Recession giving restaurants dangers, opportunities
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.