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A Decisive Year for Wine

Data and opinions are still out on what lays ahead for the on-premise business.
by Liza B. Zimmerman
January 10, 2011

Recent reports have been both encouraging and reminiscent of years past. This could be a pivotal year the resurgence of restaurant wine business. The numbers and operator feedback—based on the last quarter’s performance—remained cautiously positive as we moved into the first quarter of 2011.

Consumer confidence seems to be gradually returning, perhaps transforming a depression into a recession, according to Matthew Scott, director of operations at Dallas-based Ken Rathbun Concepts, which has six different restaurants in multiple regions in Texas.

Scott Tracy, wine director at La Toque, a French restaurant in the 180-room Westin Verasa Napa hotel in Napa, said he has seen a wine sales uptick, albeit a minor one, in the past year. He noted that, “Some guests have returned to the idea that is it OK to splurge.” He added that 2010 was better than 2009. “The corner we have turned is real but not very dramatic.”

Chicago-based beverage consultancy firm Technomic is forecasting that consumers will increase their purchases of alcohol in bars and restaurants by 1.9 percent in 2011. It is an increase the firm attributes to greater on-premise consumption. Wine sales in particular could increase by 1.4 percent but are being depressed by a move toward more wines-by-the-glass and lower-priced value wines. Technomic vice president David Henkes pointed out in a press release that 2011 is up against easy comparisons to 2010. "There are still some longer-term structural issues in the economy…. that tell us that the improvement in alcohol sales won't be as robust as it has been after previous downturns.”

A Mixed Picture that Embraces Value

Some restaurateurs were hopeful while most noted the on-premise arena would be unlikely to return to previous buying levels any time soon. On the positive side, Timothy Baldwin, wine director at the approximately 700-room Broadmoor hotel in Colorado Springs, Colorado said he had noticed a serious increase in wine sales this past year. “Many of our restaurants were up between five to 10 percent in wine sales…. I do feel the economy has turned a corner, I am not sure if it will get back to the 2007 levels but it is certainly rebounding well,” he said, echoing the upbeat cautious tone of many operators.

“People are coming out of their bunkers, they are tired of self-denial and while flaunting is not back, they do want to trade up: the everyday luxury,” noted Sandy Block, master of wine and vice president of beverage operations at the Boston-based, 31-unit Legal Sea Foods chain. He added that affordable luxury in the current wine world can be interpreted as upper-tier glass pours. At the Broadmoor, Baldwin noted that high-end, wine-by-the-glass purchases have also been on the rise more than by the bottle.

Familiar favorites and trusted regions and brands continue to drive sales. In Napa, Tracy hasn’t encountered problems moving familiar, local brands. While sales of iconic California and European wines tend to sell easily, many guests still favored good-value regions in the closing quarter of 2010. “Value wines, such as Malbec from Argentina, along with Rhône varietals from the South of France have had, and continue to show, the greatest increase in market penetration. They are generally well made and offer guests a chance to try new wines without ‘breaking the bank,’ “ Scott noted.

Baldwin added that, “Malbec is here to stay [and] it has become a must on all wine-by-the-glass programs.” Tracy confirmed that the public still likes value and Malbec and Côtes du Rhône “are popular for bang for the buck.” However he added that if his customers could find something equally as good for the same price they would “be loyal to their wallet not to the Malbec.”

Partnership is Essential

Wines in the on-premise sector have been selling marginally better this year for a variety of reasons. Operators and producers are working more closely together. At Rathbun, Scott has been able to offer some higher-end wines at more advantageous price points—hovering under $100—as they have been discounted by his wholesalers.

He added that he expected the “relationship between on-premise and wine partners to continue to grow because most wineries understand that retail sells more cases, but on-premise builds brands.” He also noted that California wine producers are among his closest partners because of the marketing support they have provided in difficult times.

“The good ones have gotten to know what we are looking for, understand our brands, what works and what doesn’t, and they don’t waste my time but are proactive with creative ideas,” added Block.

However some established working relationships are also being redefined in the new economy. “Five years ago, a wine buyer might have felt that they had to buy some wines from a distributor to get the treasures. No longer true,” said Tracy. Most operators interviewed for this story agreed that the basic buying structure has fundamentally changed over the past few years. “Allocated wines are fewer and far between now, prices have been cut and deals on larger purchases have become huge,” Balwin noted. These new dynamics may well open the on-premise wine market to a greater audience of consumers, who could bring a new vitality to the restaurant arena.

The Outlook

Although many operators were hopeful about the future and accepted that the boom years may be over, none were sure about what lays ahead. “We are expecting 2011 to be similar, in most respects, to 2009 and 2010,” concluded Scott.

“I see 2011 as a continuation, no big changes,” said Block. He added that the biggest trend he expects this year is a continued interest in the unfamiliar and less concern with wine’s pedigree. Baldwin added that, “It will get better but I think the boom years are still a ways off.” Although he admitted that he has hope for the long-term future and believed that the wine market is “trending towards even stronger conditions in 2012.”

The wine market may never regain its excessively spendy status, but this may no longer pose such a problem for the slowly transforming restaurant and consumer base of this decade.

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