WHAT BECOMES OF “RESTAURANT ONLY” WINES AFTER COVID?

 

We are in the midst of the many tsunamis that have caused a slew of articles about the future of the wine industry to fill our inboxes. One recent article, sadly one of many these days, focused on the many challenges facing a unique segment of the wine industry, the plight of the wine salesperson and their challenges in today’s economy. A bit of reading and thinking yielded an even more interesting newspoint worthy of discussion: how exclusive, hard to find wines are making their way to the shelves and list of retailers. What has not been discussed is what will happen to this link in the sales chain when the “new normal” arrives.

THE “RESTAURANT ONLY” WINE SALE CHANNEL

The function and role of “restaurant only” wines is something the industry rarely discusses publicly and remains one of its many dirty secrets. It is not a new way of selling wine. In fact, the practice goes back for decades but it is, essentially, a sales policy adopted by wineries, distributors or both, where certain wines are only sold to restaurants and are declared off limits to the retail segment of the industry. Wineries direct sales reps to funnel these wines to on-sale accounts only. Winery owners have been known to throw catatonic fits should a case or two of their wines slip through the cracks and end up on a shelf. Those fits are amplified even further should the wine end up in an advertisement or Winesearcher.

The reasons that wineries utilize this sales channel are many, some of which could arguably be considered to be legitimate. Winemakers often express a desire for their wines to be presented and consumed under ideal circumstances. The right food, the right glasses, the right service supposedly enhances the wine itself leaving a lasting, positive impression. Even more important to some owners is seeing their wines served at the best dining establishments which tends to get their endorphins revved up as well. Of course to taste the wine as the owner desires, the consumer must pay. Deeply.

For wineries selling highly allocated wines that have considerable demand, it’s a way to encourage consumption over collection. Rather than being drunk, many rare wines adopt the appearance of a commodity. These scarce wines often find themselves in the hands of collectors, only to be bought and sold again and again in the world of auctions and the underground economy that exists in the back rooms of retailers and restaurants. Or more frequently, the wines appear as counterfeits that increasingly populate this segment of the wine world. Needless to say, consumers get screwed again as collectors drive up the price and fakes drive up the risk .

The practice of restricting wines to restaurants even extends to how bottles appear. Restaurants have been known to reject wines with bar codes on back labels so as to avoid the impression that their selections have been tainted with mass produced wines. Wineries assist these accounts by affixing special back labels that leave the impression that the wines are not meant for supermarket scanners.

The desire by some wineries to control how their wines sold extends beyond on-sale accounts. Wineries are often quite vocal in how their wines are to be sold to consumers. Many estates want their bottles to only be sold in certain “types” of stores where the wines are “hand sold” from a curated selection of the top wines. To see their wine sold by an internet-only retailer or at Costco supposedly cheapens the image of the winery. Once again, as always, the customer loses if the retail image the winery prefers does not include discount prices.

To cater to wineries desirous of wine list placements, a small network of sales reps and distributors appeared focused solely on restaurants. With no need to address the needs of retailers, many reps developed quite the reputation, particularly in California where alcohol laws allowed for wineries and importers to direct sell directly. Because they controlled the allocation of the most wanted in their portfolio, their influence grew. In many cases, a restaurant could only get the good stuff if they also purchased wines that had less cache.

Critics of the preferential treatment afforded to on-sale accounts have raised plenty of other concerns. A look at this approach from a legal perspective have suggested violations of laws involving restraint of trade. Others love to complain about the preferential treatment accorded to the on-sale market frequently point to by-the-glass discount prices that are unavailable to retailers.

Whatever one thinks about this sales structure, the wine industry has allowed and sustained a system where there haves and have nots when it comes to many of world’s most desirable wines. Until COVID.

 

IS IT WORTH IT?

As we all know, business today is not as it once was, especially with so many restaurants closed and potential sales limited to retail stores and direct to consumer avenues. It is clear that sales reps that have an abundance of restaurant accounts in their account book are suffering. Stories abound of rare and exclusive wines formerly limited to on-sale accounts becoming available to all types of retailers. These wines are being snapped up to the benefit of both retailers and consumers while providing revenue to those links in the sales chain that are hard-hit. Brokers who never set foot in a store are suddenly the best friend of the offsale account.

However, some retailers are looking more closely at this situation and see a difficult choice. Should they purchase wines knowing they are supporting a system where wineries and sales companies have denied access to them for years? Yes, this is a unique opportunity for everyone to make some quick cash and make the accountants and a few consumers happy.

But really, who’s zoomin’ who? Where were these wineries and sales reps last year? And the years before that? These wines are not offered because everyone has had a sudden change of heart and appreciate just what retailers bring to the table. In reality, this is really just a quick way to offload some wine and raise some cash in what are admittedly, tough times. Theoretically, everybody wins.

More importantly,  however, is what does the world look like when things get back to normal? Does the system revert back to the old ways where restaurants get their historically preferential access to wines? Are stores expected to accept the old paradigm once things are settled? And what is the proper way to say thanks to the off-sale channel for their assistance during difficult times? Are thanks even required? Maybe this is all just cold, hard economics. And as it should be.

All of this, this separation of the wine business into differing routes to market, feeds into the narrative that restaurants are somehow better than retail in selling wine. In fact, on-sale and off-sale accounts are both part of one industry sharing the same goal of putting great wines into the hands of consumers. Do we as an industry really believe that retailers have less of a desire to learn about wine than sommeliers? Are the selections printed on a wine list really that different than bottles arrayed on shelves? Should the new normal require that we acknowledge that both retail and restaurants endevour to pass along knowledge and enthusiasm to their clients?

The reality is that we need to constantly remember that the wine world is interconnected and integrated with each participant sharing similar objectives. The operation of a sales channel exclusive to restaurants only serves to create winners and losers, dividing a wine world into those who get and those who don’t. If retailers are only provided access to these wines now in order to support and preserve a sales approach that clearly discriminated against them in the past and will do so again once this is all over, maybe the price for those wines is just a bit too steep.

Note: The picture above alludes to days long ago when Grgich Hills required retailers to purchase other wines in order to secure some chardonnay.