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Sunday, January 30, 2011

Wine Stock Management for Restaurants

David Kesmodel's article, Snooty? Not Today's Wine Drinkers, in the January 20th Wall Street Journal studies the new trends in the wine market.

A few of the findings I found interesting point to continued strong wine sales. The big shift down is in the price per bottle.

After trading down in the recession, many consumers are staying with lower-priced wines. The fastest-growing segment is $9-$12 a bottle.

Mid-priced bottles are the life of the party. Last year, unit sales of wines priced at $9 to $12 a bottle rose 12% in food, drug, convenience and other stores, a faster growth rate than in other price segments, according to market-research firm Nielsen Co.

Jordan Vineyard & Winery, whose wines are often found at high-end steakhouses, enjoyed a 5.5% increase in overall sales last year, and projects an increase of 6% to 7% this year, according to Chief Executive John Jordan. The Healdsburg, Calif., vintner's wines retail for between $28 and $55, and run anywhere from $65 to $125 per bottle in restaurants.

For most restaurants, this could produce much lower beverage cost % since the mark up on higher priced bottles is often lower than the popular house options. Of course, the gross profit per bottle will trend lower. This shift may allow some restaurants to end the practice of acquiring legacy wines just to remain on a list. As the value of the wine inventory drops, the turnover will improve.

If you have a large inventory of aging wine in the $100 per bottle range, you may want to take a write down. The accounting principle of lower of cost or market provides the justification for the write down. Cut the expensive wine inventory valuation by half and you may get a tax benefit in 2011.

Managing the Coming Increase in Food Costs

As the recovery starts to filter down to more discretionary spending at restaurants, we are facing a major shift higher in many key commodities. Oil will most likely go well North of $100 a barrel in 2011. We can expect grain prices to trend higher as the demand for ethanol increases. Grain feeds livestock. Flour, corn, beef, pork, chicken and other key items will be increasing in price.

The upscale dining segment has really had a tough time during the recession. Demand for prime beef has declined. Demand for expensive wine has declined. Demand for 50 year old cognac has declined. Restocking the shelves may not make sense for this segment. As the number of these restaurants has declined, the market may find an equilibrium sometime this year. The survivors will see the 20% plus sales declines end. In fact, sometime this year the upscale market will hit bottom.

How much of a bounce can we expect at the bottom of this curve?

I work with some operators who have seen 4 or 5 of these down cycles. They all say this is the longest and deepest for them ever. These operators are not raising menu prices. Too much competition from the next rung down on the dining ladder. With higher food cost prices, they have decided to rely on higher guest counts to make their budget work.

Monday, January 03, 2011

Outlook for 2011

I expect 2011 will usher in a new wave of job creation. This wave will take the unemployment rate down below 8% by year end. Some of the job growth will take place in the Rust Belt.

During the holiday season, I traveled to Upstate New York. The General Electric plant in Schenectady was all lit up and there were way more cars in the lot than recent years. GE will be producing batteries. AMD will be opening a brand new chip factory in Malta. The roads have been re-engineered with rotaries to handle the expected traffic volume.

Restaurant dining has become less formal in recent years. I expect this trend to continue with greater speed. Diners want to get out more often than the past few years and they want to be recognized by the management.

On our drive back, we stopped at a restaurant in Binghamton and the owner stood near the door greeting every guest. He was there as we left and we felt the traditional "Thanks for coming! Was everything OK?" seemed 100% genuine. I told him I really enjoyed the salad dressing and rolls. We ordered our salads with oil and vinegar and they offer guests a nice quality extra virgin olive oil and balsamic vinegar.

I'm going to try and patronize independently owned restaurants more this year.

There is a growing awareness of waste in the country. We will see the concern for wasted energy and clean water spread to food. Smaller portions and healthier options will be popular. Whole grain pastas, brown rice, whole grains in bread and rolls and locally grown produce will continue to get visibility in menus.

McDonald's starts the year with $1 for all sizes of coffee and soft drinks. The price pressure on non-alcoholic drinks will continue. Expect your guests to scrutinize their checks looking for prices on specials and drinks. If you price your soft drinks modestly and include the pricing on your menus, the move to complimentary tap water may start to shift back to revenue generating drink options.

With any economic uptick, we can expect market prices to increase. We ended 2010 with higher prices for gas and grains. These markets will be volatile with an upside bias.

I expect the comparable unit sales statistics to be positive in 2011. The strong concepts will see 5% plus growth. Don't expect an immediate turnaround. January is the month of New Year's resolutions which tend to give way around Super Bowl time.

Restaurant Data Pros

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