The “Demolition Man” Syndrome: A Vision of the Future of Wine in America?

 

I’ve been catching up on my wine industry reading and one report that grabbed by attention is Rabobank’s May 2016 Industry Note,  “The Premiumization Conundrum”.

The gist of the analysis is that the premiumization trend in the U.S. wine market isn’t simply a case of what Paul Krugman calls “up and down economics” — in this case demand for $10+ wine is up, demand for cheaper wines is down –but rather it needs to be understood in the context of a broader set of wine market changes.

Not Just Up and Down

The Rabobank report examines five important tensions that are part of the premiumization syndrome:

  1. Demand for premium vs. basic wine grapes
  2. Securing long-term premium grape supply vs. managing return on capital
  3. Wholesaler consolidation and retail “chainification” of wine vs. premiumization
  4. Traditional retail vs. DTC vs. NIMBY
  5. Domestic wine vs. imports

As I was reading the Rabobank report I began to wonder how these trends might unfold if continued at their present rates  well into the future. In other words I was doing exactly what economists are trained not to do, which is engage in straight line projection. The future is out there somewhere, but it is almost never on a straight line that connects the last few dots on your time-series chart and then continues on out to infinity … and beyond.

But humor me with a little thought experiment. What might the future look like under the admittedly unlikely “straight-line trend projection” circumstances? Take today’s trends as Rabobank reports and fly them straight out to wherever they take you.

Pondering this thought, I unexpectedly found myself channeling a 1993 Sylvester Stallone, Wesley Snipes, and Sandra Bullock film called Demolition ManStallone plays a police officer named John Spartan who was put into suspended animation only to be awakened 36 years into the future in 2032 in order to catch Wesley Snipe’s bad guy character.

All Taco Bell Now

Stallone’s updated Rip Van Winkle encounters a lot that surprises or shocks him including, as in the film scene above, the inconvenient truth about retail consolidation run amuck. Invited to dinner and dancing at a Taco Bell, he can’t help but think, Taco Bell? Really?

But it really is, as Bullock’s character explains. Taco Bell was the only chain to survive the franchise wars and now all restaurants are Taco Bells. “No way!” Way!

Rabobank’s report notes a number of important trends that, if taken to a ridiculous Taco Bell kind of extreme, might produce something that Demolition Man would recognize. Here are three that I can’t help pondering.

All MoVin Now

The fictional John Spartan goes shopping for wine in 2032 San Angeles and the first place he sees is a big box MoVin store, bigger than the biggest wine-beer-spirits stores of the past, but recognizably the same concept. He continues on in search for a small, specialist shop, but soon runs across another MoVin. And then another and another and slowly it comes to him that just as all restaurants are Taco Bell, all wine is now retailed by MoVin.1353026500232-577831165

How did this happen? Well, as the Rabobank report notes, all of the growth in off-premises retail sales of wine in the U.S. in the last couple of  years has come through retail chains, not independent shops and stores. Take away BevMo, Total Wine, Costco and other multiple retailers (I assume Kroger fits here, too) and Rabobank’s data show off-premises wine sales would be flat.

Follow that trend to its illogical extreme, with the chains seizing market share each year, add logical pressure to consolidate and — hey, presto! — you have a retail wine monopoly.

How did MoVin win this fictional competition over other chains? Because, in this made-up universe, they drew upon the growing consolidation in distribution channels (another Rabobank finding).

Yes, all wine is sold by MoVin in 2032 because they are a wholly-owned subsidiary of NSEW (North-South-East-West),  the only company to survive the vicious distributor wars of 2021.

All Kiwi White Now

There are lots of different super-premium brands on offer at the big box wine store of the future, but the vast array of colorful labels and fictional names actually disguises a certain sameness. Much of the wine comes from the same few large producers, the ones who were able to able to secure reliable quality grape supplies in the grape wars back before 2022, when the last independent North Coast vineyard was swallowed up.

The imperative to lock up vineyard resources is another of the trends that Rabobank spotlights and it is natural to wonder where it will all end. But that isn’t the only source of concern.affiche2

When John Spartan looks closely at the super-premium white wines that he favors (because they pair so well with his favorite Taco Bell fish tacos), he slowly realizes that they are all made by a few large multinational firms in New Zealand. Just as Taco Bell conquered food, the Kiwis were the victors of the white wine wars.

