Dive Brief:

• TEAM Schostak Family Restaurants, which operates a number of restaurant brands in Michigan, has partnered with Valentine Distilling Co. to offer two craft cocktails in its 65 Applebee’s locations, according to a company press release. 
• The cocktails — Moscow mule and Motown Mule — feature Valentine vodka products and are served in Valentine-branded copper mugs. 
• Craft spirit growth in the U.S. is growing by a CAGR of 13%, according to Beverage Daily, outpacing craft beer. Beverage Marketing Corporation research projects that the number of craft spirits suppliers will reach 3,422 by 2021. 

Dive Insight:

Casual dining chains are taking advantage of the growing demand for spirits — including vodka and gin — driven by younger generations. A report from Berenberg Research finds that Generation Z prefers spirits more than beer. Younger consumers are also interested in unique cocktails versus something more traditional. 

Customized or craft cocktails provide a great way for chains in a crowded and competitive space to differentiate. In the release, for example, TSFR executive chairman Mark Schostak noted that the partnership with Valentine Distilling Co. allowed the company to offer something unique from other national players.

But the focus on cocktails is extending well beyond craft or specialty drinks, and for good reason. The casual dining segment has spent the past decade struggling with weak sales and, in 2017, experienced a shrinking footprint for the first time. Alcohol is a significant growth opportunity, with liquor specifically generating profit margins of 80 to 85%. For context, a cheeseburger yields between 5 and 15%. 

Chains are bellying up to the bar in a number of creative ways in an effort to both generate sales and traffic. Applebee’s, for example, unveiled a $1 zombie cocktail in time for Halloween on the heels of its $1 Long Island Iced Tea promotion over the summer. The chain kicked off 2019 with a $2 Captain and Cola promotion, available throughout January. It’s a good month for such a promotion, as the holiday spending glut of December typically leads to slower restaurant sales in January. 

Not to be outdone, TGI Fridays recently rolled out its Five Bar menu — $5 beer, wine and clean-label premium cocktails. In October, IHOP even jumped in, opening its first location with a full-service bar.The Phoenix restaurant includes three cocktails that were specially made for IHOP. 

Notably, these bar offerings not only provide a way for casual dining chains to excite younger consumers, they can also provide an advantage over quick-service and fast casual concepts that are less likely to be equipped with a liquor license.