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Tips for Managing a Profitable Wine By-the-Glass Program

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28/02/2019 Understand the metrics, get the product mix, have an apt pricing strategy, replenish and you’re good to go.

A successful wine program is a key to generate a profitable revenue stream for any on-premise establishment, such as a restaurant or wine bar. Instead of focusing only on sales of wine bottles, though, it is just as important to focus on optimizing by-the-glass wine sales. The two are often correlated, with strong by-the-glass (BTG) sales often leading to strong by-the-bottle (BTB) sales. So what steps should a wine director be taking in order to develop a profitable by-the-glass program?

Understand the metrics of your wine program

The more you understand the numbers behind your wine program, the better able you will be to create a successful by-the-glass program. At a minimum, the wine director of a restaurant needs to be putting together key data points, metrics, and financial information in order to see where the restaurant should be focusing in the future. The starting point, of course, is simply tabulating how many total glasses of wine you are selling each week, and then breaking down that information with finer-grained analysis. For example, what is the split between red, white and sparkling wines? What are your bestselling varietals?

As you begin to analyze the data, you’ll probably start to notice that by-the-glass wine sales follow the popular 80/20 Rule. In other words, 80% of your wine sales are generated by just 20% of the wines in your by-the-glass program. In practical terms, that means you might only sell a few glasses of a white wine like Riesling per week and many glasses of a white wine like Chardonnay. If one of your top-selling wines is a house Chardonnay, that might be a strong signal that you can introduce a slightly-higher priced Chardonnay as an additional option on the by-the-glass list.

Get the product mix right

At a minimum, your by-the-glass program will have 1 house red and 1 house white. However, it is far more common to offer 2 reds and 2 whites – one of these will be a less expensive red or white, and the other will be a mid-range red or white. For larger on-premise establishments, another popular mix is to offer 4 reds and 4 whites. Here, it is possible to offer the by-the-glass patron even more flexibility and options. Instead of just one mid-range option to complement the house wine, it might be possible to offer two varietals, each with two different price points. And, finally, the largest by-the-glass programs typically feature 6 reds and 6 whites.

12 wines, though, is usually the upper limit of what can be profitable for a restaurant. Still, this gives plenty of flexibility to offer 3-4 red wines and 2-3 white wines, all at a variety of price points. Most restaurants rotate their wines on a seasonal basis, which usually works out to once every 6 months. A wine bar, though, might actually have a seasonal rotation, with new wines added (and old wines removed) every 3 months. Thus, throughout the course of the year, a restaurant can offer several different varietals, all at a mix of different price points.

Once you’ve decided on how many wines will be in your by-the-glass program, it’s time to research different wine options. You can reach out to wine distributors and let them know the types and price points of the wines you are considering, and then ask for a tasting. At the tasting, your sommelier or wine director should taste every wine, and decide on the best prospects for addition to the wine program. At this point, it is also possible to inquire about volume and scope discounts. Volume discounts are given for ordering a fixed number of cases (with either immediate or staggered delivery), while scope discounts are given for ordering more than 4 different wines at a time.

Develop an optimal pricing strategy

After choosing which wines you would like to add to your by-the-glass wine program, it’s time to price them. As a general rule of thumb, it’s best to offer 1-2 wines at a lower price point, and 1-2 wines at a mid-range price point, for both red and white wines. The choice of whether to add a third, higher-priced option is really based on your clientele, geographic location and customer preferences. For example, if you are based in a city like San Francisco and your core clientele consists of sophisticated wine drinkers, then you will need to have a high-end selection.

Within the restaurant industry, there are a number of benchmarks and guidelines when it comes to pricing. The average range for by-the-glass wines is anywhere from $8 to $15 per glass. There are a variety of ways to arrive at the optimal price, and one of these is to use the “pour cost,” which is defined as Inventory Usage divided by Total Sales.

The easiest way to think about the pour cost is that it is your margin on every glass sold, and most pour costs are in the range of 20-25%. That works out to a 4X or 5X markup from wholesale costs, based on the per-bottle cost. Put another way, you need to price your by-the-glass wines in such a way that you are making a large enough margin every time you pour a glass. If you can line up some very attractive pricing on your by-the-glass wines, then you have much more flexibility to offer them at a slightly lower price to patrons.

Prepare for the launch of the new (or revamped) wine program

Prior to a new by-the-glass program going live, there are a number of important steps to take. For example, you will need to re-program the Point of Sale (POS) system so that it can take into account all wines sold by the glass, and automatically track what that means for your bottle inventory. Depending on the size of the pour and how fresh you can keep partial bottles, you will need to replenish bottles after approximately 3-4 glasses have been served.

As part of the pre-launch preparation, you will also need to print out a new wine list and then communicate the details of that wine list to customers. Many restaurants, for example, now like to offer their wine lists as a PDF document that potential customers can download from their website. And, if they are sending out an email newsletter, they will want to communicate news of the by-the-glass program to all stakeholders in the restaurant (partners, customers, vendors).

Finally, time needs to be set aside for staff training.  A minimum of 2 training sessions should be used to familiarize staff with the new wines. One of these training sessions will likely be a staff tasting, while the other could just be an informal meeting where the sommelier or wine director provides an overview of the wine list and then elaborates on useful facts and narratives that can be used to tell a story about each wine on the wine list.

Recalibrate and replenish

Launching a new by-the-glass program is a big step, but the process does not end there. For example, you will need to think about replenishment. How often, for example, are suppliers stopping by with new wines? Unlike wines in your by-the-bottle program, there is no room for error when it comes to stock-outs of popular by-the-glass wines, so all the logistics and supply details need to be precise.

While it can be useful to document adjustments that need to be made to a wine program, most restaurants wait until the end of the season (i.e. every 6 months) before replacing poorly-selling wines. Part of this has to do with providing a consistent experience to restaurant patrons.

Of course, data plays a key role in deciding how to change a wine program on a season by season basis. Once you begin to see patterns in the data – such as data pointing to a serious “hole” in your wine program – you can start to listen to pitches from distributors and wine sales reps. Of course, they will be more than happy to sell you more wine, so you have to make sure that you are following your metrics carefully. If your by-the-glass wine program can only support 4-8 wines, there is no point in trying to extend that to 12 wines.

At the end of the day, you need to be listening to your customers to understand what they are looking for. And you have to be sensitive to their budgets as well. Just because your pricing model says that you should be charging $15 per glass doesn’t mean that customers will be willing to pay $15 per glass. For example, fast casual restaurants often focus primarily on affordably priced wines from national wine brands because they fully understand that most people are not willing to pay a huge premium for wine when dining casually.

As long as you follow industry guidelines on product mix and pricing, you will be in a good position to develop and create a very successful by-the-glass wine program. By putting in a little extra research and effort at the beginning, you will be well-positioned for long-term future success

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