No Sale: Liv-Ex Report on Low Interest Rates & Bordeaux’s Dismal New Normal

bigstock-no-sale-280I have sometimes made fun of my wine collector and investor friends, saying that they are engaged in what Thorstein Veblen might have called “Conspicuous Non-Consumption.” They buy some fine wines for the purpose of not enjoying them in the glass, or so it seems at times.

Owning the wines and visiting these great wines in their climate-climate-controlled secure storage lockers is pleasure enough. Drink them? Horror! Then they’d be gone! OK, I know it is more complicated than this, but  you get the idea of the joke.

Not For Sale

Now a fascinating report from, the fine wine market trading platform and research center, suggests that non-drinking of great Bordeaux wines must be considered along with another phenomenon that would make even Veblen scratch his head: producers who make a business of not selling their wines. Or not selling very much of what they produce.

livex“Final Thoughts on Bordeaux 2015” is the title of a Liv-ex report that tries to make sense of the recently concluded Bordeaux en-primeur campaign. This year’s market for 2015 wines was unusually complicated, the report indicates. Vintage quality varied greatly by sub-region, for example. And while critics gave the wines high markets overall, they didn’t do so consistently, which is important since the speculative value of a 97 score (Suckling’s overall rating of the vintage) is very much greater than 94 points (Wine Spectator‘s evaluation).

Add to this exchange rate changes in the run up to the Brexit vote and you have a recipe for confusion. But all of this doesn’t really explain the fact that seller prices were well above what the market expected and so not much wine changed hands (at least compared with a few years ago). The opportunity to re-set the market, which the Liv-ex analysts had anticipated, was apparently wasted.

High Taxes, Low Interest Rates

This wasn’t a universal situation, the report makes clear. 2015 was the best vintage ever for some producers and the market accepted the higher prices. And some producers offered necessary discounts to move their stocks. But many raised prices and seemed content with meager sales and big retained stocks. Why?

The answer, according to Liv-ex, is complicated and begins with today’s historically low interest rates, which make the cost of carrying inventory low. Fine, but don’t they need to sell wine to pay costs? Yes, Liv-ex explains, but the margins on the grand vins are very high and so most costs can be covered quickly with an initial tranche of sales. Second- and third-wines provide additional cash flow.

France’s high tax rates are also mentioned — postponing revenue is also postponing taxation (possibly until a more business-friendly administration takes office).

A Different Economic Model?

But perhaps the biggest factor, which contributes to the “new normal” that Liv-ex sees, is a change in the economic structure of the business. Profits from making and selling wine are now less important than maintaining and advancing the capital value of the chateau itself. Selling wine at a lower but very profitable market price is old news. Raising price to enhance reputation and capital value is the new strategy.

The Liv-ex study notes that

“Priorities have shifted from making sales and generating cash flow to trying to maximise prices (of the grand vin in particular) and by extension the capital value of their properties. Indeed, …  the motivation to generate profits is dwarfed by that of keeping land values high. … Owners have achieved this by releasing smaller quantities onto the market and spreading their production across a second and sometimes a third label.  … Many commentators ascribe this trend to deep pockets. It is true that most top chateaux these days are owned by billionaires and insurance companies, but this has always been the case. The main motivation for the strategy is exceptionally low interest rates.”

The combination of the factors described here combined with similar incentives for the negoçiants results in prices generally above what consumers are willing to pay, the Liv-ex study concludes. The 2015 Bordeaux market was an improvement over 2014, but this is a “low bar,” the study says. “Moreover, for as long as the current environment — distorted by low interest rates — persists, there will continue to be a standoff … ” between supply and demand.

Hotelling’s Rule Alternative

The Liv-Ex researchers study Bordeaux closely, so their theory is probably correct, but as I read the report I couldn’t help thinking of one of the most famous microeconomics theories of the first half of the 20th Century: Hotelling’s Rule, named for Harold Hotelling. Hotelling was interested in the rate at which a firm exploits a finite resource that it owned, assuming the usual (for economic theory) perfectly competitive market environment.

To over-simply, the objective is to maximize the present value of the finite resource and so the short-run production decision depends on whether market price is expected to rise faster or slower than the rate of interest. If price is expected to rise faster than the rate of interest, it paid to hold back production for the future. If price is expected to rise more slowly than the rate of interest, then selling now and investing the returns makes more sense.

Under theoretical conditions, the equilibrium occurs when market price rises at an exponential compound interest rate.

A given vintage of a particular wine is indeed a finite resource to be sold today or sold tomorrow. Interest rates today are extremely low and so only very modest expected price increases are necessary to induce a winery to hold back stocks. At zero interest, prices need only remain steady to make stock-building a viable strategy.

