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Recession giving restaurants dangers, opportunities

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I wasn’t surprised to learn that by-the-glass wine prices in restaurants are “plummeting” in the Bay Area, as the recession takes an ever-deeper toll on wineries.

That’s what NBC News is reporting on its local website. Apparently, wineries that are gearing up for harvest, with its cash-hungry demands, are dumping unsold wine on restaurants, giving diners some of their best bargains in years.

Before the recession hit, the high price of wine in restaurants was always a sore point for diners. Restaurants argued that they had to charge high bottle and glass prices to compensate for breakage, etc. but diners didn’t buy that and frankly neither did I. In recent years, I’d seen a shift away from gouging. Some restaurants, like Dry Creek Kitchen in Healdsburg, let you bring your own wine for free, as long as it was from Sonoma County. Others reduced the price of corkage or dropped it completely, if you bought one bottle off the wine list.

Despite these innovations, you could sense restaurateurs tip-toeing around the issue of price. They didn’t want to outrage patrons, and yet they wanted to maximize their profits. Caught between a rock and a hard place, they’re now being squeezed from top and bottom by the worst recession since the 1940s. Our local wine bar, Franklin Square, now offers $1 wine tasting on Thursday nights. I don’t think this even covers Rick Mitchell’s costs, but it does let him stay connected with his customers, and vice versa, which is a valuable investment for when (if?) the recession  ends.

One question raised is whether casual-dining restaurants and fine-dining restaurants are feeling the same pressure. An interesting study released last month from the Cornell University School of Hotel Administration, and titled “Wine List Characteristics Associated with Greater Wine Sales,” looked at just this issue. It found that “casual-dining restaurants seem to have downward-sloping demand curves, implying that their consumers are price sensitive and less apt to buy wines as the price per bottle increases.” This suggests that casual restaurants will make more money if they offer lower-cost wines (because they’ll sell more). However, the study also found that “no statistically significant evidence of a downward sloping demand curve was observed for fine-dining restaurants, which suggests that offering more low-cost wines would not increase their wine sales.”

But the study did not deal with the effect that the recession is having on fine-dining restaurants, which by every anecdotal account are suffering more than their casual-dining cousins. So it’s very hard for me to believe that fine-dining restaurants are not having to lower prices and resort to other means, in order to keep customers coming. Evidence? Check out this link which is on Masa’s website. (Masa’s is one of San Francisco’s toniest restaurants.) Reprinted from 7X7 Magazine, it quotes the sommelier at Waterbar (another top restaurant): “People are not ordering that second bottle. We’re seeing more corkage, and people are going straight for the value-driven wines.” Alan Murray at Masa’s, Rajat Parr at Michael Mina, Matthew Fitch at Coi and other sommeliers are pitching more affordable alternative wines to traditional icons (e.g., Wolf Family 2004 Cabernet for $160 instead of Bryant Family for $700). This is glaring evidence that even the highest of high-end restaurants are having to substitute reality for dreams.

We’re all wondering what the permanent effects of the recession will be on the wine industry and all its moving parts. I’m hoping that one residual impact will be that restaurants have more user-friendly wine pricing policies. I know they’ll complain, but I think that a restaurant that has an inexpensive, interesting wine list (as well as good food) will be stronger than one that’s equal in every respect, except that its wines are expensive.

Against this backdrop, it’s not surprising that fast-food restaurants increasingly are selling wine. Americans have lost a ton of money during the last year, trillions of dollars by all accounts. The U.S. is much poorer than it used to be. Just how much poorer remains to be seen, but this is simply not the same, self-satisfied country it was at the start of 2008. I think people will be looking for bargains and spending less money for a long, long time. Restaurants are going to have to factor that into all their equations, including wine lists, and so are the wineries that sell to them.

  1. The Cornell study is fascinating. If I remember correctly, removing the dollar sign “$” from the wine list yields increased sales among other things.

    We have found that the push towards more authentic wines at a better prices is changing restaurant wine buyers habits and perceptions radically. Just 2 years ago, I can remember hearing over and over that wines from the El Dorado AVA wouldn’t sell on high end SF lists. I haven’t heard that once in 2009.

  2. I’ve always felt that restaurants were myopic when it came to wine pricing. They try to recoup the tiny margins with the food, but end up nudging patrons toward beer, tea and nursing a single glass. Putting aside the high end, white table cloth places would have more turns if they offered $5 glasses of wine and house wines under 20 bucks (that they purchase for 3 bucks). Why not more carafes a la Europe? Sure they’re like all retailers would seek to up sell, but they also want customers.

  3. Morton Leslie says:

    I have always been frugal so the economic downturn so spending habits haven’t changed much in our household. We expect to drop $120 for the two of us plus tip at a local restaurant. A third of that is usually wine. It really hurts the Scot in me, to pay double the retail price for wine, but those are the rules. While I don’t look for the tab to be less, that blantant upcharge just bothers me more.

    What we are seeing locally is that restaurants are dropping corkage to encourage more diners. But I don’t like this either. First, I don’t want to lug wine with me. Second, I have a self image problem bringing in current, readily available wines and paying corkage. (I’m cheap, but I don’t flaunt it.) Third, if I bring cellared wines they have to be decanted, they usually do a piss poor job, and it creates a lot of fuss. Fourth, I want to try something new.

    The other manuevers like buying obscure wines so we don’t know the up charge. Or downgrading the selection while maintaining the markup are equally unattractive. I want a good wine.

    I wish they would just drop the huge markup on their wine list. I’d still spend the same, probably have a cocktail, dessert and coffee. But what I see are temporary measures. They expect us to go right back to our old habits in a few months and they intend to go back to theirs.

  4. Our Sauvignon Blanc just got on the list at two of the restaurants you mentioned. I wasn’t involved in the conversations which led to their acceptance on the lists, but I wonder if this newfound focus on value-pricing played a major role.

  5. Dylan, I think you’re right.

  6. Dennis Schaefer says:

    “sommeliers are pitching more affordable alternative wines to traditional icons (e.g., Wolf Family 2004 Cabernet for $160 instead of Bryant Family for $700).”

    Hello? Reality check! What world are these folks livin’ in? Not mine.

  7. Dennis, I feel your pain.

  8. Um, I hate to question anyone from Cornell, but aren’t all demand curves for elastic goods downward-sloping by definition? (Sorry, I’m a dork.)

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