Restaurants and Wine: A Love Story

I’ve had a few questions about restaurants and the wines that they serve. As this was a study topic for a recent WSET exam, I’ve been doing a lot of research about it lately and have some things to say. That said, I don’t claim to be an expert on anything about the decisions that go into creating a restaurant. I have no interest in doing so but admire those that undertake the complexities of an almost insane amount of decision-making that is required to get a new restaurant off the ground and then to keep it afloat afterwards. I’ve been lucky to have witnessed the start of a number of small and medium sized restaurants over the years. Some of the things that I’ve seen restaurateurs do are nothing short of super-human feats of creativity, mental acuity, and sheer mental strength.

Since this is a wine blog, the most frequent questions I receive about restaurants involve the wine list and those mysterious prices that seem to be marked up to the extreme. So what’s the deal with those exorbitantly marked-up wines on the list?

Le Wine Mark-Up

Here’s a shocking fact that I discovered when I first started studying this topic: Some restaurants don’t actually make any money on their food. To me, this is the most bizarre concept but apparently even for some top Michelin-Starred establishments, this can be the case. How can a restaurant make money serving food when the food doesn’t even pay the bills?

In short – beverages – and wine is a huge part of it.

Let me start this off right away with this; If you think wine mark-ups are high, you should see how much the fountain soda pop is marked up. It makes the wine list seem like a bargain. I would say that if the general public knew how little wine is marked-up relative to other beverages, nobody would complain about wine prices ever again. To stay in business though, restaurants need to be able to make money and if the food isn’t going to doing it, wine and beverages are going to be the most important source of capital.

There are many ways that restaurants can figure out how to price their wines. It’s not rocket science but it can be dangerous for a restaurateur to not pay close attention to it. Putting prices out of what their market can sustain is just bad business and no set of rules will work equally for different markets. The same wine at a high-end restaurant in Penticton won’t be able to go for the same price it could get in Kitsilano. While some of the suggestions for mark-ups border on greed while others are far more practical. If they choose to have even a modest wine list, they need to be able to do it reasonably well and there are extra expenses because of that:

  • Storage – Restaurants need to be sure they have enough wine on hand and that means storing the wine. Food items can be stored in a fridge, freezer, or pantry but wines need something more. Wines require a safe place that is free from vibration, temperature changes, and bright light. It also requires added security to prevent theft. Installing a proper cellar temperature- and humidity-controlled cellar isn’t cheap. Some wines will move more quickly while others will potentially be stored for much longer, sometimes years. All of these needs require investment and that requires money.
  • Staff training – You are now reading a wine blog and so therefore, you are probably knowledgeable and interested about wine to some degree. A lot of service staff are not as knowledgeable or interested, and may even be intimidated by it unless they’ve had the opportunity to work at a restaurant that has encouraged them to learn about wine. Staff training costs money for employee time, opening wines, and possibly food costs if pairings are part of the training. The really lucky staff members get to go on wine tours to wineries. I’ve given tours to many restaurant staff over the years and aside from learning about wine, the team building benefits are also huge.
  • Market demand – If people will pay for it, then why sell it for less? Restaurant are fortunate that they have an extra degree of control over their wine prices that wines stores don’t have.
  • Stemware – This is where a lot of restaurants (and wineries) try to save money. Sometimes they can get away with it if they have a reasonable glass that shows the wines well enough. Buying the cheapest ones at a bulk big-box retailer will not only make the table setting look cheap, but in a worst-case scenario also make the wines taste less than stellar. Quality stemware makes a difference, costs a little extra, and breaks as much as the cheap stuff.
  • Faulty bottles – Faulted wines are annoying for consumers but are expensive for restaurants who have to return the bottle to their sales agent or, more likely, simply write off the bottle and take the loss. Conservative failure rate estimates of wine bottles sealed with a natural cork run at 6% while new studies show 1-2% (for TCA-related faults), screw caps, Nomacorc’s engineered closures, and systems like FreshTAP can be saviours for restaurants who want to know that every ounce of wine will be saleable.

Not all restaurants can afford everything that it takes to sell wine properly and some of them may not even consider wine to be all that important to their bottom line. It depends on the market in their particular location. For some places though, the wine list profits effectively subsidizes the food and sometimes even pays for the staff salaries. Regardless of business plan, the mark-up has to match the restaurant. Toronto Master Sommelier John Szabo, quoted in a great article in the Globe and Mail article, said, “When I do get upset is when I walk into a casual place, the wine is served in a tumbler, it’s the wrong temperature, the server knows nothing about it and it’s still a 300-per-cent markup,” What is that mark-up paying for exactly?

