Dear Friends of Monolithos,
Wine is a beverage that has been enjoyed for thousands of years as an accompaniment to meals. Over the past 30 years, more and more people seem to select wine as the beverage of choice at social engagements. Quality wine at affordable prices is increasingly easy to find. Thanks to globalization, the world of wine is filled with greater variety, good quality and more affordable prices. Wine has become part of our daily lives. It belongs on our tables, just like a loaf of bread or glassware. This everyday approach to wine is more of a European notion, but other nations are increasingly embracing the idea of wine as part of everyday life and culture.
It is predicted that the financial and economic crisis affecting many wine-consuming countries worldwide would have also consequences for the growth of the wine sector. However, lifestyle wine consumers are unlikely to give up wine during a recession because it would mean more than changing consumption patterns; it would mean sacrificing an important element of their carefully constructed identity. It is also expected that in the current tough economic crisis, price will become the key to most wine buying decisions. People continue to drink wine during hard economic times, but they place more emphasis on price and value. When the decline begins to bite, buyers are really lowering their budget and are looking for a €6 to €10 wine and make their purchases within a relatively narrow price range, regardless of other factors.
In the current recession, restaurant sales have been especially hard hit. Restaurants always take a pounding during economic downturns, and that is certainly true now. Wine is a tool to get people into restaurants. Wine drinking is an essential part of the experience of restaurant going. However, the pricing of wine in restaurants has always been a mystery. We all know that a bottle of wine at a restaurant is substantially more expensive than at a retail store. But just how expensive are the wines and what is a “fair” mark-up? This is a controversial topic that has been dominating wine discussions for several decades.
On average, a bottle of wine in a restaurant will cost nearly three times as much as it would at the supermarket, and it can be four (or more) times as much in some places. Also, one should take into consideration that the restaurants pay trade price for their wines, too. Ask any restaurateur why they have such huge mark-ups, and they will probably come out with the usual excuse – profit margins are small, hours are long, customers can be difficult, they only break even on the food, but the drinks are where they make their profit. Wine is simply a piece in the overall jigsaw from which the restaurateur makes enough gross profit to cover the often high establishment costs. These include paying the bills of butchers, bakers and candlestick-makers, let alone wine merchants. The restaurant also covers the wages for its chefs and serving staff, to say nothing of rent, rates, taxes and insurance. Restaurateurs claim that they make little money on food. Price for food covers not only food costs and wastage but also labour costs in the kitchen and services, the expense of equipment, electricity, gas, rent, etc.
Trying to understand wine prices and associated high mark-ups is not a simple task. Let us – for the sake of argument – look at some of restaurateurs’ claims. Most of them attempt to justify their high profit margins by arguing that they “add value” to the wine by providing cellaring and service. This might be reasonable if restaurants had to tie up capital in long-term storage of expensive stock, but in fact, most restaurants sell wines before they actually pay for them. This is because producers and wine merchants extend one or more month’s credit, and do not make a fuss if payment is delayed. The service of wine involves restaurants in little expense e.g. breakages or minimal staff time in serving. Restaurateurs choose the policy of short-term rather than long-term profit, resulting from increased wine consumption. Presumably, there are enough people who are either wealthy enough or who are on a generous enough expense account to be able to plunder the lower reaches of the wine list, thus giving the restaurants easy revenue which they are reluctant to lose.
One can easily detect that the current situation seems completely illogical. With food, the chef is doing something creative – good cooking is a complex and skilled process that involves transforming often simple and relatively inexpensive raw ingredients into something grand. In contrast, the procedure of serving wine in a restaurant is far less creative: whether you order the house wine, or a much grander one, the process of purchasing, storing and uncorking it is just the same for the restaurant. The huge mark-ups paid by the customer are an incredible amount to pay for wine. This almost always means that there is more profit in the wine than in all the other food combined.
Of course, some restaurateurs say the comparison between their prices and those of a store are invalid, insisting one has nothing to do with the other. They argue that all that a retailer does is put wine on the shelf. Restaurateurs argue that they do much more than just display bottles – they maintain inventories in often expensive storage locations, support producers too small to get space on retail shelves, offer great glassware and provide an invaluable education to their customers. However, it is one thing to take raw ingredients and craft a unique meal, yet entirely another matter to open a bottle and pour a glass a wine. Other than the process of selecting, storing and serving wine, a restaurant is doing nothing to enhance or add value to what is inside the bottle.
