Red Robin is serving wine milkshakes. (Yes, milkshakes.)
FORTUNE — This spring, burger chain Red Robin (RRGB) will begin serving wine milkshakes in its 496 restaurants across the U.S. and Canada.
Yes, wine milkshakes. The news begged for a simple question to be answered: How could such an obscure concoction ever end up on the menu of an American casual dining chain?
The $1 billion burger joint is calling the beverage the “Mango Moscato Wine Shake.” Made with vanilla soft serve, moscato-flavored vodka, and moscato wine, the shake is “definitely sweet,” says Red Robin’s master mixologist Donna Ruch. Retailing for $7.49, the drink will set you back about $3 more than Red Robin’s typical draft beer or glass of wine.
The concept of mixing dairy and wine might strike some as completely bizarre. But the drink’s presence on the burger chain’s menu is a reflection of the dismal state of the casual dining industry. As chains like Red Robin compete for ever-dwindling market share and sales, novelty and higher-margin items like boozy milkshakes might be what sets one chain apart from another.
“It is absolutely a share battle,” says Senior Vice President Denny Marie Post. “Casual dining [restaurants] back in the ’90s, you couldn’t put them up fast enough, but then the category got overbuilt and hit the skids in the recession … We can all carry craft beers and make great food, but it’s those little things that could make the difference in someone coming back or not.”
Customer traffic at American casual dining restaurants has declined steadily since 2006. In 2013, traffic fell 2% after falling 2% in 2012 as well, according to data from consumer market research company NPD Group. Americans are going out to eat less, and casual dining restaurants like Red Robin, Olive Garden (DRI), and Applebee’s (DIN) are getting particularly hammered as thrifty customers look for faster, more affordable options. Casual dining restaurants are lowering food prices to get customers through the doors, so there is added pressure to increase the alcohol portion of the dinner bill, says Harry Balzer, an industry analyst at NPD Group.
Around 12% of total sales at casual dining restaurants come from adult beverages, says Bryan Elliott, a Raymond James restaurant analyst. That industry standard hasn’t budged for years, but Red Robin’s alcohol sales dropped to as low as 6.2% of total sales in 2010. Two years later, the burger chain created the role of master mixologist to reinvent the company’s faltering adult beverage menu. Red Robin’s first big hit was a beer milkshake made with Sam Adams’ Oktoberfest in 2012. By 2013, the adult take on a root beer float helped bring the company’s alcohol sales to 7.6%. Since the product is popular mostly with male customers, executives thought a wine milkshake would be the perfect compliment for moms looking to sip on something sweet with their burger and fries.
The Mango Moscato Wine Shake is also a product of changes in American preferences for alcohol. Brands with bolder flavors like Fireball Cinnamon Whisky are gaining market share as drinkers go for stronger flavor combinations as opposed to the same old well cocktail. While the total volume of sales of non-flavored vodka decreased slightly in 2012 compared with 2011, flavored vodkas increased by nearly 30%, according to data from consumer market research company Euromonitor International. Also wine sales at food service channels like restaurants increased 4.2% from 2011 to 2012 to reach $19.2 billion in sales.
Red Robin is indeed not alone in its quest to stand out with quirky alcohol offerings. Applebee’s sells a drink made with Kahlua vanilla ice cream and whipped cream. Olive Garden wouldn’t disclose specifics, but an executive told Fortune that that the chain is coming out with a new adult beverage in June that will revolutionize its menu.
Still, most casual restaurant chains are largely considered family-oriented restaurants as opposed to adult watering holes. But expanding the alcohol side of the menu could be a signal to customers that the restaurants are also a place to get some drinks and watch the game, says Greg Wank, an advisor to the food and beverage industry with accounting firm Anchin, Block & Anchin. With beef prices skyrocketing — most recently posting their biggest increase in a decade — Wank says Red Robin and other chains will be lucky to pull in a 50% margin on their burgers. Yet alcoholic beverages could easily have a 70% return.
Some casual dining giants are ahead of the alcohol-focused trend. TGI Fridays’ adult beverage sales are “significantly higher” than the industry standard of 12%, says Matt Durbin, vice president of beverage and bar innovation at the chain. Fridays, which operates more than 900 stores in 59 countries, is now focusing on creating cocktails that include more premium ingredients — like a margarita made with Patron tequila and Grand Marnier — to please Americans who are spending more on alcoholic beverages. Customers have been drinking fewer, but better, cocktails for years now, he added.
“At Fridays, the bar is absolutely the center of the experience,” says Durbin. “It is the catalyst of energy.”
It remains unclear if Red Robin’s wine milkshake push will be enough to up customer traffic and profits at the same time. However, the company’s added emphasis on alcohol appears to be working so far: Despite a decreased guest count in the fourth quarter, Red Robin gained market share in the casual dining segment for the seventh consecutive quarter, according to a company earnings call.
“In the American diet, we are always looking for more adventures,” says Balzer from NPD Group. “My immediate reaction to wine coolers in 1995 was the same kind of feeling as a wine milkshake … Who knows, it could really take off.”