How to Manage a Profitable Wine Program: Part I

(A Guide for Non-Sommeliers)

Not every restaurateur or GM comes to the job with an arcane knowledge of wine. And while you probably don’t need to know the 13 grapes that make up a Châteauneuf-du-Pape, it is important to understand the underlying business of your wine program and the financial metrics that keep it profitable and efficient.  Sommeliers, while passionate and knowledgeable, can be a mixed bag when it comes to business skills and often place filling the list with the latest cult wines over delivering healthy profits.  To keep your wine program on track you need the business savvy to manage your team and push for the right results.

The key for non-sommelier owners and managers is to think about the wine program like a separate business unit. Like any business, you need to have a plan in place to ensure that your initial investment yields a healthy top line and predictable margins that contribute to your overall profitability. But very few restaurateurs go into the business of selling wines with any kind of plan, often resulting in a bloated inventory, slow moving wines, poor margins and a program built on the personal whims of their wine buyer.  The good news is that building the right plan does not require an in-depth knowledge of wine. It does, however, require a very clear understanding the financial expectations for each component of your program. With the right structure, guardrails and metrics in place, even a relative wine novice can maximize the profit-making potential of their wine list.

Part I:  Structuring your Program

Developing a pre-determined structure for your wine list is an essential step in ensuring your program stays on track. It’s like a business plan for your wine list. Most programs consist of wines-by-the-glass and a bottle list with entry-level wines, work-horse wines, and a tier of prestige selections that work together to create healthy top line revenue and a predictable bottom line. But this doesn’t happen on its own and, unfortunately, this is not something you can delegate to your wine buying staff. If you want to maximize the profits from your wine program, you will have to set the structure, budget and margins yourself.

A great example of this kind of structured program was described to me by industry insider Christian Pendleton from his time with the Knightsbridge Restaurant Group in Washington, DC.  The group runs some of the most iconic restaurants in the Nation’s Capital including The Oval Room, Rasika and the Bombay Club. According to Pendleton, the wine programs for the restaurants, regardless of the cuisine, were all structured in a very similar way to deliver predictable margins across the board. In addition, this structure was fully baked by the owner well before the restaurant opened its doors.

Here’s how it works:

“During the pre-opening, we would decide on a rough budget and how many selections we wanted to have on the list,” says Pendleton. “Then we broke down the list into whites, reds and sparkling – landing somewhere around 60% Reds, 30% Whites and 10% Sparkling.” Of course, when launching a new restaurant, the specifics of your wine program would change based on your individual concept, menu, price point and budget, but the key here is to determine the ‘chassis’ for your list and set a baseline for the wine program. “After we had this structure defined, everything was pretty much set,” Says Pendleton. “Once the sommelier was brought on board, we gave them the budget, the total bottle count for the restaurant, and the number of whites, reds and sparkling selections that would make up the list.”

The sommelier was also given three clear directives:

  • 85% of the bottle list had to be priced within the ‘sweet spot’ for that market. (At the time between $45 – $90 bottle)
  • Selections within each category should ladder up smoothly from low to high without huge leaps in pricing
  • The cost of goods for the bottle program had to come in below 33%.

And that’s it.

What’s great about this approach is that it gives complete discretion to the sommelier as to the choice of producers and varietals that go onto the list, but structures it in a way that always yields predictable financial results and a manageable overall inventory. It also gives the owner a clear way to monitor the list and ensure that the program stays on track. Have we purchased more prestige wines than agreed upon? Is 85% of the list priced in the sweet spot? Is the bottle list delivering 33% overall cost of goods? These issues become easy to identify and manage once the structure has been defined. According to Pendleton, “(Ownership) never dictated which wines the team brought in, but if you couldn’t follow the structure and deliver the costs, you didn’t work there very long.”

What matters is not the percentages of whites to reds or the specific pricing you determine – what matters is that you have a clearly defined plan for your program to which you can hold your team accountable. This will prevent exuberant, off-strategy purchasing and allow you to accurately forecast your wine costs and cash flow. A structured wine program also makes buying wine for your property much simpler and efficient. Instead of looking at every errant bottle that comes their way, your wine buyers will be laser-focused on a filling pre-determined slots in the list and make purchasing decisions that support your financial goals.

As the person ultimately responsible for your restaurant’s bottom line, you can choose to structure your list however you’d like, but the key is to create accountability, clarity and financial consistency for your wine program.

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