The incentive to retain inventory is stronger than this, in fact, because the Bordeaux fine wine market is not perfectly competitive and restricting supply of a particular classified wine raises its current price. So in fact withholding stock may allow a wine firm to have its revenue “cake” today (scarcity premium for the wine that is sold) and eat it tomorrow, too (in the form of future sales of the retained inventory at prices above the low compound interest bar).

All else being equal, when market interest rates inevitably rise, this will shift the calculation towards current sales. But in the meantime, No Sale is the name of the game.

Logical Extreme: No Sale

I don’t think this application of Hotelling’s Rule is a better explanation than the Liv-Ex analysis or inconsistent with it, but it does open up a different way of thinking — looking at the situation in terms of the present value of the income stream.

It is possible to take this way of thinking too far, however, which is what New York Times columnist Frank Bruni hilariously did earlier this year when he wrote an “April Fools” column about college admissions. He announced that Stanford University had taken selective admissions to its logical extreme … and admitted zero percent of its applicants!

Because it was now totally unattainable, Bruni reported, Stanford was even more ardently desired than before and admission applications and strategic financial donations poured in. In Bruni’s fictional world, zero admission “sales” maximized Stanford’s reputation and revenue stream. Wow!

I wonder if that would work with wine? Whatever you do, don’t let the folks at Lafite, Latour and Margaux read Bruni’s column.

Anatomy of Wine Profit and (Mainly) Loss: South Africa versus Australia

Australia and South Africa are rivals on the rugby field, where they compete at the highest levels, and on your store’s wine shelves, too, where they fight for shelf space and consumer attention.

It is a good idea to study your opponent to see similarities and differences and that is just what Christo Conradie did earlier this year at the  Vinpro Information Day meetings in the Cape Winelands in a talk called “Producer and Winery Realities.” Conradie revealed the results of a study of profitability within South Africa’s wine industry and the data were sobering. (You can download a pdf of the presentation here.)rsa

Profit and Loss

Overall, only about 15% of South African producers are making strong profits while 49% have what might be unsustainably low profitability and 6% are breaking even. Fully 30% of producers reported losses. That’s a lot of red ink.

That news got my attention, but Conradie’s comparison with Australia really made me sit up. Breaking profitability down by region, the data for Australia show what you might expect. Profitability is best in some of the premium wine areas — Barossa, Yarra Valley, McLaren Vale, Coonawarra — where a majority of producers are profitable. But in Riverland and even in Mudgee the red ink flows and flows. Almost no one reported a profit in 2014 in these two regions.

Lots of reason for red ink. Weather, exchange rates, market momentum, problems in China and so on. Margins are the key to profitability and the premium prices that Barossa and Coonawarra producers are able to earn are certainly an important factor in their success.oz

The Premium Premium Problem

Now turn to an analysis of South Africa’s regions and a somewhat different picture emerges. Stellebosch is a premium wine production zone but also a high cost area. The price premium that  Stellebosch wines receive in the market does not appear to be enough to offset higher per bottle costs, eating into margins. Only 8% of Stellenbosch producers reported strong profits while 56% indicated loss.

The South Africa regions with the best profitability were generally those where higher yields were possible, which brings down cost, although Conradie made a point to show that the problem is not as simple as getting higher yields. A balance of many factors is needed to produce sustainable profit levels.

Supermarket Empiricism

Sue and I last visited South Africa in 2014 (I was a VinPro Information Day speaker) and we were surprised by the wine prices we saw. Converted into dollars, the inexpensive wines (including a South Africa-sourced Gallo Barefoot that we spotted in one supermarket) were about where we expected them to be. But premium RSA wines, many of them world-class, seemed  under-priced, especially when converted to U.S. dollar amounts.

In other words, it seems that the quality price premium for South African wines is relatively low and I think this is true in the export market as well as for domestic sales. Higher quality South African wines get higher prices, but not always to the same extent as producers in other countries. Or at least that our unscientific observation.

This is not news to the South African winemakers, who seem divided about whether to focus on the profitable higher-yield sector of the industry or to invest in reputation  and regional identity to differentiate products and raise the premium premium (if you know what I mean). Selling more is important in the short term, but earning higher prices is key in the long term.

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.

Book Review: The Perfect Wine? Multi-sensory Lessons from Planet Food

Charles Spence and Betina Piqueras-Fiszman, The Perfect Meal: The multisensory science of food and dining. (John Wiley & Sons, 2014).

