Vineyard & Winery Management Magazine
Casual WiningChain restaurants in a post-recession world
By Tom Johnson
René Eichmannn, the second-generation winemaker at family-owned Bridgeview Vineyard and Winery in Cave Junction, Ore., has lived the dream. Bridgeview had expanded and needed to increase sales, particularly of its Blue Moon Riesling. One of the ideas was to try and score with a restaurant chain that could buy a lot of wine all at once.
"It's really tough to break into that world," he said. "If you're small, you can't be in all the right places at the same time. We were in a few Northwest chains, and we were close with P.F. Chang's, but we weren't able to be at the right meeting at the right time and the whole thing got dropped."
Things changed when teamwork by Bridgeview's Florida distributor and the winery's Tampa-based national sales rep sold not only the riesling but also Bridgeview's pinot noir to Bonefish Grill, an upscale "concept" chain with a handful of outlets and big ambitions.
"All of a sudden," Eichmann said, "we went from scratching our heads, trying to figure out how we were going to sell riesling, to almost not having enough."
As Bonefish added new outlets, Bridgeview added production capacity. Eichmann signed contracts with grapegrowers and wooed distributors in states where Bridgeview had no market, but that Bonefish had targeted for expansion. The recession threw a big scare into him. Bridgeview had made a lot of commitments and spent a lot of money, but Bonefish slowed its growth and looked for ways to cut costs and appeal to consumers with less money to spend.
"They scaled things down by eliminating quite a few wines," he said. "We were lucky that the buyer there stayed true and loyal to us."
Today, with the casual dining segment showing the first signs of life in three years, Bonefish buys about 9,000 cases of Bridgeview wine a year. The how-are-we-going-to-sell-this riesling has grown into a 35,000-case-per-year product line.
"We were so lucky," Eichmann said. "We kind of grew with them."
Bonefish Grill is at the high end of what the restaurant trade calls the "casual dining" segment. It's a group of familiar chains that dominates American dining, from the white tablecloth, date-night extravagance of Bonefish and P.F. Chang's down through the mid-priced Cheesecake Factory and Outback Steak House to value-oriented family feeders like Applebee's and Chili's. It's a segment that took a huge hit during the recession, and the brands that are continuing to thrive have made big adjustments in their level of service and quality.
"There's a lot more focus on the middle," explained Malcolm M. Knapp, who publishes "Knapp-Track," a report on restaurant sales that covers 90% of the restaurants in the United States. For the high-end chains, which already had active wine programs, the recession meant concentrating less on $100-plus bottles and more on wines around $60. The change that will have long-lasting significance is among restaurants that used to cater to households with $50,000 a year in income. They couldn't go the value route, because people with incomes below their target didn't have money to spend on restaurants even if the value was extraordinary. So, instead, they reached a couple of rungs up the socioeconomic ladder, into the $70,000 range. Families above that benchmark continued to dine out, even at the height of the recession. The question was, how to draw them in?
"Income correlates with education," Knapp said, "and higher-educated folks drink more wine."
Wine became a battleground, both a high-margin up-sell and a significant point of differentiation based on the understanding that wine drinkers were looking not just for value, but for something new and exciting.
"Today's wine drinker is very different than five years ago," said Mary Melton, director of beverage for P.F. Chang's. "People come in and they don't know what wine they're going to order, so we try to have everything from trending to tried-and-true. The tricky part is to find that blend. I want my mom to come in and enjoy a glass of wine and recognize labels, but I want my friends in the wine business to come in and say, ‘They have that?'"
Melton has had success with wines that, pre-recession, customers would likely never have given a chance. Driven by value, they broke away from familiar brands and grape varieties to explore less familiar wines that could be offered at a lower per-glass price. At P.F. Chang's, grenache, albariño and gewürztraminer have become wine list stand outs.
That took some promotional effort and flexibility. Chang's introduced bottle discounts and half-glasses, and others have done the same. But the promotional model that seems to be setting the standard for casual dining restaurants is Olive Garden, which Dean Small, president of Synergy Restaurant Consultants in Laguna Niguel, Calif., said "reinvented itself by creating a food and wine culture."
Olive Garden started its wine program long before the recession, and is relentless at promoting wine as a part of the "good life." Wine is depicted in its television commercials, the menus suggest specific wines to go with each dish, and smiling greeters reportedly pour 30,000 cases a year of free samples to customers waiting for tables. (Olive Garden declined to be interviewed for this article.) Other restaurants, looking for a way to boost income, noted Olive Garden's success and started making changes.
