1. Developing and Managing a Wine List © 2007 Thomson Delmar Learning. All Rights Reserved. Chapter 17

2. © 2007 Thomson Delmar Learning. All Rights Reserved. Objectives After reading this chapter, you should be able to –identify the key considerations when creating a wine program. –organize the layout of a wine list according to the goals of the operation. –develop appropriate pricing strategies for wines by the glass and the bottle. –explain the major considerations when selecting wines to sell by the glass. –be able to choose wines for a wine list.

3. © 2007 Thomson Delmar Learning. All Rights Reserved. Introduction There are several basic concepts involved with creating a wine list for a restaurant: –designing the format of the wine list –choosing appropriate wines for the list –pricing the wines for sales and profitability –organizing the layout and design of the wine list for ease of use by our guests

4. © 2007 Thomson Delmar Learning. All Rights Reserved. Identify the Goals of the Wine Program The first step in creating a restaurant wine list is to identify the goals for the wine program. –The number one goal for a wine list in the restaurant setting is to encourage wine sales. –Wine lists that encourage guests to browse and purchase wine through a clear layout and fair pricing will be more successful than those that do not. –Depending on the style and concept of the operation, the layout and pricing of the wine list will vary, but the goals should be identified before starting.

5. © 2007 Thomson Delmar Learning. All Rights Reserved. The Three-Tiered System of Distribution Thanks in large part to Prohibition, the United States use a system of distributing alcohol structured in a three-tiered manner. –In most states, alcohol must go from the producer to a distributor to a retailer or restaurant before it can be purchased by the consumer. –Some states do allow direct shipping. –Each tier must make a profit, and these additional costs affect the final price of the product.

6. © 2007 Thomson Delmar Learning. All Rights Reserved. The Three-Tiered System of Distribution (continued) The typical markup for the wholesaler is about 35 to 40 percent and for the retailer it is from 25 to 50 percent. –Many independent retailers may use a higher markup than chain operations, because they tend to sell a lower volume of wine. –Restaurants are able to purchase wine at wholesale prices, which is typically 30 percent below retail cost. –For example, a wine that is in a store for $15 would be available to a restaurant for about $10.

7. © 2007 Thomson Delmar Learning. All Rights Reserved. Choosing Which Wines to Sell The first challenge in selecting wines for a restaurant wine list is which wines to choose. –The best place to start is with wines that reflect the goals of the restaurant and meet the demands of the customers. –Any wine chosen should be enjoyable, free from production or storage flaws, offer a good value-to-price ratio for the guests, and ideally be reflective of the grape used, the terroir, and the region of origin.

8. © 2007 Thomson Delmar Learning. All Rights Reserved. Choosing Which Wines to Sell (continued) Wine representatives often visit the restaurants where they have accounts and taste new wines with the bar team, management, or service staff. –Sales reps understand that their restaurant accounts can be lucrative, and they are constantly working to ensure good relations with the management team. –Establishing a good rapport with account reps can help the operator get good pricing and may allow the restaurant access to small production wines.

9. © 2007 Thomson Delmar Learning. All Rights Reserved. Special Pricing Some distributors offer periodic discounts on certain wines called post offs. –These discounts are usually offered to the restaurant for wines sold by the glass. –This benefits the wholesaler who sells a higher volume of these wines to the restaurant and benefits the restaurant with lower prices on these high volume wines.

10. © 2007 Thomson Delmar Learning. All Rights Reserved. Special Pricing (continued) Strategic buying can impact the operation’s bottom line, but it also would require the operation to purchase enough wine for several months’ worth of sales by the glass. –This will cause the restaurant to have more money tied up in their wine inventory, but the savings per bottle can sometimes make it worth the effort. –Wines that are priced to maintain an appropriate beverage cost at regular prices are even more profitable when the discount is considered.

