Thousands of people in New York’s Soho neighborhood enjoyed customized beverages from Swig on a mostly pleasant May weekend, never mind that the nearest location of the beverage chain is in Indianapolis, 702 miles away.
The pop-up event wasn’t even Swig’s idea. Clarins, the cosmetics brand, asked the Utah-based chain to do the event to help it launch a new brand of lip gloss. Some 3,000 people came through over the two-day event, and “thousands” more wanted a taste of Swig’s “dirty sodas.”
“We served thousands of thousands of drinks during those couple of days,” CEO Alex Dunn said in an interview.
Swig was founded in St. George, Utah, in 2010, and in recent years has been one of the fastest-growing restaurant chains in the U.S., fueled by social media, as consumers boast of the chain’s dirty sodas, or sodas spiked with cream or other flavors. System sales grew almost 50% last year, according to the Technomic Top 500. It is on pace to open 60 more locations this year, same-store sales are up and so are store-level profits.
It is hardly the only beverage chain having that kind of success right now. Five of the 12 fastest-growing chains on the Top 500 serve beverages in some form, including Swig and 7 Brew, the drive-thru coffee chain that boasts $2 million average unit volumes and grew sales by 163%.
And it’s all about to get a lot more competitive. High-growth Chinese brands, including Luckin Coffee and the 6,400-unit tea brand Chagee, are eyeing the U.S. Maybe more importantly, fast-food giants McDonald’s and Taco Bell both appear poised to rapidly expand tests of in-store drink concepts in a bid to get a piece of that market.
It’s all as if the U.S. restaurant industry one day woke up and got religion on beverages. For years, the industry was focused on drip coffee and a small menu of fountain drinks, while convenience stores and other retailers dramatically increased their beverage varieties.
All that is changing. The beverage sector is more innovative than it ever was, with a wider selection of customizable options, from boba tea to dirty sodas to energy drinks, much of which is social media ready.
“Beverages are fun,” said Geoff Henry, president of Gong Cha North America, the growing boba tea brand. Henry worked for years with Coca-Cola before moving to Jamba and now Gong Cha.
But there is not all that much evidence to suggest that all this innovation is really growing the overall beverage category.
Total chain sales at beverage chains, including coffee-centric brands and specialty beverage chains, grew just 3.7% in 2024, according to a calculation of Technomic data by Restaurant Business. While that is moderately higher than the 3% total chain sales growth last year, it is lower than the 4% increase in restaurant menu prices.
A lot of that can be blamed by weakness at the top. Starbucks, the world’s biggest beverage chain by every measure, watched its sales decline by a half a percentage point in the U.S. last year, a stunning decline for the company that represents nearly 60% of total chain beverage sales.
But median sales growth, which deemphasizes Starbucks’ influence, was only somewhat better at just under 7%.
All of which suggests some share trading, with the Seattle-based coffee giant the biggest donor. “Their struggles over the last year really dropped the growth of that category overall,” said Kevin Schimpf, senior director, industry research and insights for Technomic.
One possible explanation: Starbucks in recent years has focused on broadening its beverage offerings while offering consumers an array of customizable options, which helped attract a lot of younger consumers. When it lost sales last year, largely among patrons who aren't members of the chain’s popular loyalty program, many might have gravitated toward some of those newer concepts.
Nevertheless, the beverage space is attracting all kinds of competitors, both small and large. That includes several fast-growing chains such as the tea concept HTeaO and the smoothie concept Robek’s along with the specialty soda brand Fiiz Drinks. It also includes several boba tea brands that are generating long lines at malls around the country.
Henry said there has been a “ton of innovation” in the ready-to-drink space, or beverages sold in bottles and cans at retailers, starting about 20 years ago. Restaurants jumped on board about a decade later. “The restaurant industry the past 10 to 12 years has started to pick up the pace on beverages,” Henry said.
McDonald’s and Taco Bell could shake up this market further. McDonald’s in 2023 started testing the beverage-focused CosMc’s in Illinois and has since opened several locations—and closed a couple—in Texas. CosMc’s sells a selection of espresso-based beverages, fruit drinks and teas, among other things.
