‘Upscale’ or gastronomic restaurants have seen many changes over the past 20 years as we have experienced the influence of social media, the globalization of cuisines, and the role of wine in the cellars and menus of restaurants. Several experts came together at Ecole hôtelière de Lausanne recently to discuss the latter issue in a roundtable session.
Restaurant wine list management: four major trends
In our view, there are four major trends that call into question the traditional way of managing a restaurant’s cellar and wine list:
The wine industry is becoming more and more complex and dynamic.
While in the past, Bordeaux held the lion's share, it is now just one of many wine regions both in historically wine-producing countries and in the new world.
Thus, Burgundy, but also Tuscany, Piedmont, Priorat, California, Mendoza, and even the Valais (and more generally Switzerland), now attract the interest of wine experts, amateurs and enthusiasts, collectors and increasingly also investors.
Consumers, in general, are becoming more demanding and better informed.
As Bordeaux University professor and wine economist Jean-Marie Cardebat stated during the roundtable session, they know where to get information and this in real time thanks to the many smartphone applications.
They are also becoming more and more versatile in their preferences, resulting in sometimes abrupt changes in the demand and price of fine wines.
Fine wines, especially the most famous ones, have appreciated at a rate well above inflation since 2000.
Thus, the first growth wines from Bordeaux have gone from prices of between 80 and 200 CHF a bottle 15 years ago to a range of 400 to more than 1,000 CHF today.
This trend has also resulted in price increases in wines that were once the preserve of amateurs and connoisseurs.
In 2000, the Grange des Pères red (Languedoc-Roussillon), the cuvee of the Bourg de Clos Rougeard (Loire), or Chardonnay of Gantenbein (Grisons) all cost less than 50 CHF per bottle.
Since then, their prices have risen by multiples of three to five.
Financial pressure on restaurants
The financial pressure on restaurants to improve their bottom line has greatly increased even though, paradoxically, this objective has become notoriously more difficult to achieve than in the past due to competition getting stronger.
As one model disappears …
If we add stricter regulations on alcohol consumption and blood alcohol levels to this complex situation, it is clear that the business model that prevailed in the most prestigious restaurants of western Europe these last decades is dead.
It is no longer possible (with rare exceptions) to maintain a large wine cellar with great wines and sell them with a margin of four, five or even six times the purchase price.
In this context, it is therefore not surprising to find that more and more restaurants are working without a dedicated sommelier, with a short wine list in close collaboration with wine merchants, and a steady stream of varying references - often as part of ‘wine of the month’ offerings. As wine is a key element of the customer's experience in an upmarket restaurant, it is obvious that such solutions fail to deal with the issues.
... A new model appears.
Another solution is emerging, however. It is still in its infancy and has its share of practical difficulties. This is similar to the ‘asset-light’ approach which has driven the hotel sector since 1990. In the hotel industry, this approach has resulted in the disinvestment of historic hotel groups from their properties, which are now managed by independent entities specializing in hotel real estate, with a new-found focus on the management of hotels and its related services.
In the world of restaurants, we are seeing the emergence of services which allow restaurants to operate with reduced cellars, while still offering wine lists likely to appeal to a range of consumer profiles.
During the roundtable session, Vino e Finanza wine consultant Christian Roger outlined the development of sales depots, often managed by winemakers, which offer restaurateurs access to a vast stock of wines, or the role of investment funds that “can bring wines to their perfect maturity”, thus allowing restaurant owners to avoid tying up considerable amounts of money, while letting them buy vintage premier cru or first growth wines at market prices.
The benefits of these innovative asset-light approaches are obvious.
First, less capital is tied up in the cellar.
In addition to reducing financial risks, EHL senior lecturerRené Rogerobserved that it allows restaurateurs to operate with lower margins and potentially be able to sell more bottles.
“For restaurateurs, the wine list is the last of their worries,” he told the session. “It’s very easy to select the wine and it’s very easy to use a markup. Take any wine list, you’ll notice that most of the sommeliers are using a markup of three.” This margin can be broken down into three components: the initial cost of purchasing a bottle; overheads such as storage, insurance, service, etc.; and net profit margin. “This is wrong. We should pay attention to how much the client expects to pay in a restaurant,” he added.
In addition, these approaches allow restaurants to maintain a wide selection of wines so that wine lists can vary according to consumer preferences. Professor Cardebat also notes that these approaches can coexist with the traditional approach, as they can narrow the gap between more established restaurants, which have witnessed the golden years, and newcomers.
Of course, these approaches also have disadvantages. Outsourcing an important task such as cellar management is not trivial. According to agency theory, this amounts to introducing an agent to whom the principal (the owner/manager of the restaurant) delegates certain tasks, which can lead to conflicts of interest and costs.
The main obstacle, however, is probably the sharing of margins between restaurant owners and the companies to which the management of the winery is subcontracted.
In addition, the role of the sommelier remains unresolved: René Roger emphasizes the importance of offering real added-value to consumers, something that French chef Bernard Loiseau understood perfectly well, as he had both very fine wines on his wine list and unique wines from unknown small producers.
A new business opportunity?
The advantages of outsourcing part of the cellar management then could be curtailed somewhat due to practical difficulties. Here again, the evolution of the hotel industry could point to a potential solution as the focus on the core business of hotel groups has been accompanied by the creation of a new business, the ‘hotel asset manager’ whose role is to align the interests of hotel owners and operators.
In the context of the restaurant industry, it is possible to imagine the emergence of a ‘wine cellar manager’ with the triple role of adviser (especially for the creation of the wine list), educator (for the sommelier) and manager of the relationship between restaurant owners and their wine subcontractors.
The roundtable discussion on Managing Restaurant Wine Lists and Cellars in 2018 was held at EHL in Switzerland on May 14th, 2018 as part of the 2nd Wine & Hospitality Management Workshop.
This article was first published on the Hospitality Insights Blog.