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Restaurant wine lists: a margin call
Jay Rayner recently decried ‘shameless mark-ups’ on restaurant wine lists. Rupert Millar finds out what the margins are used for, and how to get the best value when eating out.
In London, a chunk of your wine bill is going towards ground costs
Feature findings
>How exactly restaurants use the margin from wine is difficult to say because it is rarely allocated.
> Margins are rolled into the general profit then used as needed, in London that is mostly on rent.
> Some must come back directly to wine, however, when one considers the cost of broken or new glassware, capsules for Coravins, candles, silverware and even reprinting the wine list.
> Sommeliers will sometimes ‘game’ the list and apply lower margins to wines they find interesting and wish to sell more of.
> A clever approach to buying can also be one way for restaurants to pass on better value to their customers.
The subject of margins in wine in fine-dining restaurants is a sore one. On the one hand, there are the sometimes perfectly justified complaints that margins are at times so outrageous as to be unjustifiable. Conversely, there is the equally true counter that running a restaurant is an expensive business; especially in central London. The general rule of thumb for pricing wine in the on-trade is to charge three times the retail price and add VAT – a margin of 70%, though up to 400% in some instances have been recorded. Wine is a restaurant’s surefire moneyspinner, which is why it is the area to which a substantial margin is applied. The question must be, therefore, what are the profits used for?
Frankly, it’s very difficult to give an exact breakdown. Not only are restaurants not terribly inclined to discuss revenue but profits from wine are largely subsumed into the restaurant’s wider revenue stream and used to pay essentials such as rent and staff wages. “In most restaurants there’s no allocation of where it goes to,” admits veteran London sommelier Ronan Sayburn MS. One might as well be resigned to the fact that, London rental rates being what they are, a hefty chunk of one’s wine bill is going towards ground costs. Yet, that’s not to say that all of it is. Particularly in a venue that clearly takes its wine offering and presentation seriously, there are rather large costs involved that the margin can be used to cover.
Wine budget
The Ritz’s head sommelier, Giovanni Ferlito, runs through how he might reinvest his wine budget: “I need to cover glass breakages – and I can tell you there are quite a lot – and we have nine different types of wine for service. We need a lot of equipment; Coravin machines, capsules for the gas, which can be 50p per glass, decanters and wine cradles. Laundry isn’t such an issue but we do use a lot of serving napkins as we need them for each ice bucket, and we use a lot of silver, which is also very expensive. Candles as well, for decanting wine. All of this is very expensive and the silver needs to be redone after a few years.”
Finally, even the printing of the wine list can be a somewhat forgotten expense. The list at The Ritz covers 800 wines and is 76 pages long. Thumbed and stained, easily torn, bent and wrinkled, with wines no longer listed or with price changes, it is clearly imperative to make sure it is up to date and accurate. Ferlito describes it as being like his business card – both a reflection on him and the hotel he represents. It is apparently reprinted twice a week, at no little expense. Sayburn would agree with the comment on glass breakages. A Zalto stem can cost about £12. If four are broken in an evening then you’ve instantly wiped out the entire profit of close to £50.
Much of Riedel’s stemware is not quite as expensive but that’s no licence to do an impression of a Russian wedding. Sayburn says he has found a way round this problem in the past by employing a dedicated “glasswashing team of three. We realised if we didn’t do that, a lot of glasses would get broken, so they pay for themselves and we have a lot fewer breakages.” The Observer’s ever-forthright restaurant critic Jay Rayner was recently heard to relate at the Cheltenham Literary Festival that wine lists were all “bollocks” and encouraged his audience to buy the cheapest thing on the list. In fact, as can be seen in the box out on p103, that’s not entirely the truth of the matter but, nonetheless, the reaction to many people in a restaurant must often be: “This all looks frightfully expensive I think I’ll just take the cheapest thing.”
Broken glasses can cost restaurants dearly
Best value
But is one getting the best ‘value’ for money in the process? The wisdom in the off-trade is that if one spends up on a bottle one gets more ‘wine’ for the price as there is less tax involved. Is the same true in a restaurant? Not entirely, because if a wine is £20-£30 on a list and that’s your budget, then the margin applied clearly is not extraneous to make a difference.
On the other hand, sommeliers do certainly ‘game’ the system to an extent that prior research or talking to a good sommelier can bring you a rather more satisfying wine for your buck. As Ferlito says, he, like many other sommeliers, will have monthly and annual targets he needs to reach. Knowing that many people are going to aim to buy wines under £50, that is an area where one can happily apply the full margin without fearing of impinging one’s profitability.
By contrast, the more expensive a wine, the less likely it is to have quite as high a margin. A wine costing several hundred of pounds or £1,000 on a wine list might be carrying a margin of 20%, even 10%. As Ferlito says, “you can’t put the same selling price on a wine you buy for £200 as the one you buy for £20 or it would be impossible to sell those [more expensive] wines.”
This is still small comfort for those to whom anything above even £40 is pushing the upper limits of their budget. If this is the case, then there are other ways for both customers and sommeliers to, as Sayburn says, “play around to sell more interesting things”.