The one constant of U.S. wine import statistics in recent years has been that New Zealand Sauvignon Blanc imports will grow, often faster than any other import category. I keep waiting for the run to end (and I know Kiwi producers who hold their breath and cross their fingers because they are worried, too). But nothing has stopped or even seriously slowed down New Zealand wine imports so far. And you know where that can lead!

You Want Grapes with that Wine?

What about inexpensive wine? Glad  you asked because that’s where John Spartan had his harshest shock — it made him want to give up wine altogether. It seems that as grape supply became less and less secure and falling prices pushed basic grape producers to other crops like almonds and pistachios, wineries were forced to weaken links to particular regions and then to grapes themselves.

Appellations and geographic designations generally are an expensive luxury if you’re not sure if you can buy the grapes you need to maintain a region-specific brand, so they had to go. And then wine companies gave up specific grape variety designations for the wines for essentially the same reason. All inexpensive wines in 2032 are now proprietary blends. No one knows what might be in the bottle, box or can or where it might have come from. Not many seem to care.

Absent place of origin and clearly-identified grape variety components, inexpensive wines evolved into branded alcoholic beverages and, once consumers accepted that, there wasn’t any reason why they had to be made out of grapes any more. The laws were re-written to allow inexpensive wine-like products to be made and marketed and people lapped them up. Wine for the masses endured, but in an ersatz Taco Bell kind of way.

>>><<<

Or at least that’s where bad economic analysis (and not enough sleep) takes you if you follow recent trends to ridiculous extremes, which I have done here just for fun, but the Rabobank report definitely avoids.

The future? Taco Bell? No Way! That’ll never happen. Don’t worry. Go back to sleep. G’night!

>>><<<

Thanks to New York Times columnist Thomas Friedman, who indirectly inspired this column. He told the story of the “Demolition Man” Taco Bell scene in his best-selling 2000 book about globalization, The Lexus and the Olive Tree.

 

Restaurant Wine Lists: Are Restaurants Leaving Money on the Table?

wine-list-waiterLast week I wrote about the concept of the Overton Window and speculated about what it might be able to tell us about the constantly evolving wine market. This week I follow up with an interesting study that finds a kind of “Overton” effect in restaurant wine programs and suggests that many restaurants may be leaving money on the table by the way they bind themselves to a particular narrow wine “window.”

The Backstory

Briefly, the Overton Window is a concept taken from the world of political analysis. It refers to the range of public policy options that are deemed generally acceptable at any particular moment. Political success, according to this theory, is all about either embracing the window to gain public support or finding ways to shift it in the direction you favor.

Financial Times columnist Tim Hayward applied the Overton Window concept to restaurant food. He noted that many creative chefs find themselves constrained by the customer Overton Window and the need to have “safety food” options like hamburgers, simple fish and chicken dishes, etc. so that customers feel comfortable coming to the restaurant.

If you choose to ignore the window conventions, you risk losing customers and ultimately your job. Hayward speculated that the most successful chefs stick to the window, but work on the edges to express creativity without leaving their customers behind.

I had more to say about this, of course,  including some comments about giant hairballs, so you might want to read last week’s column if you haven’t already done so.wine_beer

Wine Versus Beer and Spirits

The Overton Window is a new concept for me, but learning about it instantly reminded me of research that my friend James Davis did for his Master of Wine thesis, “Understanding consumer attitudes to large wine-brands as a purchasing cue in the United Kingdom (UK) multiple on-trade: a comparison of value and premium multiple outlets.”

The thesis is suitably complicated and probes many questions. I am going to simply (and probably over-simplify) and focus on just a couple of the results.

Davis wanted to understand the difference between wine programs in value restaurant chains (such  as Wetherspoon’s and Harvester  in the UK) and premium restaurant chains (such as Wagamama and Carluccio’s) and while he did not use the concept of the Overton Window, I think you will probably see why I think it applies.

Davis noted that when it comes to popular brands of beer and spirits, consumers expect to find them in both value and premium restaurants. The beer and spirits lists of the two types of restaurants aren’t identical by any means, but popular brands that are available in the shops are likely to be found in both types of establishments. This is consistent with the concept of staying within the consumer comfort and acceptance window.

