Wine Losing On-Premise Sales

Restaurant executive sees more customers opting for beer, spirits

by Paul Franson
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Sandy Block

St. Helena, Calif.—With sales up every year, abundant wine supplies and the continued economic recovery, even this year’s drought hasn’t dampened the elation that most people in the wine industry are feeling. Still, trouble may lie ahead: The millennial drinkers wineries seemed confident of winning aren’t playing the game right: They’re increasingly enchanted with cocktails and craft beer.

That trend was the focus of remarks by Sandy Block, MW and vice president in charge of the beverage program at Legal Seafoods, a 36-location restaurant group in the eastern United States.

Block was speaking at a seminar hosted by wine closure supplier Diam and its U.S. partner, G3 Enterprises. Other speakers at the event included the wine editor at Sunset magazine, Sara Schneider, who presented a more positive viewpoint on the industry as well as winemakers who have embraced Diam’s agglomerated cork closures – plus a tasting of top wines using them.

Block’s view stems from significant changes in the behavior and expectations of customers in the on-premise channel. “Customers don’t just want to eat and drink; they want to be entertained,” he said. “And cocktails and draft beer are more entertaining to them than wine.”

Block said that Legal Seafoods, a family-owned collection of distinctive restaurants, noted the difference after 2008. “Everything changed. We realized that we were in a different business than we thought we were in. Restaurants were no longer temples of gastronomy. They were for entertainment. We weren’t just in the business of feeding people. We were feeding their souls.”

He said they realized that they needed to put on a show and embrace more social interactions between staff and customers. Some of the changes included open kitchens, custom-made cocktails and lively bars with “attractive, muscled bartenders with tattoos shaking cocktails like maracas and blenders whirling.”

It all makes for an act that’s hard for wine to compete with. “Everyone knows how to buy and pour wine, but only a few people can make crafted cocktails. You expect them only in restaurants.”

A huge market
Block noted that Americans now eat almost half their meals outside of their homes. “It’s declined a bit since the height of 51% in 2007 to 45% last year, but is rising again.”

He said that multi-unit restaurants total 45% of the market, but capture 73% of sales, while individually owned restaurants have 55% of numbers but 27% of sales.

Wine sold in restaurants accounted for 19% of volume sold, but 44% of retail value last year, according to the Beverage Information Group. That’s down from 51% of value and 23% of volume in 2007 before the recession.

What’s cool?
Block pointed out that France once owned the market for fine wine, but lost that leadership position by growing complacent. The same is happening to wine in general, especially in on-premise sales. “We see early warning signs for wine in the restaurant business. We may say, ‘wine is best with food,’ but that isn’t what our customers are telling us.”

Block further observed that many people want to drink the “right” thing. “Restaurants and bars are public displays. Patrons want to be perceived drinking something hip.”

He noted, too, that in the mental checklist of ordering, taste may come first, but the risk (buying a bottle of wine the consumer doesn’t like) and what is says about the customer are also important. And cocktails (and beer) are also much more profitable than wine. “They’re coming after us [wine].”

What’s hot, what’s not
Block also shared numbers on popularity of varieties of wine at Legal Seafoods restaurants:

Sauvignon Blanc is up 33%. “It’s going through the roof.” Of course, it’s good with seafood, but Block also says Sauvignon Blanc is distinctive and blandness is out, hurting Chardonnay, which is down 6%, and Pinot Grigio, down 22%.

Merlot is down 44% and Syrah/Shiraz 55% but Malbec is up 59%, Pinot Noir up 31% and Cabernet 22%.

He also said that bubbles were way up, 42%. “That’s the entertainment factor again.”

Block admonished that though the industry – producers and restaurants – hate half bottles, they are very popular with customers. He also said that wine on tap has received an indifferent response, a situation at odds with trends reported by some suppliers and wineries.