It is acknowledged that restaurants are in a very risky and price-sensitive business. Invariably, restaurant owners often say that the public doesn’t understand how high their costs are and that a healthy return on wine sales is a must if they are to show a profit. In general, restaurant food prices may be classified as reasonable but their wine prices are high. Therefore, the profit margin is transferred to wine. The customer likes his/her preferences on wine but also knows what is affordable to spend. Oenophiles are divided over many issues – the merits of “terroir” and grape varieties, the old world, the new world, the virtues of new oak, the role of the winemaker, the utility of special glasses – but they all seem to agree that restaurant wine prices are, on the whole, abusively high. As things stand at the moment, wine drinkers subsidise non-wine-drinkers.
But what is the mark-up a restaurant should consider “just,” and what is the price a consumer should be expected to comfortably pay for a bottle of wine? There is a tendency for restaurants to make as much money with as little effort as possible. In other words, they charge a few customers excessive prices, rather than fill their restaurants and charge reasonable prices. Restaurateurs’ dependence on their profits from wine is also shown by the way they try to force customers to drink as much as possible. It is common practice for waiters to refill glasses to the brim as soon as customers take a sip. What actually restaurants are relying on is consumer ignorance about wine. In the 50’s and 60’s, restaurateurs were able to get away with high mark-ups because at the beginning of the wine boom, people in most countries were not regular wine drinkers but were being introduced to it in restaurants, hence they were not aware of comparative retail prices of wine. Often, restaurants cleverly bought from “trade” lists so that the names or brands were different from the high street names, making comparisons more difficult.
Nowadays, a large number of restaurant-goers are put off from ordering wine when eating out, or at least as regularly as they otherwise might. One reason may be that there’s a lot of information about wine available today, including how much it costs. Anyone with Internet access can find almost any wine and compare a restaurant price to a retail price. As more consumers become knowledgeable about wine and associated retail prices, restaurants who are profiteering will suffer the consequences.
So far many restaurants price wine simply according to what they think they can get away with. But fashion also plays a part in the prices we pay. Trendy wines or those with a snob factor will always cost restaurateurs more to buy in the first place, so you will inevitably have to pay more to drink them with your meal. The classic French wine regions will always come at a price. Customers will pay a lot for “brand” names, such as Burgundy and Bordeaux , even if they aren’t classic vintages, because they are paying for the history and the reputation of the name. But there are other regions or wine producers that are currently “hot” and therefore expensive. In most cases, the fancier the restaurant, the higher they mark-up their wines.
Location also makes a big difference. Some of the biggest mark-ups are by restaurants in tourist areas or where wine connoisseurs with big expense accounts take the chance to taste expensive brand wines. It is known that leading restaurants and hotels sometimes charge customers up to five times more for bottles of wine than the amount they paid for them. The consequence is that only the particularly wealthy can afford to drink “out of the ordinary” wines when they go out to eat, a particularly frustrating situation for most wine lovers who feel they are being deprived of the right to choose.
There is also the snob value theory that a highly-priced wine is, to a certain kind of customer, a valuable signal that they are knowledgeable about something as important as wine, and are and willing to spend a lot of money on something that will impress the partner(s)/guest(s). Most people can’t afford €100 for a bottle of wine, and think it’s a little ridiculous to spend that much when they can be just as happy with a bottle that costs €15. Restaurants looking for strategies to survive the downturn ought to begin by cutting the prices on their wines. Who, in their right mind, really wants to pay €25 for a bottle he can purchase at the local supermarket for €6? Supply and demand is controlled by the buyer. A restaurant which puts emphasis on a good and fairly-priced wine list may find that it will attract a great deal more customers. The wine-buying public should seek out such establishments and prove it.