Davis noted that the conventional wisdom is that wine is different from beer and spirits when it comes to popular brands. Widely-distributed wines like Hardy’s and Jacob’s Creek are likely to be found in the value outlets, but are not typically found in the premium segment. In other words, the restaurant wine windows are assumed to be much different. His research of the chains’ wine lists generally confirmed this finding, indicating that the restaurants treated wine a bit different from beer and spirits in terms of the types and range of brands on offer.

So, if you are following me so far, it seems that restaurants may be using their wine lists to communicate their identities (as value versus premium) more than they do with beer and spirits. Interesting, but is wine really so different from beer, spirits and food? Are the value and premium wine windows so very different?survey-says

And the Survey Says …

Davis then surveyed consumers and he found that many of them would have ordered wine at the premium restaurants if there had been a popular brand on the list. In other words, the windows in the two types of establishments may not be so distinct as conventional wisdom suggest.

Perhaps restaurant wine should be a little more like restaurant beer and spirits  and not try to create its own special window?  To quote from Davis’s thesis: “Premium outlets that do not list any large wine-brands are missing out on sales according to the findings of the consumer survey and also the wine-list review.”

This seems to me to be consistent with Tim Hayward’s hypothesis about restaurant food. Consumers want those safety options and you ignore them at your peril. Given that a widely available “safety wines” might be pretty popular (think Kim Crawford Marlborough Sauvignon Blanc, for example, or Mondavi Napa Fume Blanc) I am not sure about the logic of avoiding them entirely, even if you want to construct a list that probes the creative boundaries or defines an image.

How Different is Wine?

As I said before, Davis explores more topics and provides more analysis, but this is where I will stop. My purpose is simple: maybe we should re-examine what we think we know about what works best for restaurant wine.

I’m not recommending that fine dining establishments limit their wine lists to what a consumer can find a Kroger’s or Tesco, just suggesting that broadening the list to include more popular (and probably cheaper) wines that fall squarely within the generally accepted wine window might improve wine sales while making customers happy, too.

If a restaurant is willing to offer a gourmet hamburger to give nervous customers something to hold on to, maybe there should be more similar wine choices available. Many do this, of course, but sometimes it seems like all the attention is on other parts of the wine list.

I have written many case studies of different industries over the years and one thing I have found is that each sector confidently  believes that it is different from the rest. And of course important differences do exist. But it is wise not to ignore potential lessons from other product categories, especially when consumers see them as part of the same experience as they are likely to consider restaurant food and beverage choices.

>>><<<

A quick note about limitations. Davis’s study is obviously limited to those value and premium dining multiples that he studied in the UK and the consumers he surveyed there. Use caution in generalizing to other countries and other types of dining establishments.

Also please note (as if it isn’t obvious) that my concern here is increasing wine sales and the restaurants may be more interested in other things. Perhaps there is more profit (or faster table turnover) with beer or cocktail sales.

Restaurant Wine Prices: They’re Either Too High or Too Low

homskrimThe final panel discussion at this year’s  Professional Wine Writers’ Symposium in the Napa Valley was devoted to restaurant wine lists (students from the Culinary Institute of America’s wine program attended along with the wine writers). “Wine List: Friend or Foe?” was the topic and New York Times critic Eric Asimov was the moderator.

Bottle Shock

There was a lot to talk about because everyone seems to have an opinion or a pet peeve about restaurant wine, but time was limited and when I saw one of the panelists, Andrea Robinson, shortly after she smiled and struck a “wine economist” chord: “I wish we could have talked about price elasticity of demand,” she said.

Price elasticity of demand? Yes! That is how we economists talk about how consumers respond to the prices of different products and it is a fascinating question when it comes to restaurant wine.

The wine world knows Andrea Robinson as a Master Sommelier, wine book author, television presenter and former dean of the French Culinary Institute, but I know her as a keen student of economics and she and I are conspiring to organize an occasional series of Wine Economist columns that explore the fascinating issue of restaurant wines and their prices, which actually began a couple of weeks ago with my piece on “Restaurant Wine Wars and the Curse of the Second Cheapest Wine.”

