If you want to set me off on a rant, just ask me about wine in restaurants. Not all restaurants, of course, but many of them. All I want is a wine list that is appropriate to the food being served — intelligent selections matched to the cuisine with options at appropriate price points. It doesn’t seem like too much to ask for. It is surprising how often I am frustrated.
I had dinner at a famous Pacific Northwest seafood restaurant earlier this week and I wanted to order a nice wine by the glass (the university was paying so due economy was observed). The choices were affordable enough, but the selection was awful. The only Sauvignon Blanc on offer, for example, was an industrial California wine that was served at room temperature. It added nothing to the meal except alcohol and that’s not what I was looking for. In terms of cost per glass to the restaurant it was probably a few pennies cheaper than a better California or Washington wine or something interesting from Chile, South Africa or New Zealand.
Those wine cost pennies must be pretty important to the restaurant, I guess, for them to make such a severe sacrifice in quality. I would have been happy to pay more for a better wine but was not given the option.
When I dined at a famous Portland restaurant earlier this year the problem was just the opposite. The wine list was interesting enough and included a number of unusual Oregon wines, but it was priced in the stratosphere. An ordinary wine that you could buy in a grocery store was priced at more than twice the cost of a typical entree. Interesting wines bore disproportionate price tags. Another missed opportunity for me to enjoy an interesting wine with my meal and for the restaurant to engage me more completely in the wining/dining experience. I won’t be back.
Who’s Squeezing Whom?
I feel like I am being squeezed as a restaurant wine consumer, but I am starting to realize that the Big Squeeze isn’t on me, it is on the restaurants themselves. A recent article in the Wall Street Journal explains the situation pretty well. As usual it is all about demand and supply.
We have moved into what looks a lot like a recession and this is having a predictable impact on the demand for restaurant meals. Many restaurants in my region are going out of their way to advertise “earlybird” dinner specials in an attempt to entice discretionary customers with discount menus.
At the same time, and this is what the WSJ article emphasizes, the cost of restaurant food is rising as a direct result of rising food costs in global markets. An article in the Economist explained the problem in December 2007. Rising demand as consumers in less developed countries spend their rising incomes on more and better food. Falling market supply as rich countries divert grain from the food chain to the gas pump. Something has to give and it is price. The situation has only gotten worse since the Economist article was published. Restaurants are squeezed pretty badly by falling demand and rising costs. Food costs seem to have replaced labor costs as the critical economic determinant of the bottom line for at least some eateries. The WSJ makes interesting reading when it describes how chefs are reconfiguring even high end recipes and menus in order to shave a bit off the cost of raw materials such as meat, fish and poultry.
False Economy?
A warning: reading the article could affect how much you enjoy your next restaurant meal. I can’t look at my plate now without wondering to what extent the chef’s choices were driven by cost versus flavor. Why were there boiled red potatoes (instead of risotto) on that $30 plate of grilled halibut? Are potatoes cheaper? And are boiled reds more expensive than the smashed potatoes on the $20 prawn special? Or were those smashed potatoes recycled from last night’s leftover boiled spuds?
Cost has always been a factor, of course, but now it seems that every penny counts. Your dinner plate is a waiting economic detective story.
So I guess that I shouldn’t be surprised that restaurants are passing their cost squeeze onto me via the wine list by shaving a few pennies off the cost of inexpensive wines when they can (by moving to down-market labels) and raising the price of premium wine when they dare. If they think that the demand for good wine in restaurants is inelastic, then higher prices are the way to go. It’s a tricky game, however, because the wrong strategy can produce lower sales revenues and fewer wine-enthusiast diners.
Having read this article, I am not sure that your experiences are all about economics.
Sure things are tight in the US at present but this situation is relatively recent and the sorts of problems you detail have been going on in the US for years.
In places like France, Italy and even Australia, even when we have economic downturns most of our better wine lists still don't resemble what you describe.
IMO, its not so much about economics as wine experience and wine sophistication. Wine drinking is relatively new to the US and wine consumption per head is low by comparison to the other countries I listed.
In all honesty, the US has a very short wine history (for the general population) and not a huge amount of experience. In other countries that have been drinking wine with meals for far longer, there is more experience and knowledge amongst restaurant owners in selection of wine.
There are also a higher percentage of consumers are also wine savvy and demand a good selection of wine with their meals.
Just my 1.87 cents worth (at today's exchange rate between the US Peso and the Oz rouble)
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TORB makes a very important point often loss on critics of American wine patterns and behavior...fine wine appreciation is a very recent phenomenon ... its beginning can be traced back to 1985 and the Chardonnay crazed that tailed on to the white Zin craze started a couple years earlier ... but it further argues for research to help restaurants better allocate their wine resources ...certainly it is not their intent or desire to frustrate consumers.
