When New York City developer Andrew Moger saw a tiny piece of real estate become available in foot traffic-heavy Rockefeller Center, he thought to himself “this would be great for a beverage concept.” He signed on and took the plunge.
“Over the past year, I had seen the proliferation of craft fountain beverages at Sonic, Dunkin’ and Starbucks, but also noticed growth of the next wave, at concepts like Swig and Sodalicious,” he said. “I went to Texas to tour a Swig location and felt it would be transferrable to an urban market.”
Swig, founded by a Mormon mom and based in Lehi, Utah, is largely attributed with starting the alcohol-free dirty soda trend, in which branded soft drinks are mixed with cream, syrups and mix-ins, like boba (tapioca pearls), fruit purees or candies. Swig now numbers more than 100 units, expanding mainly in the West and South.
Moger thought New Yorkers would take to the trend, and about a year ago, he opened Cool Sips in that Rockefeller Center storefront, infusing the space with a “surf shop” vibe. A second location followed at the South Street Seaport in lower Manhattan, with a third scheduled to open soon in a residential neighorhood uptown. Although he admitted the biggest challenge is that most consumers still don’t know what a dirty soda is, they are extremely interested in customizable, colorful drinks with trendy flavors.
Drinking up the numbers
Quenching an unquenchable thirst
Why are consumers buying so many alcohol-free drinks? “These beverages are an affordable treat that straddle the line between a snack and a refresher and have become part of the daily routine,” said Moger. “Our busiest times are mid-afternoon and evening.”
The customization angle is also a big selling point. “Beverages are becoming part of a consumer’s personality—‘what you drink is what you are,’—and they’re not a heavy wallet commitment,” said Kelsey McManemin, VP of marketing for Fort Worth, Texas-based HTeaO, one of the fastest-growing franchised beverage concepts. It grew 54% year over year, according to the 2024 Technomic Top 500 Chain Restaurant Report.
The personality aspect particularly resonates with Gen Z, a group that seems to be drinking less alcohol than previous generations. Some studies report that around 30% of consumers under 28 who are of drinking age identify as non-drinkers, for health and for other reasons. These same Gen Zers also embrace “treat culture”—using food and drinks to reward themselves.
While some of these dedicated drink destinations also offer coffee, that’s a side line. Soda, tea, lemonade and juice-based beverages are the main attraction. These concepts make it possible for customers to treat themselves at a relatively small cost, offering a menu with everything from healthy refreshers to energy boosters and indulgent treats.
The economics appeal to operators like Moger, too. “The business model is very positive: Small space, low capital, great margins,” he said. “And the vibe is colorful and beachy.” The equipment is minimal, consisting mostly of fountain dispensers. Cool Sips uses Pepsi products, Torani syrups and Tractor lemonades and teas. “Everything is hard piped into the plumbing and there’s zero waste,” he added.
Although customization is a draw, Cool Sips offers several curated drinks too. The Stuffed Sips include boba and jellies and there are themed limited-time offers. “We offered Steamy Sips over the winter and created special drinks for the Oscars and the Saturday Live 50th anniversary, since we share space in Rockefeller Center,” he said. Moger is testing out snacks, too, including a pretzel croissant, “something salty to complement the sweeter drinks.”
While Cool Sips counts strictly on walk-in business by positioning itself in New York City neighborhoods, HTeaO focuses on drive-in and nonurban locations. The 137-unit chain is mostly self-serve, offering customers the chance to “be your own mixologist.”
House-brewed iced tea is the base item, and you can get a cup of sweet tea for $5. But half gallons and gallons are also available, “and some locations sell 1,000 gallons a week,” said McManemin. “People also buy 5-gallon containers of water,” she said, adding that in some parts of Texas and New Mexico, the water is not great. “We have a lot of blue-collar customers who stop in for a drink and get back on the road.”
But the big draw is the freedom to choose and create your own drink, with flavors like sweet coconut, ginger peach, mint and watermelon iced tea. There are “secret menu items” created by regulars and employees and circulated through word-of-mouth and social platforms. These include the “Wedding Cake,” a mix of half Sweet Almond Green and half Sweet Coconut, and the Cowboy, a blend of half Sweet Blueberry Green and half Ryan Palmer.
HTeaO has also partnered with Poppi, a better-for-you, probiotic brand of beverages, to create handcrafted beverages with a health bonus. The health angle aligns with the concept as a “better-for-you” brand, said McManemin. The same goes for the snacks on offer, including protein bars and an all-natural beef jerky stick.
But there are also “treats,” such as cupcakes and “killer” brownies to grab and go. And the chain is playing around with dirty sodas, introducing Dirty Cherry Poppi as an LTO, blending milk and a squeeze of lime into cherry-cola Poppi. Sampling is encouraged before committing to a purchase, and $5 drinks are available during daily Happy Hours from 2 p.m. to 4 p.m. Other times, beverages average $7, “but we noticed a purchasing trend toward the larger 32-ounce size over the standard 24 ounces,” said McManemin.