Warning: Economics Content

You probably studied price elasticity of demand in your Econ 101 class, but in case you are a little rusty about the concept, here is a quick review. Price elasticity of demand is a measure of how responsive a product’s buyers are to changes in price. If the demand is elastic, then a relatively small change in price results in a proportionately greater change in quantity purchased. If the demand is inelastic, on the other hand, that same change in price produces a proportionately smaller change in quantity purchased.

The difference between elastic and inelastic demand is very important, especially when it comes to something like wine in restaurants. If the demand for wine-by-the-glass in  your bistro is elastic,for example,  then lowering the price results in a big enough boost in sales to increase wine revenues. Money from new purchases more than offsets the revenue lost from lower price on the wine you would have sold at the old price. Does that make sense? So lowering price increases wine revenue if the demand is elastic.

If the demand is inelastic, however, then cutting price is a revenue-losing proposition. The small increase in additional sales is more than offset by the money you lose due to lower per unit revenue on existing sales. You would need to raise price (if the competitive environment allows) to increase total revenue.

Oversimplified bottom line: all else being equal lower prices are worth exploring if the demand is elastic, but higher prices may be a better choice if there is an inelastic demand.

They’re Either Too High …

What is the right strategy for restaurant wine? Are wine prices too high as many consumers complain? Or are they too low? This is a surprisingly complicated question if only because there are so many different types of restaurants in different market environments and competitive situations and of course so many wines to choose from, too.

The case is very far from the economist’s ideal of perfect competition. Finding the sweet spot where both diner and restaurant benefit is necessarily pretty difficult and with alcohol revenues so important to restaurant bottom lines, making a strategic error could be costly.

Restaurants are right to worry that they leave money on the table if they price too low, but they should also be concerned about lost customers and sales if prices are too high. If I go to a restaurant and there are bottles of wine on just about every table, I have to think that the wine program is doing something right.

If you ask consumers about restaurant wine prices, most complain about high mark ups. The rule of thumb, for example, is that a glass of wine in a restaurant is priced at the wholesale price of the entire bottle — this strikes many diners as excessive. And the mark-up on bottle wine can be very high, indeed, compared with retail prices.

Or Not High Enough?

But sometimes the problem is that the price isn’t high enough. I visited a local brewpub a few weeks ago where a well-known local chef was making his famous spaghetti sauce for a limited time. The deep red sauce called out for a red wine, so that’s what I asked for even thought my only choice was the seldom-ordered house wine.

It wasn’t an exceptional wine, but it was better than my other choices for that particular meal and when I got the bill I discovered the wine’s cost: $4.75. Gosh, I haven’t paid that little for a glass of wine in years!

At that price there was no way I was going to get the pairing the pasta called out for. If only they’d brought in some better wines and raised the price!  I would buy more wine at the higher price (assuming the higher quality, of course) and dine there more often, too.

The Bargain Wine Curse

This isn’t the only situation I’ve encountered where the wine price isn’t high enough. I spoke at a symposium about Italian wine last year and one session featured a group of sommeliers from high end New York restaurants talking about their trade. One of the panelists explained his job as follows.

The people who come to my famous restaurant, he said, want to have a good time and they want to spend a lot of money on wine. Spending a lot of money on a bottle of wine is part of the luxury dining experience they come for. My role is to make sure that we have a lot of very expensive wines for them to buy. No kidding. That’s what he said and when I thought about it, I decided he might be right for his specific restaurant and its high-roller customers.

The particular focus of the symposium was on wines from the South of Italy and at one point I asked the sommeliers how these wineries could be more successful in the restaurant space? If I was at a winemaking conference I think I would have got an answer about viticulture and winemaking practices and if it was a wine marketing meeting the answer would have looked at branding and positioning.

But instead the answer from one of the somm’s was quite different. If they want to get wine in my restaurant, they have to do something to make it more expensive. Most of the wines are inexpensive and my customers want to spend more than that on wine.

Wow. I guess this explains why the restaurant reviews in the Times sometimes make a note when a wine list features a number of affordable wines, where affordable sometimes means $100 or less depending upon the type of restaurant! Do you suppose there are some diners who avoid restaurants with relatively affordable wines?

