcoholic equivalent.
Ryan Schmied, the director of food and beverages at the Amway Grand Plaza Hotel, Grand Rapids, Mich. made some changes a year ago after noticing a drop in sales of alcoholic drinks.
No, and low-alcoholic beers and wines were also added. These cocktails without liquor contributed significantly to his profits.
In the hotels and restaurants, drinks without alcohol account for 15% of total beverage sales.
He said: “It may seem like a small percentage, but 10 to 15 percent can make or ruin a place.”
Alcohol helps restaurants cope with inflation
Restaurants also face broader economic pressures.
Rent, labor and ingredient costs have risen, but only a small amount.
According to the National Restaurant Association (NRA), sales fell 1.7% between November 20,23 and November 20,24 as inflation-weary customers cut back on eating out.
Chase Sinzer, the co-owner of Claud and Penny restaurant in New York City, said that alcohol is essential for financial survival, as it can act a buffer against rising food costs.
The idea is that consumers are more flexible when it comes to spending on alcohol compared to food.
Sinzer said, “They’ll ask if they’re paying that much for a chicken piece?
“When chicken costs 75% higher than it used too, and we can only increase the price by 25%, you better sell some alcohol.” “No one spends more than the next table on chicken, but people choose different alcohol.”
A long-term shift or a minor blip?
Some restaurants are still experiencing a decline.
Union Square Hospitality Group fine dining restaurants report steady alcohol sales. There is a growing demand for lower-alcohol wine.
John Ragan, the president of the hospitality group, recalls that when “60 Minutes”, aired in 1991 a segment suggesting red wine as the reason for the French to have a low incidence heart disease despite consuming a lot of fat, red wine sales jumped.
He said that the warning of the surgeon general may cause minor changes in the drinking habits, but is unlikely to have a significant impact. He said:
I don’t see a major change in the pairings at the table.
While some restaurants prepare for change, others find opportunities to adapt.
Deborah VanTrece, of Atlanta’s Twisted Soul Cookhouse & Pours, says that specialty cocktails containing rare and premium liquors such as Beyonce’s SirDavis American whisky are still in demand.
Restaurant owners still acknowledge the risks.
If the surgeon general’s warnings gain traction, and Gen Z’s drinking habits continue, alcohol’s role in restaurant profits could decrease further.
VanTrece said that “for the most part we feel steady right now.” “But people will at some stage generally jump on a wagon, so I am not saying that it won’t come,” she says.
This post Alcohol warning regulations: What you need to Know may be updated as new information becomes available.
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