One of the many benefits of speaking at Wine Vision 2014 in London last year was being able to participate in a multi-sensory wine tasting demonstration presented by Oxford professors Barry Smith and Charles Spence. As the Harpers report of the event explained, “it is not enough to get the liquid right” because how we experience a wine depends on many factors that can have both positive and negative effects.

Nose Clips and Jelly Beans

I have talked about this as “wine in context” and I wrote about it on The Wine Economist and then again in the first chapter of my new book Money, Taste, and Wine: It’s Complicated. Professors Smith and Spence are way ahead of my experiments and they were able to make many useful points in just a few minutes.

One quick experiment invited us to match wine with music, a task that Sue and I repeated in greater detail a few weeks ago at a lecture by Callifornia winemaker  Clark Smith. He actually had us hold a particular Chardonnay in our mouths for a few seconds and, by switching musical selection, changed the sensation from sweet to bitter. Unbelievable!winevision

One of my favorite moments at the Wine Vision seminar (captured in this photo collage) came when we were asked to put special clips on our noses so that the sense of smell was suppressed. Then we popped jelly beans into our mouths and … there was no flavor. None!  Now take the clip off, Prof. Spence directed, and a world of intense flavors erupted.   I knew that aroma was important to taste, but I have never seen it demonstrated so effectively. (And it was hilarious to see all of us standing around with nose clips popping jelly beans!)

The overall message was that wine is about more than what’s in the glass and that this is important both to consumers who want to enjoy wine and to the Wine Vision audience, made up of people who want to make and sell wine. And, as the jelly bean case showed, it isn’t just wine that depends on the multi-sensory context, it is everything and there may be much to learn from analysis of other products that can be applied to wine.

What Can  Planet Wine Learn from Planet Food?

Given all this, you can understand why I was interested in reading Prof. Spence’s The Perfect Meal, which usefully synthesizes the vast literature on multi-sensory analysis over on Planet Food.  Topics include

  • menus and service,
  • the art and science of food description,
  • the impact of plating, plateware and cutlery,
  • the  multi-sensory perception of flavor,
  • the role of surprise,
  • dining in the dark,
  • atmosphere,
  • technology and finally
  • the future of the perfect meal.

The idea is clearly that a dining experience can be improved through careful attention to each aspect of the experience. This is obviously also true for wine and in fact I think you can probably think of a wine analog for each of the dining factors I listed in the previous paragraph (glassware = plateware, for example).

I learned a great deal about dining and sensory analysis from The Perfect Meal, but of course my real purpose was to open up my thinking about wine — to think outside the wine bottle, if you know what I mean. Wine appears just once in the book — on page 56 in a discussion about the enormous variation in restaurant wine prices (same wine, much different price at the restaurant down the street), but ideas popped into my head in just about every chapter.

The Organic Wine Paradox

Here’s one example just to whet your appetite. Here on Planet Wine we suffer from what I call the Organic Wine paradox. Consumers seem to be increasingly interested in all things organic and your typical upscale supermarket features more and more organic products. But wine seems to be  lagging behind. Winegrowers are increasingly interested in going organic, but they are pushing on a string. Why don’t consumers pull organic wine along to a greater extent?

The Perfect Meal‘s authors report that attitudes towards organic foods are quite context sensitive and it is not always easy to predict whether an organic indicator will be a plus or a minus. They  report (pages 87-88) that when American consumers were surveyed about organic fruits and vegetables a frequent (28%) attitude (especially among those who indicated a low concern for the environment) was that the organic products would be healthier but have poorer taste. So organic can be a turn off, at least some of the time. Other studies found that consumers could find no taste difference between the organic and conventional fruits and veggies in blind tastings, so where did that attitude come from? Go figure.

Another study looked at cookies. The test subjects were presented with the same cookies, sometimes labelled organic and sometimes not. They apparently enjoyed the organic cookies s lot and bestowed on them  a kind of  “halo effect” because they associated them with lower calories even when there was no objective difference in calories, taste, etc. It’s all in our heads, I guess, and that’s important to remember.

There is much more to be said about the research into perceptions of organic foods, but let’s stop here and think about what we’ve learned. The success of  organic foods generally masks some real complicated consumer behavior. When the food is inherently healthy (fresh fruit) some consumers will see organic as a potential negative, but when the product is unhealthy to begin with (cookies) organic can be seen as a plus. So where does wine fit into this? In different ways for different consumers, I’ll bet, and the impact of an “organic” designation probably depends on other context factors, such as whether the wine is sold in Trader Joe’s, Whole Foods or some other “green and organic” retailer. Organic wines face a very complicated consumer environment!

This is not the only example I could cite and probably not the best once, but it gives a sense of what The Perfect Meal offers to those of us on Planet Wine. An interesting read if you want to think outside the bottle!