11. © 2007 Thomson Delmar Learning. All Rights Reserved. Trade Tastings Distributors often host wine tastings called trade tastings. –A walk around tasting is a casual affair, where tables are set up with wine displays and samples are poured for the attendees. –A sit down tasting is usually a more formal training seminar that involves a guided tasting led by a selected panel of experts. –These events are useful because of the professional networking opportunities as well as the ability to taste and evaluate the new wines.

12. © 2007 Thomson Delmar Learning. All Rights Reserved. Selling Wines by the Glass For many guests, their introduction to purchasing wine comes from exploring a restaurant’s by-the-glass offerings (BTG). –These wines were commonly referred to as house wines. –Many operations will now offer two tiers of wines by the glass: an entry level, value-priced tier a second tier of slightly more expensive wines

13. © 2007 Thomson Delmar Learning. All Rights Reserved. Selling Wines by the Glass (continued) Many restaurants attribute 60 to 75 percent of their wine sales to by-the-glass sales. –The average profit on wines sold by the glass is relatively high, and this can help to offset the spoilage that can occur with serving wine by the glass. –A simple selection of six to eight wines sold BTG will ensure that diners are able to find wines that are appealing and affordable. –The wines offered by the glass are usually typical examples of their variety or style.

14. © 2007 Thomson Delmar Learning. All Rights Reserved. Choosing Wines to Sell by the Glass A wine that is chosen to be a long-term offering by the glass should be produced in sufficient quantities as to be readily available. An alternative way to approach selecting house wines is to frequently change the available selections. –Most restaurants now print their own wine lists. This allows the operator to adjust the selections and update the list as needed. –This method also allows the operator to take advantage of special pricing.

15. © 2007 Thomson Delmar Learning. All Rights Reserved. Pour Size The standard pour size for wines BTG is 5 ounces. –A standard bottle contains 25 ounces, this means that each bottle contains five glasses of wine. –With a 4-ounce pour there are six glasses per bottle, and if the restaurant offers a 6-ounce pour, then there are four glasses per bottle. –If a 5-ounce pour is served in a 15-ounce glass, it does not seem like a value to the guest, even if the amount of wine is the standard pour. –Most guests are seeking perceived value, and a glass that is only one-third full does not “feel” like a value.

16. © 2007 Thomson Delmar Learning. All Rights Reserved. Price Point By choosing appropriately priced bottles, an operation can ensure potential profitability. –A general rule is to acquire wines that are priced at $10 or less per bottle for sale as a house wine. –Bottles in this price range allow the operator to price each glass in the $4 to $8 range, which is where most house wines are priced. –Wine programs typically run a cost percent between 28 and 35 percent.

17. © 2007 Thomson Delmar Learning. All Rights Reserved. Price Point (continued) The cost percent is the ratio of money spent to money earned for the operation. –A cost percent of 30 percent means that 30 percent of the money earned from a wine sale is spent on its purchase. –For example for a bottle that costs $10, assuming five glasses per bottle, the cost per glass is $2. –If the operation sells this glass of wine for $6, then the cost percent per glass is 33 percent ($2/$6 =.33). –If the operation sells that same glass for $8 instead, then their cost percent would be 25 percent ($2/$8 =.25).

18. © 2007 Thomson Delmar Learning. All Rights Reserved. Spoilage of Wines Spoilage of wines served BTG is an issue. –With more expensive or less popular wines, a restaurant may sell only one or two glasses every couple days. –This situation can lead to the remaining half bottle being spoiled from oxygen exposure before the operator has a chance to sell it. –For example, if a restaurant pays $10 for a bottle of wine but only sells one glass for $6 and the rest of the bottle spoils, then there is a loss of $4 on the bottle. –For this reason, proper preservation of open bottles is a priority.

19. © 2007 Thomson Delmar Learning. All Rights Reserved. Preserving Open Bottles of Wine A critical factor to consider in the BTG program is preserving the opened bottles of wine. –Once a bottle of wine is opened, it begins a steady, often rapid decline due to the action of oxygen. –In some cases, the whole bottle is sold relatively quickly and this is not of major concern. –With wines sold less frequently, however, they would be likely to deteriorate before the entire bottle is sold.