Nobody expects to pay shop prices for a bottle of wine in a restaurant, just as nobody expects to be ripped off. With the public becoming increasingly wine-savvy, it pays to evaluate the underlying pricing structure. Restaurants use various methods for pricing wine. Some will charge two or three times their cost of the bottle. Others will use a sliding scale, meaning the percentage of the mark-up is based on the cost of the wine. Consequently the first step to finding better deals on wine is to understand the formula behind most restaurant wine pricing. As things stand at the moment, the standard restaurant mark-up is about three times (300%, fixed percentage) the retail price, which means they make more profit on expensive than on cheap wines. So, if a bottle is purchased for €10, it is sold for €30 on the wine list. Percentage mark-up makes it easier for restaurants to determine economic performance if they can measure margins in terms of gross profit.
There are several examples of successful restaurants with mark-ups that are a fraction of those we see typically in the industry. In some restaurants, the mark-up decreases as the wholesale price of the bottle increases, so an inexpensive bottle might be priced three to four times its wholesale cost, while a pricey wine may be marked up only 1.5 times. This so-called progressive mark-up helps sell more expensive wines, although there is an argument against these types of margins – if people want rare wines, they can pay for them, and keep regular wines at a fair price.
Most sensible establishments prefer a graduated mark-up system to tempt customers. In this case, the highest mark-ups are generally made on the cheapest wines, but the highest cash margins are on wines that, paradoxically, represent the best value on the list.
The cash margin is, perhaps, the most attractive scheme for promoting wine, allowing the establishment to shift stock more quickly and generate more bankable profit, while at the same time creating a better customer experience, offering the customer optimum quality and real value. The pricing formula is: cash margin = fixed amount of cash added to cost price. If restaurants charge a flat mark-up rate regardless of the price of wines, this would encourage people to drink more and select the most appropriate wine with the meal. Surely it makes no difference for a restaurant if a diner who would have ordered the house wine switches to something far grander with an equal mark-up? The secret here, though, is to get good prices off your suppliers and carry smaller amounts of stock.
Another pricing strategy sometimes used by restaurateurs is the product-specific mark-up that is more internal to the business and may apply to wines such as local, imported country specific, house wines, old stock, etc, all of which can be sold at a smaller margin to encourage people to experiment.
The real problem with restaurants is that far too often, accountants, with no real knowledge or love of wine, take control of the lists. The quality of the wines or their suitability for matching the dishes available at the restaurant is seldom, if ever, taken into account. Having examined in some depth the various mark-up strategies in these difficult years, it is important that restaurants should realise that if they want customers to carry on dining out, then they need to lower their prices. A reasonably-priced wine mark-up system will help restaurants keep drink sales buoyant through the recession. Operators should employ varying philosophies to set their prices, but each should carefully aim at building volume and sales without alienating customers. One such strategy based on the sliding scale is briefly shown below:
Bottle cost Approx cost % Selling Price Net Profit
€4 33% €12 €8
€6 40% €15 €9
€8 45% €19 €11
€10 46% €22 €12
€15 50% €30 €15
€20 55% €36 €16
This style of margin will guarantee a minimum cash profit on every bottle of wine sold. It is obvious that as one moves up the wine list in price, bottles become better value to the customer. Facing a friendlier price environment, consumers may be willing to order more of both food and wine, so that the total tab may possibly be higher than it would be under a confiscatory wine price scheme. The restaurant owner will make up on volume what he loses on an individual bottle sale. Some countries are responding to the economic crisis by organising special “half-price wine nights” during mid week. It’s a tricky game, however, because the wrong strategy can produce lower sales revenues and fewer wine-enthusiast diners.
Needless to say, every manager needs to tailor wine pricing to the needs of the individual restaurant balanced by specific needs of the market and guests he is after. It’s not just pricing that achieves that. The wine list should include wines that differentiate the restaurant from the competition. The selected wines should match the food served in the establishment, staff should be trained to assist customers in their choice of wine, and the wine list should have compelling descriptions of the wines on offer.
Ordering wine in a restaurant can also be a daunting and confusing task. People look at the menu and make a decision. They do not usually look at the wine list and make a decision about eating at the restaurant based on that. The wine list displays something about the owners of the restaurant whether they have no love, or perhaps even basic knowledge, of wine. Wine is a unique beverage, an expression of terroir, vineyard practices, vintage conditions and winemaker, all rolled up in a single bottle. Despite this, many restaurateurs whose livelihood depends on wine mark-up seem to have no respect for it whatsoever. Perhaps, in their eyes, wine really is just a vehicle for fleecing the customer after all.