How to attract millennial
Finally, Block offered some advice for wineries trying to attract millennial customers. “You need to better communicate that wine is authentic. It comes from the earth, is natural and has human connections. You need to convey what’s behind the drink to the wait staff. Wineries need to tell their stories. Don’t talk about technology.”

And he added that servers love to meet with winemakers who they see as the human connection to wine.

A softer view from Sunset
After the castor oil of Block’s presentation, Sara Schneider, the wine editor at Sunset magazine, offered some sweeter tasting news.

Sunset regularly surveys its 5 million readers, who are big wine consumers: They drink more than 9 million glasses of West Coast wine and 1.7 million glasses of imports a week.

Their preferences include drinking Chardonnay 21%, Cabernet Sauvignon 12%, Merlot 9% and Pinot Grigio 8%.

Unlike Block, she sees a significant trend to wine on tap. “It’s almost de rigueur in new restaurants.”

Another big trend is wine bars as lounges. “Wine bars are becoming like Starbucks,” even as Starbucks stores start becoming wine bars. She noted that wine tasting rooms are changing as well.

“They’re becoming educational centers, dining places,  even amusement parks.”

Schneider, who remains one of the few full-time wine writers at a consumer or general interest magazine, reassured attendees at the meeting that California is still in good shape. “It produces close to 90% of the U.S. supply and the market is growing rapidly.” 

Posted on 06.04.2014 - 07:35:12 PST
I agree with most of the comments, especially those referred to the undue spread between winery price (or even those you can get at the small wine shop in your neighborhood) and the restaurant┬┤s wine lists.
In Argentina the same situation occurs.
Javier Horacio Gancedo Guidugli

Posted on 06.04.2014 - 08:35:59 PST
A view from this side of the pond? Many UK on-premise venues are losing wine sales too, due in large part to poor wines selected by the restaurant/pub/hotel in the first place. There are always exceptions but the traditional pub is probably the worst example of this issue. Wine is a specialist area too often selected and bought by people without the necessary expertise. The consumer ends up short-changed, or defaulting to beer/cocktails! Neil Bruce

Posted on 06.04.2014 - 09:30:48 PST
The reality is that wine became mundane and boring under the oppressive weight of Parker and the "international style," and it stood in stark contrast to the experimentation of the craft brewers and the exploding mixologist scene. Napa Valley, in particular, deserves much of the blame for alienating young wine drinkers with both their monotonous style and ridiculous prices. Quite frankly, they're getting their just deserts. The revolution against over-priced, international style wines is the most exciting thing in the entire beverage industry, but it has to contend with a rotten legacy.

Posted on 05.31.2014 - 13:44:23 PST
Because of distribution monopolies restaurant wine selection is so bad--especially at chain restaurants-- I would rather have a beer or a cocktail and I am a winemaker

Posted on 06.02.2014 - 08:21:32 PST
Wine list prices have been quite higher than the same wine in a retail shop. As the public gets more educated and uses the internet more they become wise to the relatively higher mark-up. Couple that with the economic times and guess where it leads?

Posted on 06.02.2014 - 08:39:54 PST
A major issue for us ordering wine in a restaurant is the high markup the restaurant puts on the wine. Recently we ate in San Francisco and the least expensive wine on the list was over $60.00 for a sauvignon blanc. At a restaurant in Hawaii we ran into a wine that retails from the winery at $10.00, on the wine list it was $55.00. It's a trend that is troubling and it seriously affects our decision to enjoy wine with a meal.

Posted on 06.02.2014 - 08:54:29 PST
I am right there with you. No good wine = beer or cocktail and I am a winemaker as well.