20. © 2007 Thomson Delmar Learning. All Rights Reserved. Preserving Open Bottles of Wine (continued) The simplest and most affordable method of preserving open bottles of wine is by using canisters of inert gas. –Inert gas (or nonreactive gas) is a gas that does not interact with the substances that it contacts. –These canisters are affordable and preserve up to several dozen bottles of wine. –When used properly and regularly, inert gas is capable of preserving opened bottles of wine for several days.

21. © 2007 Thomson Delmar Learning. All Rights Reserved. Cabinet systems consist of an inert gas system coupled with a dispenser spigot to pour the wine. The cabinet and tubing provide a pressurized blanket of gas in the opened bottles and ensure minimal of oxidation. –These systems have the capacity to preserve an opened bottle of wine for up to several weeks. –A smaller, basic cabinet will cost around a thousand dollars, depending on the maker. –The cost of inert gas is close to $100 per tank and should not be overlooked. Preserving Open Bottles of Wine (continued)

22. © 2007 Thomson Delmar Learning. All Rights Reserved. Vacuum systems are available for both home and restaurants that pump the air out of the bottle. –Commercial versions of these vacuum pump systems are more efficient at removing oxygen from the bottle. –The stoppers are placed into the tops of the opened bottles of wine and the bottle is held up to the electric pump. –In a matter of seconds, the pump removes the air from the bottle and creates a vacuum seal capable of preserving the wine. Preserving Open Bottles of Wine (continued)

23. © 2007 Thomson Delmar Learning. All Rights Reserved. Storage and Inventory Levels When deciding on how many labels and bottles are appropriate for the operation, one of the key things to consider is how much room is available. Within the room for wine storage, some type of racking is necessary. –Racking often corresponds to bin numbers, which are an easy reference point for locating specific wines. –Neck tags that can be labeled with the producer and vintage are also available. –Wine storage should be able to be secured, and access to the wine should be limited.

24. © 2007 Thomson Delmar Learning. All Rights Reserved. Pricing the Wine List There are different pricing strategies on what is considered an appropriate markup on wine. –The markup is the difference between the bottle cost and the selling price. A wine that cost $10 and is sold for $30 has a markup of $20. –This wine has a cost percent of 33 percent ($10/$30 =.33). –The factors that affect the markup and cost percent include the restaurant concept and service style, the menu prices for food, the selections offered on the list, and the prices charged by the competition.

25. © 2007 Thomson Delmar Learning. All Rights Reserved. Pricing the Wine List (continued) Some restaurants justify their exorbitant pricing by citing the low profits of most restaurants. –These operators may charge two or three times the price of a bottle when it is sold in their restaurant. –A bottle that cost $20 to buy may be sold for $60. –This high markup can make guests feel like they are being taken advantage of. –This can produce less revenue in the long run as guests decide to purchase less wine.

26. © 2007 Thomson Delmar Learning. All Rights Reserved. Pricing the Wine List (continued) The other pricing perspective maintains fair pricing in an attempt to deliver value to the guests and increase sales. –This method of pricing seeks to institute less of a markup in favor of moving more volume of wine. –Even though the operator may get less money for each bottle sold, over the long term the restaurant will sell more wine and therefore end up with higher wine sales and consequently end up with more loyal customers.

27. © 2007 Thomson Delmar Learning. All Rights Reserved. Pricing the Wine List (continued) A sliding scale is a pricing system that utilizes a variety of markups to balance profit for the operation with value for the consumer. –Here the highest markups are on the lowest priced wines, and the lower markups on higher priced wines. –For example, if a restaurant sold one wine with a 25 percent cost, a second wine with a 30 percent cost, and a third wine with a 35 percent cost, the average of these three is 30 percent. –This increases sales of wine and also encourages guests to buy more expensive bottles.