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Allen,
I think you are very right. Restaurants operate in an extremely competitive market. More good restaurants than bad wineries fail every year, that's for sure.
So we should be asking: why do restaurants compete so well on other margins and so poorly on wine? I hypothesize that state regulations are crucial barriers to competition in the US. Many states regulate everything about the wine component of a restaurant meal -- from whom the restauranteur can buy, how much he can hold in storage, who can serve, whether customers can BYOB, etc.
Mike complains about the restauranteur's choice of potatoes versus risotto. ("You say poTAYto, I say reeSOHto,...") Surely that is a matter of taste on which reasonable people may differ. But no state tells restaurants which one must be served with grilled halibut.
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Perfect opportunity for economic research on wine consumption behavior. locate two restaurant chains... one is high end, white table cloth; the other is mass market, checker cloth. Each chains matches two outlets in terms of socioeconomic customer base, size, etc. and researches what happens in high end when they offer lower mark-up and broader lower priced quality choices. Mass market researches what happens when they offer lower mark-up high- price choices(I enjoy fine wine with simple fare in uncomplicated bistro environments... usually they won't list higher priced wines) The results could lead to a menu matrix for restaurants that measure profitability optimization on for both consumer and retailers, i.e. consumer axis would look to optimize experience ( price+ pleasure). Retailer axis would be to optimize profits (increased sittings+ increased wine revenue+increased repeat consumers).
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This sounds like a great research project. It will be hard to get the data though. Instead, you could measure consumer satisfaction by running Zagat points (or similar indicators) on wine price mark-ups, wine choice and an array of other criteria.
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Karl,
Opportunities for empirical research abound. Nevertheless, as I indicate in my post, it would be useful to first focus on government failure before trying to ascertain whether there is market failure. At least in the US, the wine market has been controlled by state government regulation for 80 years.
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The problem described here is not new. It has been around for years when the economy was booming. Moreover, the anecdotal explanation seems severely strained. Even in a period of rising costs, why would restaurant owners choose not to compete on quality and value?
Before implicitly attributing your dissatisfaction to a market failure, let's first do some research on government failures -- in particular, state regulations that either inhibit restaurant owners from responding to consumer demand or inhibit competition among restaurants.
Here in Virginia, for example, it is illegal to BYOB and pay the restaurant a corkage fee. Also, restaurants are required to purchase wines from a handful of distributors. Limiting sources clearly benefits distributors financially, restricts quality, and increases prices. Forbidding BYOB protects invites restaurant owners to stock plonk and protects them from price competition.
I hypothesize that selection and quality are better and prices are lower in jurisdictions that do not restrict markets.
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As a wine professional who has worked restaurant floors for over 20 years, I find that that most guests who want to BYOB simply:
1. Have not inquired about the selections on the list, and assume that the restaurant list is undrinkable or over-priced.
2. Bring in bottles already on the list, or supermarket bottles, in order to save money.
3. Would bring in their own steaks for the kitchen to grill to save money if this was possible...
I say this with a soft spot in my heart for the couple that wishes to bring in an anniversary bottle, for the polite customer who calls in advance, and buys another bottle off of the list, or the regular customer who only does it once in a blue moon.
BYOB is a double-edged sword of a policy for restaurants to allow. Modest mark-ups help the restaurant cover the cost of linens, decor, et al., and it's important to remember that diners go out for a dining experience, not just cost-plus food and wine.
After all, the diner will happily pay $16-20 for a chicken dish that might have a $4-5 food cost (a 400% mark-up.
They insist, however, on bringing in a $10 bottle of wine when there are far superior wines on a list that would come in under cost plus corkage.
Rarely, does a restaurant not have ONE fairly-priced, drinkable bottle on its list, even if by accident...
Alas, somewhere in between Art & Commerce lay the answer, methinks...
K
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It might help to clarify my original point. The issue was not whether restaurants should be compelled to accept BYOB customers; in my opinion, they should not. The issue was whether state prohibitions on the practice reduce the quality and increase the price of the offerings available. Where no state prohibition exists, restaurants are free to establish their own policies. Some will decide to accept BYOB customers, some will not, and the market will sort things out. I hypothesize that markups are lower and quality is better in states where BYOB is permitted.
I am baffled why any diner would bring a $10 wine and pay $20 or more for corkage. I admit to the possibility of irrationality, but I am skeptical that it is endemic. Personally, I use restaurant outings to try wines I do not have in my cellar, not to save money. If I wanted to save money, I'd follow Mark's advice and stay home.
