Food

What is this, a wine list or a stickup?

PricesRestaurant and Catering IndustryDining and DrinkingRestaurantsBusinessConsumersBeverage Industry

The sommelier strode so briskly toward our table that the gold tastevin he wore on a thick chain around his neck was bobbing back and forth against his ruffled shirt like a buoy in a summer squall.

"Have you found a wine that you would like?" he asked, gesturing toward the wine list I was holding.

"I've found a lot I like but nothing I can afford," I said. "Given these confiscatory prices, you should be carrying a gun instead of that tastevin."

He was startled. But not nearly as startled as I was by the prices on the wine list. I drink wine almost every night, much of it from the modest cellar I have at home. That means I buy a good deal of wine and I know what it costs. I don't begrudge a restaurant a reasonable profit, but I saw one of my favorite Sancerres on the list for $65. I had purchased that identical wine -- same maker, same vintage -- at a store for $16.99 the day before. That means the restaurant probably got it for about $12, give or take a couple of bucks.

That's not a reasonable profit. That's highway robbery. Or as Alan Greenspan would put it, "infectious greed." And that's why so many people don't order wine in restaurants these days, except on special occasions. Or they bring their own. Or they order the cheapest wine on the list, whether it goes with the food they've ordered or not.

Wine prices -- especially California wine prices -- have skyrocketed over the last decade, and not just in restaurants. The average annual spending per adult on premium California wines -- wines made from an identified grape varietal, such as Cabernet Sauvignon, as opposed to a jug wine -- almost quadrupled, from $16 to $61, between 1990 and 2000, according to Motto Cryla & Fisher, a wine industry consulting firm.

Some of that increase is because more people are drinking better wine. But rapidly escalating prices are a bigger factor.

"The prices are just ludicrous," says Daniel Johnnes, a wine importer and the wine director at Montrachet in New York. "Gouging is a real problem. Some restaurants don't seem to realize that in this economy, people are looking at their purse strings more carefully than they were a few years ago."

Restaurants are not solely responsible -- and in many cases, they're not even primarily responsible -- for this price escalation. There's more than enough blame to go around.

Larry Stone, the sommelier at Rubicon in San Francisco and one of the most respected wine authorities in the country, blames the wineries -- and the consumers who pay high prices for cult wines.

The boom years

The problem began, Stone says, with the "phylloxera-induced scarcity of grapes in the late 1980s and early 1990s." That scarcity led to increased demand -- and prices shot up accordingly. At the same time, a booming economy inspired many instant millionaires to decide that owning a winery was the passport to fame, even-greater fortune and just the sort of return-to-the-land pastoral bliss they'd always longed for.

They paid big bucks to buy their vineyards, then charged big bucks for their wines to recoup their investment -- and to satisfy their ego needs, to keep up with the other Johnny-wine-latelies who were getting high prices for their wines. Grape growers wanted their share of the new riches, so they boosted their prices too -- from $3,500 a ton to $6,000 a ton, almost overnight, Stone says.

That made wine prices jump again -- as have high scores from Robert Parker and, secondarily, Wine Spectator. Regardless of cost, some folks just have to have these 96-, 98-, 100-point trophy wines -- Screaming Eagle, Harlan, Colgin, Bryant Family Vineyard, Marcassin. The wines are then resold at auctions for several hundred (or several thousand) dollars a bottle.

Such cult wines are made in small quantities -- 300, 500, 800 cases -- and sell quickly, going directly from the wineries to private mailing list customers and a few select restaurants and retailers.

That scarcity pushes their prices higher, and larger-production wineries then feel justified in raising their prices as well.

The basic Napa Valley Cabernet from Caymus Vineyards had a retail price of $20 to $27 in the early '90s; for the '95 vintage, the price jumped to $65. The '93 Far Niente Cabernet retailed for $45; list price on the '99 is $115.

Some wineries now seem embarrassed by their huge price hikes. When I asked Far Niente about their prices, I was told it was against company policy to release prices of previous vintages. At Caymus, I was given only the prices since 1995 -- after the big increase went into effect -- and was told, "That's as far back as Chuck [owner Chuck Wagner] would like to go."

It wasn't terribly difficult to find the prices -- I got mine from old copies of Parker's Wine Advocate and from the Wine Spectator and Duke of Bourbon Web sites -- but since when do companies treat their retail prices as a trade secret?