Price is a reflection of demand rather than quality. It goes without saying that everybody should be focusing on whether the wine list is well chosen, with interesting, original wines that suit the food. Quite often the information at your disposal is incomplete, incorrect or misleading. To compound the problem, few restaurants have serving staff who know enough about the wines to be of any help. Anyone can pick a great wine based upon a high price. However, finding a great wine for less is the true mark of a person who is knowledgeable about the subject. Normally, the classical economic behaviour will apply: the lower prices will result in higher consumption which could lead to greater restaurant profit. As well as offering quality, a good wine list will offer a choice of wines some common and some not so common. The wine list should be well written with details of each wine’s origin, producer and vintage as well as tasting notes and recommendations for food match-ups.
There are plenty of examples of successful restaurants with mark-ups that are a fraction of those we see typically in the industry. Restaurants should realise that if they want customers to carry on dining out then they need to lower their prices. There are several ways to go about this:
. Learn the better buys. For example, a wine from a small winery is not nearly in as much demand as Cabernet Sauvignon from a well-known brand. The bargains are better. Lesser known wines may be just as good as or better than the more expensive “name” brands.
. A number of restaurants and local taverns which are not located in the hottest spot of the town or in the tourist areas sell wine at a reasonable mark-up. So, look for value, not fashion, meaning look in the wine list for a good quality wine at a price that is far less than many other wines of the same quality.
. Avoid the restaurant with rip-off wine prices. When doing this, there will probably be a much better effect if you let the restaurant know what you are doing and why.
Supply and demand is controlled by the buyer. A restaurant which puts emphasis on a good and fairly-priced wine list may find that it will attract a great deal more customers. We, the wine-buying public, should seek out such establishments and prove it. Hopefully, restaurants will start listening to their customers and offer them a fair deal. In the end, what’s fair is what the customer is willing to pay.
Wine News and Information
. Wine consumption in the UK fell 2% in 2008, according to industry analysts. Market Research Company Mintel says public concern over binge drinking and rises in alcohol duty have caused a slump in sales which has put an end to years of growth. It suggests wine companies will have to expand the market among 25- to 34-year-olds to ensure future growth. However, the charity Alcohol Concern says that little can be read into the figures because the fall comes against a backdrop of record consumption.
. A report released in January by industry body Vinexpo revealed the UK was the world’s biggest importer of wine, with 1.6bn bottles being brought into the country during 2007. It said the economic downturn had led sales to drop 3.5% in the first nine months of last year and predicted market growth would halve to 6% by 2012. However, Mintel said consumption had fallen by 30m litres to 1.16bn litres in 2008 – the equivalent of 40 million bottles. Senior Drinks Analyst Jonny Forsyth said: “People are starting to drink less in the UK , which runs counter to what people think when they read reports about binge drinking. People are increasingly more sensitive to healthy lifestyles, and the government is using taxes and awareness campaigns to crack down on the effects of drinking.” Duty on a bottle of wine had increased 28p to £1.61 since 2007, he said.
Mr Forsyth did not blame the recession for the sales slump, saying the wine industry would have struggled to maintain growth in any case. He believes suppliers must target younger drinkers, aged 24 to 35, to encourage brand loyalty. This age group had helped boost sales of rose, which increased its market value from £110m to £527m over four years, thanks to its “accessibility” – it is seen as less confusing for those who are not regular wine drinkers. However, Nicolay Sorensen, director of policy and communications at Alcohol Concern, said people were still drinking too much. “Even though consumption may have gone down, the strength of wine has gone up over the years, so it’s probably having the same effect on people's health.” The charity is pressing for a mandatory alcohol sales code to force retailers to improve information available to customers and prevent those using loss-leading promotions, such as selling three bottles of wine for £10.
On the topic of targeting younger drinkers, he added: “This is exactly what was happening about 10 years ago when marketing companies identified female drinkers as a potential growth group. We have seen consequently women’s drinking go up and their alcoholic liver disease also go up to above the rate for the rest of Europe .”