At a restaurant with an exceptional wine list, I frequently choose the wine and delegate to the chef the authority to select my meal. Surprise me, I say. And in every instance the chef has been both shocked and flattered.
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Richard ...your comments are right on in those states that still see control as the main goal of their liquor boards... but then bigger wine markets, particularly those with major wine industries, have mostly written the kinds of examples you illustrated out of the regs. On the West Coast, for example, the states have very little control over restaurants relative to from whom they can purchase, pricing, serving portions, by the glass etc... and you can leave with you partially consumed bottle (not sure about Oregon on that). So in these markets it's not the government that is determining the selection or pricing problem ...this is true for many other states. Still we in the industry have proposed for years that states adopt a unified set of regulations as it certainly causes many wineries to not retail in many states and requires all of us to treat each state like a separate country with different forms, laws, fees, market access, unlimited list really. Don't know how you get all those power centers to agree... holders of power seldom relinquish voluntarily and they have lots of support from the anti alch groups plus distributors or retailers that currently enjoy exclusivity in one form or another. Ideas would be greatly appreciated by the wine industry.
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Empirical research on the dimensions and attributes of the problem should come first. That's the best way to learn which policy changes have the most "bang for the buck." Oftentimes, the answers will be counterintuitive.
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Couldn't there be an element of cultural diversity in the pricing of wines in restaurants? I just spent some days in Italy, went to some good and very good restaurants, and for me as a German mark-ups on retail prices were unbelievably low. It's similar with water. In Germany they charge 5 to 8 Euros or even more for litre of mineral water. In Italy you get it for 2 Euros even in Michelin-starred restaurants. Very strange and definitely derserving an economic explanation.
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A question then comes to mind for both Karl and Michael, our Germans: Is the German markup on Riesling the same as the German markup on, say, Brunello? Also, is the Italian markup on Brunello the same as the Italian markup on Riesling? If the markups differ significantly within country, then it would offer support for Karl's hypothesis.
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You are soooo right. All of you. As a wine lover, definitely not wealthy (except by the standards of 95% of the world), I, too, get frustrated going to restaurants. I don't blame the owner, the chef, or the wine producer. I blame myself. For well under $100, hell, under $50, I can make a fabulous dinner for my wife and I, and that will include a most excellent bottle of wine, purchased retail. Don't cook? Then get the best cheap prepared food available, like a rotisserie chicken, or some really good bread and cheese, or cooked shrimp. Even in middle America, you can stir up something tolerable. The restaurants are worse there, just like the grocery and wine store selection, so you can still beat them at home. Once you've finished your bargain orgy, the bedroom is steps away...I mean, you don't have to drive home, risking incarceration, humiliation, and economic devastation. Yeah, this would put a lot of restaurants out of business. Look forward to seeing that snotty French chef who last year charged you $300 for dinner for two up on your roof, mopping hot tar, learning what $300 is really worth.
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There are definitely some good points in this piece. As a chef instructor in Le Cordon Bleu in Atlanta, two of the courses I teach are Cost Control and Wines and Beverages. Cost has always been a factor in restaurants because the profit margin in virtually all but chain restaurants is around 5%. Chefs price menu items generally by a certain cost percentage, around 25%-30%.
For wines, the cost % is generally lower unless the wholesale price of the bottle is really high. With inexpensive technologies available for preserving open bottles of wine, there really is no reason to have such a limited selection of Sauvignon Blancs as listed above.
One thing to remember: most restaurants fail due to poor management of one sort or another; in the US the failure rate is over 90% in the first five years. Although it would not make your food taste better, try to think that if someone who really knew what they were doing were managing the wine list, your choices would be better and your satisfaction higher!
You might want to check back once a year to see if these guys are still there.
Thanks.
Harry Haff
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One small irony: Philly, located in a state with extremely heavy regulation of alcohol, has developed a really thriving BYOB scene. Apparently, the main reason for this is exceptionally high cost the state charges for the licenses needed to sell wine. It's just not viable, even with the traditional markups.
Whatever the cause, a couple of observations. 1) While BYOB certainly doesn't reach the pinnacle of the cuisine pyramid here, it goes higher than i've seen anywhere else. The handful of BYOBs I've been to have included some that are pretty serious. 2) Although I'm new here, I think I see the effect in menu prices. 3) Some of restaurants I've been to have been around for a while, so apparently it's a viable model.
The system that's developed in US restaurants whereby wine cross-subsidizes food is truly odd. It would be interesting to know how it developed, as it would be to hear an economist's take on why it persists.
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