This Place Has Everything (Except Alcohol)

Friends of Branded!

Happy Saturday and I hope you had a great week.

Every now and then, Schatzy has been known to start an evening off by telling the group we’re with, that he “doesn’t drink anymore.” He then pauses for effect, and follows with, “I also don’t drink any less.” Schatzy credits (or blames) his dad for that joke.

After entertaining his audience with a little bar humor, he then proceeds to order a Negroni or an Old Fashioned (have you seen Schatzy’s background on Zoom?).

I was at dinner this week where a round of drinks was ordered at the start of our meal, but that was it. There was no second round. For a restaurant, the first drink is for socializing, but the second drink is all about margin.

There’s a wealth of information available on the topic of alcohol sales and specifically how fewer Americans are drinking (spoiler alert: we’re at multi-decade lows). Alcohol consumption is down across the board (beer, wine, and spirits). For those that drink, they’re drinking less per occasion, and younger consumers (Gen Z) are opting out or opting down when it comes to adult libations.

To be clear (and b/c I love sports analogies), nobody rang the bell, and there was no standing 8-count. No headline I can find has screamed the collapse of alcohol, but somewhere between the first round of drinks and the dropping of the check, the second drink has quietly (along with Elvis) left the building. Please note, I’m not saying the second drink is gone entirely, I’m just saying it’s no longer automatic.

For the restaurant industry, this is a BIG deal. Big, like huge!

This phenomenon is not about the guest disappearing (b/c they haven’t). This about the loss of margin. Restaurants aren’t seeing empty seats, but they are seeing lighter tickets. One drink instead of two, water instead of wine, and mocktails instead of cocktails. 

Does this look serious to you? If you’re in the industry, you know how serious this change is.

While your coffee is now kicking in, let’s put some numbers around the changes going on when it comes to the consumption of alcohol. Only 54% of US adults drink alcohol, which is a 90-year low and is down from 62% back in 2023. Those who do drink, are drinking less (weekly consumption is down to 2.8 drinks (the lowest since 1996). US alcohol consumption volume is down about 8% and it’s not about any single category, its impacting all of them. Spirits haven’t seen a decline in about 30-years, wine sales are down about 8% and global beer market volume is declining, which is being led by the softness in the US market.

Alcohol sales aren’t just about revenues, they’re about the restaurant industry’s profit engine. Alcohol represents anywhere from 10% to up to 30% of sales for many restaurants, but it often represents 50% or more of profits. So, when the second drink disappears, the restaurant isn’t losing a guest, they’re losing its cushion. For full-service restaurants, alcohol subsidizes labor, rent and food cost volatility. If the decline in alcohol sales persist, margins will compress in a meaningful way and mid-tier casual dining will get squeezed the hardest.

For the restaurant industry, I wish I could tell you this is a temporary shift, but it’s not. This decline in alcohol sales isn’t a fad, it’s a shift in the mindset of our guests. Health is the new status symbol, and it’s led to moderation, and even sobriety. You’ve also got the economics of the situation (or let’s call it check management). Our Gen Z friends are rewriting the playbook, and they just don’t default to alcohol the way prior generations did. Only about 25% of Gen Z choose alcohol as their go-to restaurant beverage. This isn’t cyclical, it’s a generational change.

For avoidance of any doubt, to those that don’t drink or are cutting back on their alcohol consumption for any reason or no reason, cheers to you. Sincerely, whether its for health reasons, economic reasons or otherwise, that’s completely your right, your choice, and you should of course do as you please. The issue I’m raising here is the loss of something that’s widely considered the lifeblood of the restaurant industry b/c it provides a financial cushion that food alone often can’t. Food may keep the doors of a restaurant open, but alcohol is often what makes the business profitable. 

While the impact from the drop in alcohol sales is meaningful, we don’t play the victim card here at H^2.