Not staff education, that’s for sure. To me, that is the single biggest variable in making or breaking a profitable wine list and I think it’s also the easiest to fix. No service or sales staff member selling anything anywhere will be able to do it effectively without being confident and knowledgeable about the product that they are selling. I’ve given tours to restaurant staff where most of the staff aren’t familiar with wine tasting and aren’t confident in their own ability to taste. Granted, most of them are younger (early 20’s) and haven’t been truly exposed to wine culture yet. When they learn a little of the basics and experience wine in a fun and casual way, I can see the light bulb go on in their minds. I know that from then on they are going to approach their tables with a new confidence that will make selling wine that much easier. Even a small humble wine list can be made profitable with an educated staff getting behind it.

Le Wine List

The wine list itself is another point of contention with some people. Ok, it’s mostly just me but I think it’s more than just a big deal. Wine lists with wines supplied by only one supplier, such as a corporate winery or importer, are particular irksome, to a point where I simply put the list down on the table and order orange juice. It’s like going to family restaurant and being offered the same menu as a fast-food chain. I call those prefab lists “fast-wine”. I don’t want fast-wine because to me they are boring and the wine quality is never as good. I want wine that suits the uniqueness of the restaurant in which I choose to sit down. I understand why restaurants do this but as a consumer, it puts limits on the choices and very likely won’t match the food properly.

The “fast-wine” lists comes from a common technique that sales agents use to sell their products to the restaurants. I learned about it while taking the Wine Sales course at Okanagan College years ago and winery sales reps I’ve talked to since then have filled in more details since then. The sales agent will offer to build a whole wine list for the restaurant so that restaurateur doesn’t have to. It’s offered as a free ‘value-added’ service that takes that whole process off of the minds of the restaurateur who is probably only too willing to have someone help out with a complex task like that. The sales agent then creates a list (to the best of their abilities) that is suited to the menu (to the best of their knowledge of it) and, voilà – a “fast-wine” list.

Of course when selecting the wines, they will select most if not all from their company’s portfolio of wines that they are selling. The sales agent can offer further volume discounts for being the house wine (the least expensive wines on the list that available by the glass, half-litre, bottle, or litre) which is where the real sales volume is. The sales agent may get added commission for selling a lot of product to one place so the incentive is there to sell as much as possible efficiently. The restaurateur gets a full wine list and a single contact to make all of their wine purchases making re-ordering easy. Win-win right?

I would say that the customer is the one that loses. From my point of view, it’s the easy way out for a restaurant to sublet their wine list to a sales agent. Assuming that the sales agent is good at his or her job, they are probably going to have a lot of restaurants in their portfolio. That means that a Greek restaurant in Salmon Arm is likely to have a similar, if not exactly the same, wine list as the Greek restaurant in Vernon. Worse still is that the Greek restaurant could have the same wines as the Italian restaurant and the American diner in the same town and even on the same street. This wine list homogeneity is particularly visible at big restaurant chains that have multiple locations throughout the province. Obviously the food at chains or franchises is going to be the same no matter where it is, but they are far more likely to have one single wine supplier and have better volume discounts on their wine purchases because of it. Larger wineries that are attached to corporations are going to have the economies of scale and will be able to offer even bigger bulk discounts, incentives, and services than smaller independent wineries.

Occasionally I have found some medium-sized estate wineries as house wines at restaurant lists but it’s fairly rare. Those are the restaurants with the best wine lists and I will always try to buy wine at those places. Sometimes wine lists that seem to be diverse are actually not. Seeing Inniskillin, Woodbridge, Monkey Bay, Hogue Cellars, Ruffino, and Mouton-Cadet on the same list seems like a pretty good selection and there is a lot of choice for sure. Except all of these wineries are owned or distributed by one company and it’s very unlikely that there will also be any independent estate wineries on the list.

That’s really where it’s at. A restaurant that makes their own wine list for itself (nobody knows their food better) has put a lot of effort into it and it will always show. Very likely, they will have also put that much effort into other areas of their business – the head chef and kitchen staff, kitchen appliances, staff training, quality ingredients, tableware, stemware, décor, etc – and that will all be far more visible than the wine list. It may not be the easier way but the result will very likely be a better overall dining experience. When I see an estate winery as the house wine on a list, I will always order a wine at that restaurant because I know that if they made the effort with wine, the food is probably worth it as well. If they haven’t made the effort, then all I can say is, “Yes, I will have fries with that.”

Cheers from wine country!

~Luke