"Smart restaurants are making wine part of their core strategy," Small said. "They build wine service into their restaurant design. They want people to know they're serious about wine, that it's part of their DNA. They're looking for craft wineries. They don't want to be in what we call ‘the Sea of Same.'"
Mark Crisler was sailing that "Sea of Same" as a national sales rep when he noticed the wine tides turning. "I heard more and more that it was great that we had Woodbridge," he said, "but do you have anything you're not trying to sell to everyone else?" Crisler started Trellis Wine Group in Orange County, Calif., to connect smaller wineries with the growing niche of restaurants using wine to attract new customers. Trellis functions as a kind of national representative for smaller-production wines, and he said the daunting problem smaller wineries face isn't quality or value, but their ability to meet the expectations of their customers.
"History has shown that wineries run out of wine, or don't have distribution set up, or things happen," Crisler said. "That's one of the reasons smaller wineries haven't broken in." A winery that can commit 500 cases of a single variety is big enough to play with the casual dining chains, but relationships sometimes run aground when that inventory isn't immediately available in the right place.
"One of the biggest problems is distribution," he added. "When you're dealing with large chains, they're looking for absolute guarantees that inventory will be in every market, and that's a big project for small wineries."
Axel Schug of Schug Carneros Estate Winery, which supplies pinot noir to Seasons 52, a wine-oriented chain in the Southeast, agreed.
"When you're only making a few thousand cases of wine, you can't cover all the states a big chain might move into," he said. "It's hard to convince these single decision-makers that you have the distribution network to handle them."
Crisler said he believes wineries should target smaller, regional chains that operate in only a few states. They tend to be "a little more creative" in their wine selections, he said, and are considerably less complicated to service.
Schug said that too many wineries trust their wholesalers to make their arguments for them. Those wholesalers are usually one- or two-state operations with no understanding of a wine's availability beyond their own territory. That makes closing sales with even small multistate chains nearly impossible unless the winery itself takes an active role in the sales process.
"They want to talk to one person," Schug said. "They don't want to have to track down seven people. Bigger wineries have national sales managers, but wineries our size have to do that for ourselves."It requires long days on the road and a deep understanding of a confused regulatory landscape, but once a sale is made it can change the trajectory of a business. When Schug hooked up with Seasons 52, the winery ramped-up production of its Sonoma Coast pinot noir from 6,000 to 15,000 cases. The increase in production was not just to stay ahead of the restaurant's demands, Schug said, but also to be able to capitalize on the increased demand that restaurant exposure can bring.
"You don't move 100 glasses a week in a market without, at some point, getting 100 customers to believe in your product," he said. "If they've just spent $14 on a glass of my pinot noir in a restaurant, when they see it in a shop for $24 that's not going to be a shock. You're a lot more important to your wholesaler, and they're willing to give you more time and attention. That's why you don't allocate all your wine to one channel, because then you have to tell your wholesaler it's all allocated."
Knapp points out that year-over-year comps - the difference between sales in the same restaurants in 2010 and 2011 - are up 1%-2%. That's the first sign of industry-wide growth in three years. Higher-end chains are starting to back-off their value offers, returning to their roots by restocking lists with $100 bottles and cutting down on promotion. In the casual dining segment, the residue of recession is the thousands of outlets that discovered there was money to be made selling wine, and there is identity to be found in featuring wines that aren't advertised on television. That is, Knapp noted, a change as permanent as change gets in the restaurant business, the awakening of demand that will only increase as the economy recovers.
"Restaurants need to make an emotional connection with their customers," Small said, agreeing that the door for small-production wineries has opened wide. "Wine can be part of that, and it's a national trend. You go to Peoria, they don't know the names but they know they want something different."It is in that desire for something different that opportunity lies, but also where risks have to be taken and a new balance found. Eichmann, whose family winery has grown in large measure due to its success in restaurant sales, understands the complexity of working with single companies that sprawl across many states. It is well worth it, he said, despite the lost sleep.
"It's a worrisome relationship," Eichmann said. "If someone comes in and offers a deal they can't refuse, all of a sudden because we're not at a crucial meeting there are 10,000 cases that aren't being ordered any more. I love the relationship, but I worry about it."
That worry, most wineries agree, would be a good problem to have.
Tom Johnson is a writer and business planning consultant based in Louisville, Ky. He is also the author of the wine blog Louisville Juice (www.louisvillejuice.com).
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