The company plans to test a selection of “CosMc’s-inspired” beverages inside its McDonald’s locations starting this year. “There’s a lot of growth we see in beverages,” CEO Chris Kempczinski told analysts. “And the profitability of beverages is very attractive.”
Taco Bell’s Live Mas Café, in Chula Vista California, is an in-store concept with a selection of specialty coffee drinks, chillers and aqua frescas. That location sells about 300 specialty beverages a day, which has boosted sales at the restaurant 40%.
“We are planning a rapid expansion this year,” David Gibbs, CEO of Taco Bell parent Yum Brands, told analysts in April.
Even some surprising brands are getting into the act. Applebee’s, the casual-dining chain, this week said customers can “dirty up” a fountain drink with some whipped cream.
As it is, many of the existing concepts have broadened their beverage offerings. Coffee chains like Starbucks and Dunkin’ have branched well into more customizable cold beverages, teas and “refreshers” and sell less drip coffee. Dutch Bros, the rapidly growing drive-thru beverage chain, doesn’t sell drip coffee at all and gets about a quarter of its revenue through energy beverages.
There is a lot to like about beverages. As Kempczinski noted, beverages are profitable. Companies can often goose profits with customization. Starbucks’ add-ins, for instance, generate $1 billion a year in sales on their own. Those add-ins in particular are profitable.
Consumers also drink more beverages on average than they will eat meals, which provides more potential occasions. And customers are often more loyal to their favored beverage provider than they would your typical fast-food chain, where price is often the consideration.
It also fits with consumers today, Henry said. Gong Cha’s busiest time of day is in the late afternoon, from 2 p.m. to 5 p.m., and it also gets a healthy amount of business from 7 p.m. to 10 p.m. as something of a dessert occasion. That’s common among many of the upstart beverage concepts.
“It fits with the whole behavior shift with consumers,” he said. “Three meals a day is no longer standard for America. Beverages play a lot of those in-between-meal occasions. We’re often either a midday snack or small meal and/or post-dinner occasion.”
Gong Cha was founded in Taiwan in 2006 and helped pioneer the boba tea trend. The chain has 240 U.S. locations and recently signed a development agreement to bring the brand to Arizona, the Pacific Northwest and Hawaii. It also plans to ramp up development in California.
Henry said the brand’s offerings work well on social media. The beverages have layers and bright colors that often make it fodder for the chain’s customer base, typically 18 to 30, Henry said. The drinks can also provide an infusion of energy. The chain also sells a lot of merchandise, such as keychains, that play well to that consumer.
“The product itself provides a lot of joy to the consumer,” Henry said.
Swig, similarly, has a base of younger customers, who skew female, which is one big reason it was brought into New York by a cosmetics brand. The brand has thrived on social media, and last year basketball star Caitlin Clark and teammate Lexie Hull generated millions of views trying the chain’s beverages.
The chain also has a strong customer service focus, which was ingrained by the founder Tanner and is important as the concept expands. “Honestly, a vast majority of our team members are younger females,” Dunn said. “There is a connectivity there, an energy there, a feeling that they care about me. I get stories every few days of a customer that was going through the line having a bad day and our team member gave them a free drink.”
For Swig, the biggest barrier is simply awareness. A lot of people do not know what a “dirty soda” is yet, even though places like a TopGolf in Boston will serve the product now. The incursion by big chains, therefore, can only help.
“There’s still a huge opportunity to educate the consumer around what dirty sodas are and why they’re amazing,” Dunn said. “Increasing awareness is a positive for us.”
He also said that the company’s service model and branding efforts will protect the concept from any other competitors. “We’re very focused on our formula,” he said. “Our formula is around winning around brand, on experience and on innovation.”
That will be important going forward. There is a relatively low barrier to entry for beverage concepts, which is why so many of them are opening right now. And the entry into the market of large fast-food chains will only make that market more competitive. All of which means the existing players will need to be on their game.
This story was originally published in CSP sister publication Restaurant Business.