Operators shouldn’t be looking to replace alcohol, they should be looking to replace what alcohol sales do for their P&Ls. Here I’m talking about elevated mocktails, where these beverages are priced like an alcoholic cocktail. I’m talking about functional beverages (such as wellness drinks) and menu engineering that drives beverage attachment (whether there’s alcohol or not included). My point is that the winners aren’t fighting the trend, they’re looking to monetize it differently.

Our guests are still raising glasses and the operators who win will not be asking “why aren’t they drinking?”  They will be asking “what the guest is willing to pay” for instead.

Friends, here’s the goal, we need to make beverage the most profitable part of the menu, whether alcohol is part of it not. Yes, alcohol is the easiest upsell, and offers the highest margin, but the era is changing and while you can visit the grave, you can’t camp out there. We need to take action.

We can’t treat non-alcohol drinks as a diet option (although personally, I should be more mindful of such options, just saying). We need to address the pricing of these options and invest in how they’re presented to our guests. The non-alcohol options can’t be buried or hidden at the bottom of the menu.

If these options look like you’re offering a compromise, it will sell like one (meaning: it won’t sell well). We need some new thinking here. The days of non-alcohol as an afterthought are over. We need to think of non-alcohol and present it as a premium experience. And for whatever it’s worth, lose the word “virgin” in connection with your non-alcohol offerings. We can re-capture margin by preserving the “occasion & ritual” that has long been associated with cocktails.

We don’t need to give up or lose the last drink moment, we just need to change the offerings. We can recapture the lost margin of alcohol but only if we design for it and are intentional about it.

When it comes to non-alcohol, we’re not selling juice, we’re selling the second-round experience. We need to shift our thinking from “alcohol drives margin” to “beverages drives margin” b/c hoping for the return of alcohol sales isn’t a strategy. Embracing the growing demand of a spirit-free lifestyle, sober-curious guests, and health-conscious dining is the path forward.

I’ll raise a glass to that!

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YouTube just ate Hollywood’s lunch!

An article caught my eye this week and I knew it had to be part of the Deal Room.

Okay, maybe it wasn’t the article, but rather the factoid I learned from it.

YouTube just crossed a line that should shake every media executive, and every operator paying attention to where eyeballs (and dollars) are going, $40.4 billion in ad revenue (2025) which is more than Disney, NBCUniversal, Paramount, and Warner Bros. Discovery combined ($37.8 billion)!!!

This isn’t just a “YouTube wins” headline, this is a power shift in how content is created, distributed, and monetized. A platform built on creators + user generated content (“UGC”) just beat legacy media. Advertising dollars are moving from programming to platforms and control is shifting from studios ecosystems. If Wall Street hasn’t done it yet, let me state the obvious,  YouTube is “The new king of all media!”

YouTube didn’t just build content, it built the infrastructure around it. This isn’t just about ads (although the revenue from ad spend is crazy big). YouTube also built subscriptions with its YouTube TV, Premium and NFL Ticket (to the tune of $20 billion). This isn’t a single-line business, this is a multi-revenue platform model.

The legacy model said that “content is king,” but the new model is saying that “distribution + data + creators equals the kingdom”.

Why am I obsessed with this story, well, let’s do this Milton Friedman-style (aka: self-interest).

Branded is an active investment platform, but as restaurants are becoming content (experiences, brands, stories, data-generating touchpoints), they’re no longer the end product. They’re the input into a larger platform.

When industries are fragmented (70% of US restaurants are independents and the tools they use are fragmented as well), the need for connected ecosystems grows.

Studios are losing to YouTube, and individual apps are losing to platforms.

Investors are shifting their attention from great restaurants and ResTech tools, to scalable platforms b/c the multiple is in the system, not in the store or tool.

YouTube didn’t beat Hollywood b/c of better shows, it won b/c it built a better system.

Branded isn’t just investing in restaurants and ResTech, we’re building the system around hospitality.

If you’re interested, you can learn more about Branded Hospitality Media here: Branded Media Experience 2026

And if you’d like to dive deeper into this with Branded, you know what to do, call me maybe.

To learn more about Branded Hospitality Media and opportunities to engage with us, please click here.

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