. Scientists already knew that drinking red wine in moderation is good for your health; now they are figuring out why. New research is uncovering the disease-prevention secrets of a polyphenol called resveratrol, one of compounds in red wine that seems to improve health. Although the benefits have been touted for years, researchers weren’t sure how polyphenols, and resveratrol in particular, worked in the body. “The breadth of benefits is remarkable – cancer prevention, protection of the heart and brain from damage, reducing age-related diseases, such as inflammation, reversing diabetes and obesity, and many more,” said Lindsay Brown, an associate professor of the School of Biomedical Sciences at the University of Queensland in Australia and co-author of a study that will appear in the September issue of Alcoholism: Clinical & Experimental Research.
Brown said scientists are beginning to understand how resveratrol does its work. Possible mechanisms include:
* High doses of the compound may prevent cancer by increasing the process of apoptosis (programmed cell death).
* Low doses improve cardiac health by increasing cellular protection and reducing damage.
* Resveratrol may help remove very reactive oxidants in the body and improve blood supply to cells.
. The lowest-alcohol wine currently available on the market will finally hit the shelves of UK wine merchants this summer. A Languedoc winery was given permission by the French government to export their wine to the UK . They have three wines: red, white and rose, all under the brand name “Plume,” which come in at 9% alcohol. Two years ago, they struck a deal with a chain of supermarkets for it to be sold in the UK , but French wine authorities argued that their reverse-osmosis de-alcoholisation process could not be legally exported as French wine. As a result, the product was recalled. The wine company has successfully challenged the ruling on two grounds. First, that exporting to the UK should not be classified by the EU as “export” because it remains within the EU’s borders. Second, from 1 August 2009, it has been agreed that their reverse-osmosis de-alcoholisation technique will be classed as a legitimate experimental technique for wine production. These dual rulings mean that the low-alcohol wine will be available in the UK this summer.
Monolithos Monthly News
Pachna, located 15 km from the sea and at a height of 750 metres, has a typical Mediterranean climate with hot summers, often over 30°C with cool breezes from the Troodos mountains and/or breezes from the south which are important for the hilly vine-growing areas. Vineyards involve labour all year round, and grape farmers take pride in maintaining their vineyards by the season in the hope that their efforts will produce the sweetest grapes.
During summer, some grape farmers use pesticides to manage insects (which is one reason why it is always so important to wash grapes thoroughly before eating). Other farmers mow regularly between the rows of vines, clipping the young seedlings or “suckers” by hand. Clipping small seedlings growing around the base of the main vines is not a difficult task, but it takes time and is best performed during early morning or late evening in order to avoid the hot sun. This method is preferred by many because it keeps the end product free of toxins and gives farmers the pleasure of getting to know their vineyards.
Another important task during summer is determining the time of harvest. This involves evaluating the ripeness of the grape as measured by sugar, acid and tannin levels, with winemakers basing their decision to pick based on the style of wine they wish to produce.
At the winery, the month of July is devoted to inspection, maintenance, cleaning and sanitizing of all areas, equipment, tanks, machinery and systems. Cleaning and sanitizing during processing is vital. Inside the winery, the floor is checked for cracks and low spots (where water or juice may accumulate) and repairs are carried out, since postponing any refurbishment only makes the problem worse. The walls and ceilings are checked for mould growth and other foreign material and are thoroughly cleaned.
Equipment used during the harvesting season, such as the crusher, press, pumps, chiller, etc are also checked and tested to make sure they are in good working order. Breakdown of key equipment, such as the above, can be disastrous. It is therefore crucial to see that the equipment is in sound working order, as for nine months of the year, most of it is in storage. These items are disassembled as much as possible, then cleaned and sanitized thoroughly using a steam cleaner.
All of us at Monolithos Winery wish everyone a happy summer. Remember that all our wines are available for tasting or purchasing from your regular point of sale or directly from us. If at any time you are passing near the village of Pachna and wish to visit the winery or sample any of our products, Martin Wood will be pleased to meet and assist you at his “Fig Tree Villa” in Pachna, so do not hesitate to phone him at 25-816212 or 99-165995.
Regards from all of us here at Monolithos and always remember:
“One not only drinks wine – one smells it, observes it, tastes it, sips it and – one talks about it.”
King Edward VII
