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Restaurants Confront Recession

Americans are drinking wine at home and cutting back on fine dining; Las Vegas is in the heart of the storm

Mitch Frank
Posted: April 30, 2009

William Sherer is used to answering questions on wines, but lately he's been getting very different queries. As wine director at Aureole, Charlie Palmer's restaurant at Mandalay Bay Resort & Casino in Las Vegas, Sherer serves an upscale clientele who like to spend big. But times have changed at the Wine Spectator Grand Award winner. "I have guests who have said to me, 'I usually drink Opus One or Quintessa or Joseph Phelps Insignia, but I can't afford that right now. I need a wine that's under $100, but I don't know what they are. Could you tell me?'"

Nowhere has the wine and culinary boom been more pronounced in the past decade than in Las Vegas. A town once known more for its buffets than fine dining lured most of the country's big name chefs to open outposts in the new megaresorts that went up along the Strip in recent years. But the boom times are over, and no local restaurant scene may be hit harder than Vegas.

Of course, most other cities aren't doing well, either. At a time when unemployment is over 8 percent, people see restaurants as a luxury. "People are just not dining out," said Paul Grieco, wine director at three New York spots—Hearth, Insieme and Terroir wine bar. "They're going to stop by the liquor store on the way home and buy a $10 bottle to eat with takeout."

Fine-dining revenues could fall by 12 percent to 15 percent in 2009, estimates Technomic, a dining-industry research firm. While that doesn't sound huge, it's the difference between success and failure for most restaurants. According to Grieco, revenue is down by about 20 percent at Hearth and 40 percent at Insieme, which is doubly hurt because it's located in a hotel in Midtown's theater district, at a time when people are not traveling.

Wine tends to be a big profit source for restaurants, but it's also what diners are cutting back on. Customers are still drinking, but they're ordering cheaper bottles or wines by the glass. Or, increasingly, they're bringing their own wine. Many restaurants in New York have cut their corkage fees or waived them altogether on some days. Grand Award winner Alto started the trend, dropping its $60 corkage months ago. Union Square Cafe recently announced it is trimming its corkage from $25 to $10.

Other places are highlighting their lower priced offerings. Cru wine director Robert Bohr has a special section titled "Hundreds under $100." Restaurants are cutting staff too. "The streets are filled with chefs and sommeliers looking for work," said Grieco.

Other cities dependent on the real-estate or financial industries are in similarly bad shape. But the epicenter is in the Nevada desert. Vegas has been hit by both the collapse of the housing market and the drying up of tourism. Gambling revenues have declined by almost 30 percent since last year. Dozens of conventions, the industry's bread and butter, have been canceled, as corporations try to avoid the appearance of free spending during bad times.

In the center of town, the Echelon resort stands half-built, its funding gone. The construction of MGM Mirage's 76-acre CityCenter, a massive casino and convention center, is proceeding, but MGM Mirage is facing possible bankruptcy and its Dubai partner wants out. Steve Wynn's latest project, Encore, opened in late December, but suites originally priced at $350 a night are going for $169.

The hard times come after years of boom. "Last year was great until sales started slipping in June," said Kevin Vogt, wine director at Delmonico's Steakhouse, a Grand Award winner run by Emeril Lagasse. "Had we not enjoyed such good times, these wouldn't look as bad." Vogt said. January and February were the worst months so far, with a slight improvement in March. He's added a page of bottles under $60 to his wine list called "Wines for the Times."

With wineries and distributors slashing prices, many sommeliers would love to stock more wine but managers are ordering them to clear out existing inventory first. If they can add wines, it's usually at the lower end of the spectrum. What they are adding is an increased focus on hospitality. That's always been a priority, but snobby service is doubly damned nowadays. Managers are asking sommeliers to take on more front-of-the-house duties; wine can't be their only focus.

Menus are changing as well. Aureole is eliminating its prix fixe menu and going to a la carte on May 1. Many restaurants are focusing more on small plates, which give customers a sense that they're in greater control of the bill, but which also cost restaurants less money to make, often at a time when suppliers are raising food prices.

While most sommeliers believe good times will return within the next 12 months, several wonder if they'll ever be as strong. "Some things will never be the same," said Sherer. "The image of fine dining has taken a hit and I don't know if it will come back. A shift to casual dining seems already under way."

"I don't think things will be the same," said Grieco. "New York is overstocked with restaurants. I'm amazed that more haven't closed already."

But others disagree. "I think it has to come back," said Richard Betts, former wine director at the Little Nell in Aspen, who's now focusing on his wine label Betts & Scholl. "Americans are drinking more and traveling more. That's a lifestyle; that doesn't go away."

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