Raphael Rodriguez, sommelier at Fera at Claridges, says: “Obviously you’re not going to apply it [the full margin] to all wines. At Fera we really want to promote small and artisanal producers from small regions, using unknown varieties. So we apply a lower gross profit margin on those guys and more on the more obvious, bigger names. A Sancerre will have a bigger margin than a Chenin from the Loire.”
The buying attitude towards wines by a venue or restaurant group can also make a big difference to the value to be had from wine in restaurants. Good examples would be London’s Le 110 de Taillevent and Roger Jones’ The Harrow at Little Bedwyn, Wiltshire. Both buy wines well in advance of when they intend to list them and, crucially, have the capacity to cellar them, which, in turn, allows for the listing of older wines but without the high prices one might expect.
These wines are not necessarily ‘cheap’; a full margin of 70% has been applied, but buying with a long-term view allows for a lot of the sting to be taken out of the tail, particularly for something like Burgundy or cru classé Bordeaux, which is otherwise very expensive. A case in point would be a little trio of villages level Morey St Denis from the late 1990s from Domaine Dujac at The Harrow – all listed for under £100 a bottle.
Rayner: I’ve seen shameless mark-ups
During a dinner at this October’s Cheltenham Literary Festival, the Observer’s esteemed restaurant critic, Jay Rayner, was heard to announce that wine lists were “fraught with problems, mostly because of the bollocks spouted by wine connoisseurs.” The comments appeared in the Telegraph, the Daily Mail and, indeed, the drinks business’ own site. Rayner was swiftly in touch, seeking to clarify his comments, saying they were made over a boozy dinner and while it wasn’t exactly what he thought, he did say that “a lot of wine lists don’t help themselves”. His main gripe, he continued, is that too many are “written with a particular customer in mind. “It pains the people who write wine lists to order them by price. “If you’re on a budget you have to work hard to find a wine in your price range. All you see are baffling wines and it alienates people.” Costs were also a bugbear and he thought that with the likes of London’s Vinoteca chain and Corkage in Bath offering sensibly priced wines by the glass, “people are very much more sensitive to stupid mark-ups. I’ve seen mark-ups of four or five and that’s shameless. Two or three is understandable but four or five is outrageous.”
Good deal
“Buy weekly and get a bad deal or in advance and arrange a good deal,” states Jones. “Cloudy Bay third party is already twice as expensive as direct from LVMH. That way it ranges from £28 to £70 – it’s not that the restaurant is always charging more but they bought it badly and that’s what gives a restaurant a bad name.”
He adds that, in an age when people can swiftly and easily look up the price of wines on their smartphones, a list that is well thought out, chosen with care and sourced sensibly is essential. “Give the client some new interests. They don’t see enough of different things, and restaurants really have to get away from the standard list.”
And, as we’ve heard, it’s into the unusual and intriguing corners of the wine world that a good sommelier is trying to tempt you and will reward the curious drinker. One could always do a little prior research online before going to dinner or one could talk to a sommelier.
As Rodriguez stresses: “Really engage your sommelier; you should not be afraid of talking about money but also be open minded. If you only drink Sancerre, Pinot Noir and Bordeaux then you’ll get hammered by margins. “If you go looking then that’s where the value for money is.
Cost-effective
This leads rather neatly on to the subject of where are you not being hammered? Or, perhaps, what should you be looking for in order to get hammered for less? Happily, it seems, quite a lot of the world is still pretty cost-effective, including large swathes of Europe.
“South Africa has been doing well for the past two years,” suggests Jones, who is something of a Cape-ophile. “Spain has incredible value, especially outside Rioja and in white wines. France is coming back if you look outside Burgundy. White Bordeaux is such exceptional value.” “A lot of Spain is still very good value,” says Sayburn. “Chile and Argentina, Portugal (“very underrated” agrees Ferlito) and lesser-known Italy.”
Rodriguez recommends Galicia and the Canary Islands, the Loire (for its array of grape varieties), Beaujolais (for its “dynamism”), the “exciting” terroirs of Sicily and the “history and potential” of Hungary.
Luxury and affordability
One classic region many mentioned was Champagne. Although rising costs in the very heart of Bordeaux and Burgundy are making those wines almost cabinet curiosities to most diners, Champagne – especially by the glass – is still an area where luxury and affordability when dining out can cross paths rather fortuitously.
“Something to keep an eye on is Champagne,” says Ferlito. “We have a different one every month, by the glass. We get Champagne at a very good price because we deal with the ambassadors. So just for that month we can do a promotion with a selection by the glass.”
In dreaming of cheaper wine in restaurants the best one can, reasonably, hope for is a brighter tomorrow where wine taxes are abolished and rents fall to historic lows. Burgundy will be cheap and all shall live in splendour, surrounded by Doric columns and acres of green space. Away from these happy uplands of fantasy, though, margins will have to expected, like death and taxes. There is, however, a simple truth in all things and it is raised by Jones: “In general, if a restaurant is charging too much, people will go elsewhere.”
Don’t know how you do things, but on this side of the pond, the standard is to charge three times wholesale, not retail.