PepsiCo's 'House of Treats' and the Battle for Restaurant Drinks: Why Chains Want to Become Beverage Companies

A fountain drink costs a few cents to make. It sells for a few dollars. At gross margins of 60 to 80 percent, the drink is the most profitable thing most restaurants sell. That one fact is changing the whole beverage business.

On 10 June, PepsiCo launched Pepsi 'House of Treats.' It is a new 'Away From Home' drinks platform for cinemas, stadiums, restaurants and live events. The pitch sounds playful: Yuzu Lychee, White Peach Sangria, and a trend the company calls 'treatanomics.'

But the real reason is defence. For a century, PepsiCo's main rival was Coca-Cola. Now there is a new threat. The restaurants that sell its drinks want to become drinks companies themselves.

The threat is coming from restaurants

For a hundred years the drinks trade ran on a simple deal. Companies like Coca-Cola and PepsiCo made the drink. Restaurants poured it under exclusive 'pouring rights' contracts. That deal is breaking down, because owners have worked out that the drink, not the burger, is where the money is.

Taco Bell has gone the furthest. Its Live Más Café wants to build a $5 billion drinks business by 2030. On its own, that would rank among the biggest drink sellers in the United States. Early cafés lifted sales by about 40 percent, and one California store sells more than 900 specialty drinks a day.

The growth is real. Taco Bell has already sold over 600 million drinks this year, up 16 percent. McDonald's used its CosMc's spin-off to test drinks. Chick-fil-A has launched Frosted Sodas and a drinks-only brand called Daybright.

Why drinks beat food on profit

The math is simple. Most restaurants keep only 3 to 6 cents of profit on each dollar of sales, going by data from Toast. A specialty drink is mixed in seconds from cheap parts and sold at a high price. So a drink drops far more profit to the bottom line than another sandwich does.

For an owner facing high wages, rent and food costs, drinks are the easiest way to make more money without a bigger kitchen.

Shoppers are helping. About 60 percent of people say they like drinks they can customize. Social media has turned 'dirty sodas' and custom builds into free advertising.

The drink has become content, and that gives power to whoever owns the moment the customer builds it. That has not usually been the company that sells the syrup.

What PepsiCo is doing about it

House of Treats is PepsiCo's way to own that moment. The platform lets venues offer lots of custom drinks fast. It is built to beat Coca-Cola's Freestyle machine, which only mixes basic flavours.

PepsiCo is selling it as an easy tool. A venue can serve eye-catching, high-profit drinks without much extra work.

'The role of beverages is evolving from functional refreshment into a much more experiential and culturally-relevant occasion,' said Eugene Willemsen, PepsiCo's CEO of International Beverages. The first event ran at a Pepsi MAX show at SXSW London. More are planned for Poland, Romania and the Czech Republic. PepsiCo is starting in away-from-home venues and overseas, the same places where energy brands like Monster and Celsius have been winning share.

What is at stake

This is a fight over who keeps the drink profit in restaurants and venues. If restaurants build their own drink brands and mixing machines, the soda giants get pushed down to selling plain syrup. They stay on the menu but go invisible to the customer, and they get squeezed on price at renewal. If PepsiCo and Coca-Cola can put their own platforms inside those venues, they keep the brand and the higher price.

For owners and investors, the message is clear. The next stage of the cola war will be fought inside restaurants and venues, not on the supermarket shelf. It will be won on the drink experience and the profit it brings. Watch who controls the moment a customer builds a drink. That is where the money is moving, and it is moving fast.