Posted on 06.02.2014 - 09:42:34 PST
I agree with all these comments, but one area where restaurants hurt themselves, is that they don't provide good descriptions of the wine. It is amazing that for the most part, people walk into a restaurant, and are handed a wine list with the names and prices of the wines, but no description or guidance on what dishes it could be paired with. Obtaining the winemaker's tasting notes is easy. Having the wine director and chef talk about wine and food is also easy. The other problem is that most restaurants should limit their wine lists to 100 bottles. The day of massive wine lists is over. All I do is review restaurant wine lists, and in most cases, you can find some good deals, but for the average consumer, they don't have the knowledge.
Josh Moser

Posted on 06.02.2014 - 10:47:07 PST
The trend among the progressive restaurants is to double the price from wholesale which typically puts the wine on their list for "tasting room" retail plus $10-$15 or the equivalent of corkage. That provides a much higher quality wine experience and happy customers who come back. Those restaurants insisting on the 3 and 4 times markups (sometimes higher!) will in time kill their wine business if not their overall business and deservedly so!
John Drady

Posted on 06.03.2014 - 10:08:21 PST
Isn't it ironic, though, that a consumer doesn't blink at spending $3 - $4 on a beer that costs $6 a six pack at 7-11?

Posted on 06.02.2014 - 11:21:10 PST
There are certainly great challenges for the small producers or those not entrenched in the 3 tier system, but there is one thing for sure, consumers aren't looking for the conglomerate wine factory (which is by nature the restaurant chain buyers dilemma, that is, to find a consistent volume source of high quality wine). Authenticity still sells but it must come with a sophisticated market entry plan. For the restaurant retailer, there is a day of reckoning coming as the consumer is always right, and when they say 'no' to the pricing structure of wine, something is going to give.
Nicholas Karavidas

Posted on 06.03.2014 - 06:37:05 PST
Restaurants can no longer rely on wine as a major profit center to balance food costs if they want to sell wine. The three times mark-up makes the customer feel they are getting ripped off, esp. when retailers like Total promote a "lost liter" price on the popular brands that so many chain restaurants seem to feature, ie--KJ and Clos Du Bois. Double the bottle cost and wine sales will increase!

Posted on 06.03.2014 - 10:58:09 PST
The sparkling/Champagne category is perhaps the easiest wine of all to pair with food. This article seems focused on the experience of one (focused) eastern chain. I would offer that these numbers will change for each region. Further, just as the level of quality of service, or lack thereof, can be traced directly back to management the same holds for management, in conjunction with distributors' failure to properly educate the waitstaff on the wines offered. Education in proper pairing and better knowledge of the wine list will all lead to a better dining experience.

Posted on 06.03.2014 - 12:45:45 PST
As a consumer I very rarely order wine in a restaurant but I collect wine and buy a ton of it from stores and wineries. If there are two of us at a meal we could finish a bottle but then we shouldn't be driving. If I order a glass then I am paying way more per ounce in the glass than I would for a bottle. I see prices at stores and wineries- I know I am paying more to be served a bottle in a restaurant. Opening the bottle and pouring it for me does not make up for the mark up. I don't see the value add there to get to that markup. Why would I buy wine in a restaurant then? Beer or a cocktail are less of an investment to me. The question I find myself asking my friends is when do you think wineries will wake up and realize the landscape shifted and consumers want to buy wine in a store not in a restaurant?

Posted on 06.05.2014 - 08:11:59 PST
Pretty universal thoughts in most of these posts, and I agree - speaking especially to the hip, casual, fun restaurants and gastropub-type places that open (and are jammed) every week on the west coast, and even as a wine importer myself, why do I want to spend $8 for a 5-oz glass of 14 Hands or some other ubiquitous grocery brand when I can spend $4 for a pint of creative, delicious, local, rotating selection of craft brews? I have been in the industry for 30+ yrs, and frankly, distributors and many on-premise buyers have just gotten lazy related to how they approach wine offerings. Come on, kids, mix it up, change more frequently, step out of your comfort zone (which Malbec is now becoming, but at least 7 years ago was a new kid on the block), offer wines with zip and something unique at a price that makes it worth trying, learning about, seeing if it makes a good companion to that goat curry special tonight. Things like Dog Fart IPA or a cucumber chipotle martini are FUN, capisce?