It’s Complicated

And so, as the subtitle of my last book suggested, it’s complicated and this is the first in an irregular series of columns that will explore different sides of the wine price question. As you can see, it is not just a question of wine mark-ups but also an issue of which wines are on the menu, since some choices are by their nature cheaper or more expensive.

With Andrea’s encouragement, I am going to put together a couple of columns that look at restaurant wine prices in theory and in practice and report on interesting research done by a Master of Wine.

I would like to test the hypothesis that under certain circumstances a restaurant will benefit from lowering its wine prices either by reducing the mark-up or by intentionally including types of wines that are less expensive (from less famous regions, for example — see Jancis Robinson’s FT column on under-rated wine regions).

I am reaching out to Wine Economist readers for help. I am looking for real world evidence about the impact of different wine price strategies. Can you suggest “natural experiments” that can shed light on this question? Or do you have relevant personal experience as a sommelier, restaurant owner or wine consumer that you’d be willing to share? If so, then please use the comments section below.

 

>><<<

Too high or too low? That reminds me of a tune from the 1940s. Enjoy!

Simply Irresistible? “Second-Cheapest” Restaurant Wine in Theory & Practice

secondLast week I wrote about the theory that you should always order the second-cheapest wine on a restaurant’s list. The second-cheapest wine rule as it is usually explained, is a naive application of game theory to the problem of ordering restaurant wine.

The premise is that the restaurant is trying to gouge its wine-drinking customers and that it does this by putting incredibly high mark-ups on the cheapest wine on the list. Diners are drawn to the cheapest wine because of the high general level of wine prices, the theory goes, and so the restaurant rakes in the dough when diners opt for the least expensive bottle.

So where does the second-cheapest wine theory come in? Well, since you are smart and know that the cheapest wine is a rip-off, you can “stick it to the man” by ordering the second-cheapest wine instead. Second-cheapest wine — the sweet spot in every wine list!

Game Theory in Circles

Now there is a lot that is problematic with this scenario, beginning with the premise (see below), but the game theory is bad, too. It implicitly assumes that restaurants are ignorant of the second-cheapest theory, which they obviously are not, and do not adopt a counter-strategy, which they probably would.

If an evil restaurant wine manager knows the theory and wants to rip you off, he or she can manipulate the situation by simply raising the mark-up on the second-cheapest wine, making it the worst deal of the list. It’s tit for tat, as they say in game theory (economics note: there really is a non-cooperative “prisoner dilemma” game theory strategy called “tit for tat.”)

Your logical response, I suppose, would be to shift to the third-cheapest wine since the second-cheapest is now a loser. But once the restaurant figures out your new strategy you will need to move up a notch again to avoid being ripped off. Play this out ad nauseum and you arrive at ultimate ridiculous rule-of-thumb: always buy the most expensive wine on the list.tumblr_lrp6a2atud1qmxjbzo1_400

And once the evil restaurant masterminds figure that out, your only recourse is obvious — buy the cheapest wine! (Or maybe just buy a beer.) That’s the problem with these rules of thumb  — they sometimes lead you in circles until your head spins.

More Than One Way to Play That Game!

The real problem with the second-cheapest rule is the premise — that the restaurant is always out to gouge you. Megan Krigbaum at Punch published an empirical investigation of second-cheapest by-the-glass wines at New York restaurants a couple of days after my column went live last week and she found several sommeliers who play the game by a different set of rules.

These restaurants want to get their diners to try interesting wines that will bring them back again and again and so they price them on the low side to induce otherwise cautious diners to sample them. Sometimes they even intentionally make them the second-cheapest wine because they think some of their customers won’t be able to resist the bait and will be rewarded with a very pleasant surprise.

Does this prove that the second-cheapest rule is valid — always buy the second-cheapest wine? Well, it shows that sometimes it will get you a nice wine at a restaurant that wants you to have a great experience and come back for more. And, to be honest, you probably don’t need a rule-of-thumb to have a great wine experience at a restaurant like that!

An Alternative Strategy

I have a one-word rule of thumb when it comes to restaurant wine: communicate. When in doubt, start a conversation. Talk about what you’d like to eat, like to drink, prefer to pay and challenge your server or sommelier to help find the right wine.

