Sky-High Wine Prices
As the boom of the 1990s pushed bottle costs to record heights, California wines challenged France for world price dominance, with Italy close behind.
California Takes on the World
During the roaring 1990s, the Golden State challenged Bordeaux as the global leader in wine prices, but does it have staying power?
California Under Pressure
With the boom times over, high-priced wines are stacking up.
What's Behind the Bottle Price?
When it comes to figuring a wine's final price, production costs count, but image is the wild card.
When it comes to wine prices, consumers are angry, and restaurants are easy targets. Wine list prices, elevated by hefty markups and in some cases outright greed, are among the highest bottle prices many face when it comes to drinking the wines they like.
Restaurant-goers are not shy about voicing their displeasure. In Wine Spectator's online forums, we recently sponsored a discussion about restaurant wine pricing. The consensus? Consumers are sick of getting gouged when they dine out.
They don't reflexively blame the restaurants -- they target the producers as well. "Most restaurants have a standard markup based on what they pay for the wine," commented one forum poster. "Lower the price of the wine from the wine producer, and restaurant prices will follow suit."
Nevertheless, wine drinkers are insisting on relief from soaring prices. "The bottom line is [that] we have a choice," maintained another forum speaker. "If you don't like restaurant wine prices, don't patronize the establishment."
Plenty of forum posters revealed that they do the math when it comes to restaurant wine list pricing and refuse to even consider wines above a certain price-point (around $50, typically) or markup (say, twice retail).
Wine professionals employed by restaurants are acutely aware of diners' preoccupation with the high price of wine. But despite their obvious interest in catering to their customers' wants and needs, they haven't given up on their respective bottom lines. In today's ferociously competitive and not altogether optimistic economic climate, restaurateurs are paying more attention than ever to costs and revenues.
A significant investment in wine is a risk for a restaurant. You have to store it. You have to replenish thinned verticals, often at tremendous expense. You have to maintain your position on mailing lists for next-to-impossible-to-secure cult wines. At a standard markup of two times wholesale, some restaurants can't make their nut; they argue that they need to go higher.
"Our markup is 2.5 [times] above wholesale on wine between $11 and $20," says Jim Beley, general manager of the Immigrant Room, an Award of Excellence winner, at The American Club, part of the Destination Kohler resort in Kohler, Wisc. "It goes down from there, to a doubled markup on wines between $21 and $35, and less above that level. By that time we've covered our operational costs." He added that, because the restaurant is located in upstate Wisconsin, as opposed to a big city, it's important to maintain good relations with local diners, who likely would blanch at higher wine prices.
But consumers suspect that other factors are involved, and some restaurateurs admit the case. Prestige, for example. At Restaurant Alain Ducasse, a Grand Award winner, in New York, prices reflect -- and represent -- the quality and exclusivity of the overall dining experience.
"Yes, our prices are high," says head sommelier Pieter Verheyde. "But our restaurant is an event. To make what we do possible, we need to price our wines accordingly."
In some cases, Ducasse has wines priced at two to three times what other fine-dining establishments in New York are charging -- the Château Latour 1990, for example, is $1,600 at Ducasse. But the restaurant's position is that dining at another place, where the Latour may be less expensive, simply isn't the same. "We provide space and time," emphasized Verheyde.
But Ducasse may be bucking a trend. There's a strong belief among some wine professionals that the stratospheric price climb will have to be reversed if restaurants are to preserve the loyalty of their clientele.
Richard Betts, sommelier of the Grand Award-winning Montagna restaurant at The Little Nell in Aspen, Colo., believes that the more affordable wines a list has, the better it is. "An egregious markup, something like four-and-a-half times wholesale, doesn't feel very good for customers."
Betts and The Little Nell's management took matters into their own hands in November 2002, when they initiated what Betts now refers to as the "grand experiment." They cut prices by one-third, across the board, on their 1,000-bottle list. Management was interested in rewarding their loyal clientele, but also, as Betts put it, "we wanted to get people drinking more."
A brash decision? Maybe. But it paid dividends. "We sold more wine than ever," Betts notes. "It was a combination of our selling more bottles, and also of selling more expensive wines. A table ordering two bottles instead of just one became fairly common."
Betts acknowledged that Montagna's position affords it certain advantages. "Being a Grand Award winner lets us work out relationships with wineries and offer some really friendly pricing to our customers."
He adds: "There are two kinds of ambition at work here -- that of accountants, and that of the people who work the floor. Our ambition is to give a better and better percentage, not just to make the bottom line by charging as much as we can."
Counter to what many consumers believe, most sommeliers are reluctant to price wines higher than the standard markup unless circumstances demand it.