In contrast, Josh Jensen of Calera Wine Co. is refreshingly open about his price increases.

Jensen long kept his prices stable and reasonable. His top-end Selleck Vineyard Pinot Noir was $38 in the 1992 vintage, and it was still $38 for the 1995 vintage. But in 1999, when he released the '96 vintage, he raised all his prices substantially; the Selleck shot up to $80.

Why? Largely because he thought low prices kept his wines from getting the respect they deserved. "Critics and consumers automatically assume that wines selling for under $40 can't possibly be as good as those selling for two, three, four times that amount," he says.

Wines like Calera's -- only 5% of which are sold directly to mail-order customers -- go through the normal distribution channels, as opposed to the direct-mail sales of many small-production wines. That means most wines are handled by several middlemen -- brokers and wholesalers -- and each tacks on a fee, which raises prices further.

Restaurateurs -- especially high-end restaurateurs -- argue that they're also entitled to their markup, to cover the cost of cellaring, good glasses and a trained sommelier. But what's a fair markup?

Flowing profits

Several restaurateurs I've spoken with recently say 2 1/2 times their cost is fair for most wines -- somewhat more for cheaper wines, a little less for high-end wines.

But many restaurants mark up their wines much more, and almost any strict formula hurts the consumer. If a restaurant paid, say, $20 for a wine four years ago, then marked it up 2 1/2 times and sold it for $50, the restaurant's profit was $30. If the restaurant has to pay $40 for the latest vintage of that wine and also marks it up 2 1/2 times, the consumer has to pay $100 -- and the restaurant's profit has gone from $30 to $60.

Why not mark it up less and settle for, say, a $45 profit (still 50% more than four years ago)?

Restaurant wine prices, like the policies behind them, vary enormously from restaurant to restaurant, though, even at the same type of restaurant, in the same general location.

You want a really nice bottle of Cabernet to drink with your sirloin at one of the downtown Los Angeles steakhouses?

You could pay $100 for either the '99 Lewis Cellars Reserve or the '98 Stag's Leap Fay Vineyard Cab at the Pacific Dining Car -- or you could pay $160 and $190, respectively, for the exact same wines at Nick & Stef's. You could pay $80 for the '98 Silver Oak Alexander Valley Cabernet at the Pacific Dining Car or you could pay $108 at Arnie Morton's -- or $120 at the Palm.

For many restaurants, wine is a major profit center. They've long charged a high markup on hard liquor, and they use that as a model for their wine pricing. During the economic boom of the '90s, they could get away with that. Many high rollers (and their bosses) figured the more they paid for a bottle of wine, the more they impressed their clients and colleagues.

Goodbye, big spender

No more. In today's economy, restaurants -- especially high-end restaurants -- are hurting, and sales of big-ticket wines are down dramatically. Restaurants can help their customers and themselves by pricing wine more reasonably. A customer who doesn't feel cheated is more likely to buy a bottle, rather than a glass or two -- or a second bottle rather than a single bottle. He's also more likely to listen to a sommelier's recommendation, to drink a wine that goes well with his food, to enjoy the entire experience -- and to return and order a better bottle.

It's time that restaurants realized that. And it's time that California wineries became equally realistic. Bordeaux, which also dramatically raised its prices through the '80s and '90s, cut its future prices for the 2001 vintage as much as 37% from 2000, recognizing the downturn in the economy and the qualitative drop from the 2000 vintage.

Consumers are accustomed to that fluctuation in French wine prices, says Calera's Jensen, but in part because there has traditionally been less dramatic variation in quality from vintage to vintage in California, "it's always been a truism, an unspoken rule, in the high end of the American wine market that you can't lower prices from one vintage to the next. If you do, people will think you're saying it was a crappy vintage and they won't buy your wines."

Some California wineries have cut or held the line on prices. (Calera dropped the price on its '99 Selleck Pinot from $80 to $55.) But too many California wineries have continued to raise prices, even for the widely derided 1998 Cabernet Sauvignon vintage. Given the current grape glut in California -- and increased competition, especially in low-to-medium-priced wines, from southern France, southern Italy, Spain, Australia and South America -- the failure to take a more reasonable approach to pricing could cost California wineries, and the restaurants and retailers they supply, much of the ground they've gained with consumers in the last 20 years.

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Paying more

The average annual amount Americans spend on premium California wine has jumped since 1990.

1990 $16

1995 $28

2000 $61

Source: MKF Research

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