In January, HTeaO launched Root Beer Iced Tea, an idea that originated with franchisees, and it really took off. This April, the chain introduced a Cherry Peach Iced Tea Lemonade and Mango Tango Razzler, and in June, a Cherry Lime Iced Tea. “We’re gravitating toward bright color drinks,” said McManemin. “People buy with their eyes.”
Going for the impact
Indeed, Instagram-friendliness is a plus, with colorful, creatively garnished drinks overflowing social media feeds. Orange, California-based Krak Boba is all in, positioning its beverage menu to “wow” consumers, said Tin Do, co-founder of the 22-unit boba tea chain. “Color is a selling point and part of the ‘magic.’ We blend elixirs with lots of colors and offer our drinks in clear cups so the colors are visible,” he explained. “No two come out alike.”
Krak Boba offers milk teas, specialty drinks, fruit teas, smoothies, matcha and coffees—“something for everyone,” said Do. “But our menu is more like 36 drinks, not 100.”
The beverages are complex and made to order. Take the signature King Brulee. It uses three types of brown sugar: Viscous molasses coat the side of the cup, brown sugar boba float in the drink and crunchy brown sugar bits are sprinkled on top. Swirls of cream create a marbled effect for a decadent treat. The Dragon Slayer, another signature, is a blend of fresh mango puree, dragonfruit puree and lychee slush, resulting in a deep purple and orange drink with a contrast of pale slush on top.
“When we develop our drinks, we analyze the flavor profiles like you would wine,” said Do. That said, he sees Krak Boba’s potential as a lively late-night gathering spot in lieu of the traditional bar.
“There’s a shifting in consumer sentiment about drinking alcohol, with beer and wine sales down,” he said. “But people still want to drink together and beverage concepts can fill that void.” Krak Boba’s menu prices range from $5.75-$6.75, making them an affordable and fun alternative. Soon there will be food items, in development with partner Sysco. And the brand, which is currently fundraising to open 10 more corporate stores, turns every opening into an experience.
“We place a giant ice sculpture in front of each store and everyone can take a ‘krak’ with a mallet. It supports our intention to celebrate individuality,” said Do.
Big chains are drinking the Kool-Aid
Cool Sips, HTeaO and Krak Boba are among a handful of emerging concepts driving the specialty beverage business. There’s Sip Fresh, with its team of “sipologists” developing drink recipes, and trained “sipistas”—patterned after baristas—to craft the juice-based beverages. Swig and Gong Cha are also making waves in the market.
Jamba, now part of Atlanta-based GoTo Foods, has been around a lot longer, focusing on smoothies and bowls. But earlier this year, the chain launched its first line of fruity iced beverages at its 780 U.S. locations, creating a whole new menu category.
Jamba’s colorful Over Ice Beverages include Peachberry Blast, Blue Lava and Dragonberry Blitz, all based on lemonade enhanced with scratch-made purees and juices cross-utilized from the brand’s smoothies. Also new are Over Ice Fusions, layered drinks with names like Lemonberry Twist, Mangomorphosis and Electric Ice.
“We wanted to play in the world of fun, innovative iced beverages,” said Jennifer Holwill, Jamba’s VP of research and development. Ingredients including blue spirulina, purple dragonfruit and red strawberry puree add vibrant colors and fan-favorite flavors. Real fruit is a selling point, Holwill added. “The goal of these six all-day refreshers is to drive new guests and offer current customers something lighter to sip with a smoothie bowl or pair with a snack,” she said.
McDonald’s and Taco Bell also want to play in this space, and both mega-chains are investing in building their beverage presence.
Moger reports that he hosted Asia-based teams from Yum Brands, treating them to a beverage trends tour, including an inside look at Cool Sips. In the U.S., Yum’s Taco Bell is testing its own beverage-focused Live Mas Café in two locations, the Irvine, California-based chain announced earlier this month at its Live Mas Live! event.
The in-restaurant concept features a menu of about 30 unique beverages, many of which are caffeinated, such as the signature Rockstar Energy Refrescas. But there are also Churro Chillers, Agua Refrescas and a “dirty” Baja Blast made with Mountain Dew and cream. Taco Bell “Bellristas” handcraft the drinks.
The company wants to sell $5 billion worth of beverages per year by 2030, RB Editor-in-Chief Jonathan Maze reported, after attending Live Mas Live!
McDonald’s is also ramping up beverage innovation. In 2023, the burger giant launched CosMc’s, a dedicated drive-thru concept focusing on drinks in a Chicago suburb. Six locations followed in Texas, but three of those have since closed. According to CEO Chris Kempczinski, smaller footprint, drive-thru CosMc’s work best, and more are planned. There’s also potential for in-restaurant beverage expansion.
Just this month, McDonald’s announced the creation of a Restaurant Experience Team focusing on three menu categories: beef, chicken and beverages/desserts. The impetus for this move is for McDonald’s to be more competitive with the larger number of “specialist” concepts.
Beverages are proving to be a growing one.