Will the recession force restaurants to slash wine prices?

Wine, beer, and other potent potables.
Oct. 31 2008 11:59 AM

Good News About the Recession!

Maybe restaurants will finally slash their exorbitant, ridiculous wine prices.

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However, it is also the case that many restaurants price wine simply according to what they think they can get away with. The Journal article mentioned Las Vegas several times. Restaurant wine prices in Las Vegas are notoriously high, which is not surprising: The city is a magnet for spendthrifts who understand that money brought to Vegas stays in Vegas and that getting soaked is part of the experience. Last year, Food & Wine's Lettie Teague noted that Las Vegas and Miami had some of the stiffest markups of any American cities and suggested that one reason for this is that they are principally tourist destinations, which means restaurants have little incentive to use wine prices to cultivate loyalty or encourage repeat visits; chances are, they are going to see a customer only once, and they thus want to squeeze as much out of him or her as possible. New York is also known for its lofty wine prices, but the huge markups there have primarily been a function of Wall Street's profligacy: There was almost no limit to what traders and bankers were willing to fork out for wine, and many restaurants were only too happy to test their limits. It was the same story in London, where the markups became, if anything, even more egregious—and the clients hardly blanched. In an incident in 2002 that made headlines around the world, a group of bankers spent $63,000 on wine during a dinner at Petrus, a London restaurant owned by Gordon Ramsay. (Most of them were fired.)

Now that investment banks have been sucked into a black hole of their own making, restaurants in London and New York are already beginning to suffer. Two London eateries owned by another top British chef, Tom Aikens, went bust earlier this month, and these are likely to be only the first of many casualties. Restaurants always take a pounding during economic downturns, and that is certainly true now. S & A Restaurant Corp., which owned both the Bennigan's and Steak and Ale chains, went bankrupt in July, and companies like Ruth's Chris, McCormick & Schmick's, and Morton's are all struggling.

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The easy profits are over, and restaurants hoping to weather the recession ought to think about dialing back their wine prices. Kevin Zraly, a New York-area wine educator who helped pioneer the use of progressive markups when he oversaw wine service at Manhattan's Windows on the World, says that at this point, restaurants just need to fill seats and should scale back their wine markups as a way of attracting diners. "Wine is a tool to get people into restaurants, and in this economy, wine prices need to be dropped to do that," he says. "We had adjustable-rate mortgages, now we need adjustable-rate wines." He also says that restaurants that allow customers to bring their own wines but charge relatively high corkage fees should think about reducing the amount they charge for BYOB. Zraly believes $20 per bottle is a reasonable tariff.

Some restaurants have long taken an unorthodox approach to wine sales—by allowing free BYOB, for example, or by charging slender markups. Landmarc, a popular New York restaurant, prices wines at just above retail and makes up the difference on volume. Richard Betts, the wine director at the Little Nell in Aspen, Colo., instituted an across-the-board 30 percent price cut in wine prices in 2001 and says the restaurant's seven-figure annual wine sales are now double what they were then. Betts says that people who previously would order only one bottle of wine with dinner began ordering two, there were more repeat guests, and favorable publicity brought scores of new ones to the restaurant. Now that fat markups are likely to become a customer repellant, other restaurants will ideally be tempted to experiment with their wine policies. Given the grim economic outlook, slashing wine prices probably won't be enough to save many establishments, but they might as well die trying.