Some people don’t like to do this because they fear it shows their ignorance. They are the same people who won’t ask for directions when they get lost, I suppose.

The conversation strategy doesn’t always work — sometimes it will get you an up-sell pitch or expose a server’s lack of wine knowledge — but it strikes me as a better opening gambit than any price-based rule.

What’s the best way to talk with a sommelier? Read this article by Carson Demmond in the current issue of Food & Wine for some ideas.

Restaurant Wine Wars and The Curse of the Second-Cheapest Wine

bottomlineEdmund Osterland, M.S. Wine & the Bottom Line. Washington DC: National Restaurant Association, 1980.

Yes, that is a $100 bill that the corkscrew is drawing carefully from a bottle of wine in the illustration. It is the cover of a book that Master Sommelier Edmund Osterland wrote back in 1980 for the National Restaurant Association.

It was billed as a restaurant training manual, but it is really best seen as a manifesto written by someone who loves wine and who wants to see restaurants sell more wine and their customers drink more wine. Even today more than 35 years later it makes informative reading.

The message, as if you couldn’t guess, is that there are big bucks in restaurant wine if you do it right. But how?

Restaurant Wars

I found Osterland’s guide when I was writing my most recent book Money, Taste and Wine: It’s Complicated and Osterland’s manifesto became the inspiration for a chapter called “Restaurant Wars.” That title in turn was inspired by the Bravo network television series Top Chef.

There are many tense moments on Top Chef, a “reality” show where groups of talented culinary professionals compete in various elimination trials in order for one of them to emerge as the king of the kitchen hill. Perhaps the most stressful Top Chef episode of each season is a team competition called Restaurant Wars.

Randomly chosen teams of the surviving chefs must work together to open a pop-up restaurant for one night. They have to choose the restaurant’s name, the menu, decorate the space, purchase all of the glasses, dishes, and serving gear, train the wait staff and work the house. Oh, and they must purchase and prepare the food as well. The diners and judges compare the two teams’ results and pick a winner.

No one on the wining team can be eliminated, but someone on the losing team must go home, dreams in tatters. The trick to surviving the Restaurant Wars is not to be on the losing team and that means working together with the very people who you fear are trying to throw you under the bus. Easier said than done, which is why this is the episode that viewers love and the would-be Top Chefs hate.

Restaurant Wine Wars

Top Chef‘s Restaurant Wars have something in common with the wine experience in some restaurants. War is Hell we are told and Wall Street Journal columnist Dan Ariely says that restaurant wine is hellish combat. “The first thing to realize when picking from a wine list is that you are in a battlefield. This is a battle for your wallet—a fight between the restaurant, whose interest is to get as much of your money as possible right now, and your savings account.”

And it’s not an even playing field, either, Ariely says. “The restaurant’s owners have much more data than you do about how people make their wine decisions, and they also get to set up the menu in a way that gives them the upper hand.”

Osterland’s book was written to try to shift the combat from a wallet war to one where diner and restaurant work together to defeat the common enemies that keep them from having that enjoyable and profitable wine experience that both clearly desire. The fact that many still think of it as a fight over the bill all these years later shows that, while much has changed in the restaurant wine scene since 1980, much work remains.

Some of the advice could have been written yesterday. “Better informed, and with well-defined tastes, these “new “ consumers of the 1980s will also be very definitely interested in GETTING VALUE FOR THEIR MONEY.” The caps are in the original, which suggests that Osterland thought he needed to shout to get his readers’ attention. “Because they will be vastly more knowledgeable about wine, they will know the approximate costs of varying wines …  [t]hey will want to shop for the better values.”That paragraph has a contemporary ring to it, don’t you think?

“For the first time you will experience customers who enter your restaurant and ask to see the wine list before the menu. … YOU MUST MAKE WINE A MAJOR PROFIT CENTER.” Okay, okay – you don’t have to yell. But how?

Bluffer’s Guide to the Second-Cheapest511cm077stl-_sx307_bo1204203200_

Osterland called for improved wine knowledge among diners and restaurant staff and a lot of progress has been made here on both sides but much work remains. A WSET survey of British diners, for example, found that almost 20 percent of respondents said they generally bluffed their way through the process of ordering wine. They pretend to study the wine list, they said, and then carefully pick out the second-cheapest bottle.