28. © 2007 Thomson Delmar Learning. All Rights Reserved. Pricing the Wine List (continued) For the highest priced wines, an operator may assign a fixed markup. –The fixed markup method assigns a set amount of money to the cost of the bottle to determine the price. –For example, for wines that cost $100 or more, the additional markup may be fixed at $30. –This can be employed at all price points on wine lists, but is more common at the higher price points.

29. © 2007 Thomson Delmar Learning. All Rights Reserved. Filling Out the Wine List Once the storage space is identified and the goals of the wine program have been decided, it is time to select the labels for the list. –Wines should be selected that complement the style of food offered and the expectations of the clientele. –A good rule of thumb is to price the bulk of your wines near the average check for a party of two. –The sweet spot is the price range where most guests will find relative value and where most wines should be priced.

30. © 2007 Thomson Delmar Learning. All Rights Reserved. Organizing the List Wine lists organized by region of origin include a separate section for each of the major wine regions represented on the list. –The benefits to this layout allow guests to conveniently find wines from regions that they prefer. –In this case, it is easy enough to lay out a list by region and place appropriate wines in each category. –One of the drawbacks is that it might limit the focus of the guests and discourage them from trying new wines.

31. © 2007 Thomson Delmar Learning. All Rights Reserved. Organizing the List (continued) Most wine consumers choose their wines by the varietal used to make the wine. –This format has a section for each of the major varietals. –Wines from the New World and the Old World would be listed together. –One of the challenges with this layout comes when a wine is a blend of two or more grapes. –Wines such as this may be included in a section titled “Blends.”

32. © 2007 Thomson Delmar Learning. All Rights Reserved. Organizing the List (continued) Another common organizational method is to categorize the wines by style. –For example, have a section titled “Dry, Crisp Whites,” one titled “Rich, Full Bodied Whites,” and then the same for the reds. –Guests can quickly and easily select wines based on their stylistic preferences. –This also helps to expose customers to wines that they may not be familiar with.

33. © 2007 Thomson Delmar Learning. All Rights Reserved. Organizing the List (continued) Some wine lists are organized by price point, with the lowest priced wines first and moving to more expensive wines. –This method allows the guest to easily access wines that they can afford, but it also encourages them to select their wines based on price. –It also prevents them from browsing the entire list, because the natural tendency is to identify the upper limit of the budget and to select a bottle from that point or below.

34. © 2007 Thomson Delmar Learning. All Rights Reserved. Organizing the List (continued) One way to market wines on the wine list is to include a section that lists staff favorites or house favorites. –These could be wines chosen by the staff during tastings or those that offer exceptional price-to- quality ratios. –If the staff is involved in helping to select their favorite wines for this section, then they take some ownership of these wines and will be encouraged to sell them.

35. © 2007 Thomson Delmar Learning. All Rights Reserved. Organizing the List (continued) The most common method of presenting the wine list to the customer is in some form of booklet or menu holder. –The wine list is typed on sheets of paper and inserted into the menu presenter. –This method has benefits, namely the ability to change and update the list at a moment’s notice. –Because the inventory of wine can change frequently, it is critical to be able to update the list regularly.

36. © 2007 Thomson Delmar Learning. All Rights Reserved. Organizing the List (continued) Some restaurants present their wine list in a formal, bound-book style format. –These lists have a nice look and feel to them, but the ability to change and update selections can be somewhat limited. Regardless of the manner in which you present your wine list to the guests, it should reflect the goals of the concept and the desires of the guests.

37. © 2007 Thomson Delmar Learning. All Rights Reserved. Summary By starting with a good idea of the spending habits of the guests, the competition’s prices, and the goals for the operation, management can create a list that offers the potential profit for the restaurant and value for the customers. There is no specific formula for creating a list; it can be highly individualized, based on the specific operation.

38. © 2007 Thomson Delmar Learning. All Rights Reserved. Summary (continued) By setting goals for the wine program before starting, management can make their decisions based on their desired outcomes. Regardless of the format and pricing, guests should feel that they are being offered value, and the operator should focus on selling more wine.