"I don't believe in anything more than a times-three markup, unless it's absolutely necessary for reasons of scarcity," says Danielle Nally, former wine director at Grand Award winner Lespinasse. "I'll only go 3.5 times what I got it at if I'll never get it again."
Nally explains that even some old-school stalwarts, such as Lespinasse -- whose 17,500-bottle cellar is housed in New York's historic St. Regis Hotel -- have made concerted efforts to bring wine prices down.
"Four years ago," Nally notes, "we tried to redefine Lespinasse's program by lowering our prices at every level. The changes I've made in the past two years are designed to make the list appeal to a greater breadth of palate."
Big-time restaurants with megacellars can use their accumulated economic power to pass savings along to diners. Other restaurants may be constrained by corporate structures and expectations, or even by consumer psychology. Greed is also a factor; there are plenty of restaurants that base their pricing not on an objective standard, but on what their typical client will pay.
The standard markup is two to two-and-a-half times wholesale at Disney's Napa Rose, an Award of Excellence winner in Anaheim, Calif. "The mom-and-pops have more freedom to experiment than large organizations or hotels," says Michael Jordan, the restaurant's manager. "Managers have to answer to finance people. That's why hotels have slightly higher prices on average."
Where restaurants with more expensive lists are concerned, an unusual wrinkle sometimes comes into play. "People don't want to buy the least expensive bottle on the list," Jordan says. "It just sits there. But if you raise it to the $28 to $30 level, that's where it begins to move."
Conversely, from the standpoint of restaurant economics, it's counterproductive to offer highly coveted wines at prices that are too tempting.
"We'd sell out of some bottles in a month," says The American Club's Beley. He cites Grgich Hills Chardonnay -- which usually retails for $33 and costs $72 on Beley's list -- as a prime example. "We don't get the allocation that some other states do."
However, wines that restaurants are able to obtain in volume, when the price is right, can sometimes turn into goldmines of consumer value. Beley recalls the investment The American Club made in 1985 Bordeaux futures, which didn't even begin to appear on their list until the early '90s.
"They're a bargain," he notes. "We have 1985 Haut-Brion listed for $290. It's usually priced at between $400 and $500 at other restaurants."
That restaurants with serious wine programs are keeping down prices is welcome news. Bargain hunters are not, however, going to find much to get excited about when it comes to wines by the glass, a traditional refuge for diners suffering wine list sticker- shock. In most cases, the relief they think they're getting is bogus.
Because, for many restaurants, wines by the glass offer too tempting an opportunity to increase their beverage margins. A $10 bottle of wine, marked up to $25 on the list, can be parsed out in five $7 pours for an extra $10 on the bottom line. If a restaurateur goes through five cases a week, that's an additional $600.
Some sommeliers make no bones about what they're after with by-the-glass pricing. "It helps me out with the bottom line," admits Napa Rose's Jordan, who constantly updates his own 60-selection by-the-glass list.
A survey of some by-the-glass offerings from restaurants included in Wine Spectator's annual Restaurant Award program indicated that the $5 glass of wine, at least at wine-serious restaurants, is largely a thing of the past. Six dollars now seems to be the agreed-upon cut-off, with $7 to $8 becoming more common.
Understandably, of course, wine-service professionals don't want to completely shoulder the blame for high wine prices in restaurants. To them, the overriding goal is fair pricing that still allows them to make a living. They're just passing along costs that were generated earlier in the supply chain.
"Simply put, we're paying too much for wine," argues Jordan.
Restaurateurs say they are trapped by the economic structure of the U.S. wine industry. Restaurants typically buy their wines from wholesalers, just as retail stores do. But overhead costs for a restaurant run much higher than for the corner liquor store, so markups are correspondingly greater. Burdens ranging from escalating food costs to higher payroll taxes have helped push owners and managers to increase their standard wine-markups, from a norm of two to 2.5 times wholesale a decade ago, to the current standard of 2.5 to three times. Only at this markup, they maintain, can a 30 percent to 40 percent operating profit be sustained.
Many restaurants argue that this price hike is motivated by survival. They need to offer more and more perks and services, as the American dining community accustoms itself to fine dining. Nondescript bread in the basket won't do. There must be a cheese course. Stemware has to be name-brand. Ingredients must be first-rate. This all costs money, and the charges have to be passed on to someone.
But in the end, restaurants know that they have to deal with consumer resistance to high prices, because margins are meaningless if there are no sales.
"It's up to us to be creative," Jordan says. "It all boils down to negotiating with vintners to get the best price. Once we do that, we can pass our savings on to our customers. Then everybody will be happy."
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