This “second-cheapest wine” rule of thumb is not limited to just the British, of course, but I was amused when it showed up during a recent trip to London. Our waiter was obviously a bit impatient with the time we were taking ordering wine and so he just cut to the chase. “Why don’t you just order this one,” he advised. “It’s the second-cheapest.” Of course!

Why are diners so timid that they fall back on amateur bluffs and second hand rules of thumb? Wine can be complicated and intimidating, of course, but there is also the price issue to consider.

Perhaps the most radical part of Osterland’s manifesto was his plea for lower wine mark-ups, which he saw as a way to sell that elusive and profitable second bottle of wine to a party that might otherwise nurse the first bottle all night (or not buy any wine at all).

A General Principle?

More bottles, more regular diners, more money. That was Osterland’s message then and it is a message to consider today. Are restaurants leaving money on the table because diners don’t put more wine bottles there due to high prices?

There may be specific cases where the second-cheapest wine rule works, I suppose, but it fails as a general principle. Are lower restaurant wine prices a good general rule, as Osterland proposed? Or are there specific conditions necessary for success? More to follow.

>>><<<

Read this article to understand why you shouldn’t order the second cheapest wine, then look at this video to understand why people do.

Lunch with the Financial Times: Bargain Wine-By-the-Glass?

Every Saturday the Financial Times  publishes a feature called “Lunch with the FT” where a correspondent takes a newsworthy person to lunch and reports on both the conversation and the meal itself.

Don’t tell anyone, but I am sometimes as interested in the details of the food and wine as I am in the serious conversations that they facilitate. The Financial Times insists on paying and over the years I have seen a wild variation in bills.

One blustery British billionaire ordered as if he were paying himself, including a bottle of Chateau Palmer 1983 for £580 (about $900). The total tab was over £750 for lunch for two. At other times the bill is zero — the person being interviewed insists on tea at home, for example, or lunch at the company dining room.

One of my favorite interviews involved Tyler Cowen author of An Economist Gets Lunch and expert on both globalization and the Washington D.C. ethnic dining scene. His goal was to have a wonderful lunch while spending as little as possible, just to demonstrate that the opportunity usually exists if you aren’t afraid to try new cuisines (African or Ethiopian in this case).

Here, for the record, is the bill for the meal for two. I think he succeeded pretty well, don’t you?

Kebericho, Deli Market, 3811c South George Mason Drive, Virginia

Kwanta firfir

Awaze tibs

Minchet abish

Kidfo $15.99

Double espresso $2.00

Total (incl service) $22.99

Incredibly, since the Financial Times picks up the tab whether it is big or small, many subjects pass on wine. I suppose it is about making a statement — my subject is too serious to let wine get in the way — but this seems just wrong in terms of both dining pleasure and the economic incentive that the FT is purposefully providing.

Which brings me to this week’s Lunch with the FT, which is now my favorite in the series. The interview subject is economist Mariana Mazzucato, author of The Entrepreneurial State and the discussion of the role of government in economic innovation is very interesting.

So is the meal. The restaurant is The Gilbert Scott, Euston Road, London and the cost is moderate by London standards with one exception that caught the FT host by surprise when the bill came. Can you pick out the unexpected charge?

Asparagus £10.50

Leek and Jersey Royal soup £7.00

Duck leg confit £19.00

Sea bream £19.00

Green salad £4.00

Spring greens £4.00

2 Macchiato £6.50

Sparkling water £3.75

2 Glasses of Pouilly-Fumé  £80.00

Cover charge £4.00

Total (including service) £177.50

Yes, you can imagine the shock of seeing this charge “2 Glasses of Pouilly-Fumé £80.00” (about $120) and having to explain it to the accountants back at the office. We only had two little glasses of white wine … honest!

Explanation? Well it seems that the wine was a 2006 Pouilly-Fumé Blanc de Fume by Didier Dagueneau — one of the world’s great white wines and something that any wine lover would want to try. Two glasses cost almost as much as the rest of the meal including service, but many would say it was money well spent! It might be a great bargain in the grand scheme of things, although that’s a matter of taste.

