The way in which wine is sold in the on-trade is a big turn-off that threatens the whole eating out experience. it’s Time, says Neil Bruce, to finally say ‘Hasta la vista baby,’ to the old way of doing things
For every rule there’s always an exception that proves it. Here’s a good one. The on-trade is collectively hopeless at selling wine, and the few exceptions out there that are doing it well only go to show just how much better the rest could be doing.
In this vein, Gauthier Soho restaurant in central London and The Old White Bear in leafy Hampstead might be very different establishments, but they both sell wine in a way that is illustrative to their counterparts.
But let’s ask first: why is the on-trade massively underperforming in wine? Answer: the front end (ie the wine volume and trading margin being actively generated through the front of house) is not being activated effectively, and the back end (the supply chain, buying and stock value) hardly gets much attention.
There are about 130,000 on-trade outlets in the UK, so the reasons for this underperformance are inevitably going to be many and varied. But the reasons broadly boil down thus:
- Supplier demands dictate wine lists rather than customer needs. So you will notice many of the same wines listed by the same supplier, no matter how different the outlet they’re supplying. I call these ‘cut and paste’ lists, mirroring how they are compiled.
- Therefore each wine listed rarely meets a clear and specific customer need, or is appropriate to the outlet and its menu. It’s all the wrong way around.
- A percentage margin, rather than a cash margin approach to ‘sell prices’.
- Matching ‘pairs’ of wines on a list (same ‘house’ red and white for example) is basically lazy buying, which is boring and limits consumer choice.
- Absence of a ‘point of purchase’ strategy – so wine is ‘invisible’ in an outlet. Equally, food and wine matching options on the wine list or menu are largely missing.
- Hoteliers understand a guest’s needs: bedding, bathrooms, bedrooms and occupancy rates – but rarely wine.
- Restaurateurs understand food and décor (and kitchens!), but rarely wine.
- Bars/pubs understand beer and spirits and décor, but rarely wine.
- Smelly, dank dishcloth glasses!
So what is it that Gauthier Soho (headed-up by Michelin-starred chef Alexis Gauthier of Roussillon fame and sommelier Roberto Della Pietra) doing differently, and doing well? Well, being an on-trade outlet hasn’t stopped Gauthier Soho from selling wines directly to consumers, to enjoy at home. Its ‘wine shop’ is online, part of its main website, and relatively new.
Through the web ‘on-trade only’ wines from their list are offered for sale off the premises – at about half the equivalent wine list price. On-trade wines sold this way typically add about 10% to an outlet’s total wine sales. And the best bit of all? It’s all incremental sales and incremental margin. There’s zero margin cannibalisation or dilution.
The Old White Bear is a born-again gastropub but it, too, is now engaging directly with consumers for ‘take home’ business, again based on about half the equivalent wine list price. Unlike Gauthier Soho, The Old White Bear doesn’t offer a delivery service, with customers generally being local and buying their wine when they drop in to the outlet.
Supplier demands dictate wine lists rather than
customer needs, leading to ‘cut and paste’ lists
Through GM, Aby Scott, the venue has just started monthly wine tastings that pair wine with food. Punters are charged about £15 per head, and these tastings sell out in days. In keeping with newer openings, The Old White Bear takes more of a cash margin approach to selling prices, especially when it comes to the better, tastier wines.
Although this ultimately means a lower percentage margin, the cash value is great for premium wines, so customer and outlet are both winners. It all adds up to a vibrant, profitable outlet with a strong, growing wine business and positive footfall. It shows the customer ‘this place is confident and serious in its wine offering’.
The above are two of the exceptions, but there are some general attitudes to wine in the on-trade I take issue with. Take a moment to compare and contrast how suppliers (or distributors) and their customers manage wine in their respective businesses.
Wine businesses, be they a distributor, agency or merchant, spend a lot of time looking at inventory levels (value and volume), stock turn ratios, cash flow and payment terms (in and out). The devil’s in the detail and they follow the money – the lifeblood of any business – closely.
On-trade outlets (or customers), on the other hand, have myriad different things to think about and, if there is no dedicated sommelier, ‘wine’ tends to get lumped into a single, generic box. That box tends to be disproportionately skewed towards the outlet’s wine suppliers, rather than towards its consumers. A decent wine supplier will try (to an extent) to list wines they believe should work in the outlet, but their motivations are fundamentally different to those of the outlet’s.
And not all wine suppliers are as good as they might appear. Therefore, when it comes down to it, the distributor will propose wines they want to sell in to the outlet, rather than working backwards from the consumers’ needs and ensuring the list reflects them and the menu.
If there are issues with the range selection process in the first place, that’s only the start of it. Wine list pricing in the on-trade is, I’m sorry to say, all too often a rip-off. It is a barrier to sales, margin-eroding for the outlet and succeeds only in driving consumers away from the on-trade.
Wine list pricing is, all too often, a rip-off.
It is a barrier to sales and drives customers away
At the more premium level, the maths is simple. Allow premium wines marked up to 65-70% GP to sit in your cellar, or make £15-25/bottle (in bankable cash) and sell case-loads. Some accountants
might grumble a bit about percentage margin reduction, but all will be delighted with the cash you’re bringing in.
I don’t exclusively blame the outlet itself for not optimising wine margins. However it has the biggest opportunity to make more money and yet generally doesn’t seem to recognise that fact. The current model is neither sustainable nor profitable, so things need to change.
The on-trade would benefit massively from taking a fresh, hard-nosed look at how ‘wine cash’ is really working within their outlet. What’s the weekly stock turn per SKU, and which levers are they pulling (and how hard) to make it better? How (and by whom) is the wine list composed, and what’s the structure of its pricing? Is it all a bridge or barrier to sales?
It might seem a strange question, but is the way wine is priced and presented in the outlet actually driving people away rather than attracting them in?
Most main courses are priced within just a few quid of each other, and yet traditional wine lists have a significant spread of pricing between affordable (generally generic, price-driven no-brainers) and special wines (where the real flavour is).
A question of value
What’s the consequence? Most people buy on price alone and stick to the cheaper wines. As a result, they leave feeling they have not had good value on their meal overall, and end up questioning whether or not they need to go out to eat at all. I still wince every time I hear the expression that ‘Eating in is the new eating out’, but the public seem to have less of a problem with it.
But there is another way. And it is more profitable. There are a variety of manageable levers that
can be pulled to optimise on-trade wine margins.
I’d encourage you to take a dispassionate look at the checklist above and ask yourselves how well you score against it. The chances are, sadly, that right now, you are merely the ‘rule’ rather than another glowing exception.
Neil Bruce has over 20 years in the wine industry, working for producers and big brand owners and has headed up the buying teams at Bibendum Wine and WaverleyTBS. He recently set up Studio Alto to optimise on-trade wine margins. Contact him on email@example.com.
Editorial feature from Imbibe Magazine – July/August 2012