It seems that The Gilbert Scott always has a couple of stunning wines available by the glass along with a well-chosen and  fairly priced wine list in general. Single glasses of the house selection are as low as £5. But if you are willing to splurge …

I am now in awe of Mariana Mazzucato — well done, Professor! You really know your wine and you know how to take advantage of an opportunity in the best possible way. I wonder if I would have been bold enough to make that choice? Brava! I think I want to have lunch with you sometime (if we can just get someone else to pay).

Thus inspired, I sit here by the phone waiting for a call from the Financial Times …. Hello? Rats. Wrong number.

Here is a link to the Mariana Mazzucato interview. Warning: you may need a FT subscription to access the page. Do you have a good wine-by-the-glass story? If so, please use the Comments section below to tell me about it.

The Wine Economist 200

This is The Wine Economist’s 200th post since it began a little more than three years ago under the name “Grape Expectations” —  a good opportunity to reflect briefly on readership trends, just as I did when we passed milepost 100.

Not that kind of list!

Milepost 200

The Wine Economist has an unusually broad readership given its focus (wine economics), content (no wine reviews, no ratings) and style (most posts are way longer than is typical for weblogs).

I never expected to get millions of visitors like Dr. Vino or Gary V. and other popular wine critic sites, so I’m surprised by how many people have found this page and come back to read and re-read.

About 200,000 visitors have clicked on these links, sometimes with surprising intensity. The Wine Economist has been ranked as high as #6 in the big “Food”  category where wine blogs are filed in Technorati‘s daily ratings and as high as the top 30 in the even broader “Living” group.

Reader Favorites

The most-read articles of the last few days are always listed in the right-hand column on this page, so it is easy to see track reader behavior. I thought you might be interested in readership trends since the blog began. Here are the top ten Wine Economist articles of all time.

  1. Costco and Global Wine — about America’s #1 wine retailer, Costco.
  2. Wine’s Future: It’s in the Bag (in the Bag in the Box) — why “box wine” should be taken seriously.
  3. The World’s Best Wine Magazine? Is it Decanter?
  4. [Yellow Tail] Tales or how business professors explain Yellow Tail’s success.
  5. Olive Garden and the Future of American Wine or how Olive Garden came to be #1 in American restaurant wine sales.
  6. Australia at the Tipping Point — one of many posts about the continuing crisis in Oz.
  7. No Wine Before Its Time explains the difference between fine wine and a flat-pack  antique finish Ikea Aspelund bedside table.
  8. How will the Economic Crisis affect Wine — one of many posts on wine and the recession. Can you believe that some people said that wine sales would rise?
  9. Wine Distribution Bottleneck — damned three tier system!
  10. Curse of the Blue Nun or the rise and fall and rise again of German wine.

As you can see, it is a pretty eclectic mix of topics reflecting, I think, both the quite diverse interests of wine enthusiasts and wine’s inherently complex nature.

My Back Pages

What are my favorite posts? Unsurprisingly, they are columns that connected most directly to people. Wine is a relationship business; building and honoring relationships is what it is all about.

KW’s report on the wine scene in Kabul, Afghanistan has to be near the top of my personal list, for example. I am looking forward to following this friend’s exploits in and out of wine for many years to come. (Afghan authorities found KW’s report so threatening that they blocked access to The Wine Economist in that country!)

Matt Ferchen and Steve Burkhalter (both former students of mine now based in China) reported on Portugal’s efforts to break into the wine market there. The commentaries by Matt, Steve and KW received a lot of attention inside the wine trade, but their thoughtful, fresh approaches also drew links, re-posts and readers from the far corners of the web world.

Looking back, I think my favorite post was probably the very first one, a report on my experiences working with the all-volunteer  bottling crew at Fielding Hills winery. I learned a lot that day about the real world of wine and I continue to benefit from my association with Mike and Karen Wade (and their daughter, Robin, another former student) who have taught me a lot about wine, wine making and wine markets.

Look for another report like this when The Wine Economist turns 300. Cheers!

>>><<<

Thanks to everyone who’s helped me in various ways with these first 200 posts. I couldn’t have done it without you! (Special thanks to Sue, my #1 research assistant!)

Follow

Get every new post delivered to your Inbox.

Join 2,504 other followers