Boomers and the Emergence of the Corkage Economy

A generation is retiring. For all the talk of Millennials, it was the Baby Boomers who took their interest in fine wine to the massive middle of American restaurants. Fine wine had previously been sold in French, Italian, and German restaurant enclaves, but on a small scale and to a limited clientele. The Boomer generation changed that, and their willingness to pay for wine brought deep wine lists to restaurants of all kinds and cuisines. In the wake of the Boomers, fine wine service flourished beyond the "fancy" restaurants. A good wine list became expected at any good or even decent restaurant, and that allowed a much, much broader market for sales.

Now 11,500 Boomers are retiring each day, says the latest Wine Industry Report from Silicon Valley Bank. The shift has already affected the market profoundly, and the long restaurant wine lists and full mark up wine programs that became a commonplace in the late 1990s and early 2000s have receded. They have been replaced with discounting, loudly trumpeted, and more quietly, with BYOB.

"With Boomers hitting retirement age, we have a real question about the ability to increase wine sales when older generations who are willing to pay for a good bottle simply can't consume the volumes they used to, and younger generations can't afford a good bottle but could consume more," announced the authors of the Silicon Valley Bank report. They were addressing producers of wine, but it is clear that the wine side of the restaurant equation has changed a great deal since the 2008 financial downturn and the retreat of the Boomers. Where the most expensive bottles of wine in the world were once regularly sold in restaurants at a full markup, that is now a limited market, confined to gastrotourism and wealthy trophy hunters. Outside of a few restaurants that cater to a global clientele looking for the very finest and best, there is less ability today for a restaurant to sell the highest priced wines. This is because those wines are quite a bit more expensive than they were 15 years ago, but also because the market who has the most interest in the wines may already have them at home in their own personal cellars. The Boomers not only are drinking less due to age, they are drinking what they already have. Boomers are drinking wines they acquired over a decade or more of buying for their own cellars, purchases that were often made before the wines hit the price levels they are selling for today.

There are several reasons why Boomers might be more reticent to buy off the restaurant wine lists than they once were. Firstly, and perhaps most powerfully, they remember when these wines were cheaper, often considerably so. Also, they have often have their own cellars, while they often drink less wine due to health concerns. The economy is not as free wheeling as it was, nor does the middle class feel as affluent as it once did. Boomers, now retiring, have to start living off of their savings. And there has not been a successor in terms of market sway to voices like Robert Parker, Jr.'s, someone who can incite a large swathe of people to make an expensive purchase. Retail sales as an alternative to restaurants have garnered more attention, due to email blasts. And finally, the specter of fraud and fake bottles has made collectors more skittish about new purchases of very expensive wines. There is a whole generation that is no longer buying the best wines at the high markups that funded the fine dining model.

So what is happening at restaurants instead? Discounting and corkage. Think about the most talked about New York restaurant wine programs of the last few years. They often feature some sort of discount on expensive wines, whether it involves Champagne, or big bottles, or the whole list. If not a direct discount, then some ability to pay only a portion of the full price, such as an allowance for purchasing half of a full bottle of wine. Many restaurants have found that standing out requires shaving the profit margin. At the same time, informal agreements have sprung up all over the city, allowing owners of expensive and rare wines to bring them into restaurants for a nominal fee, if any. This is a fundamental change to a market that has historically been very resistant to corkage (in contrast to, say, San Francisco). The restaurants are making less and less investment in large wine inventory, and so have less justification to deny corkage of rare wines. A whole generation of sommeliers came of age after large wine price increases, and has a real desire to try the wines they have limited access to. Thus deals are struck. As much as the industry is loathe to admit it, the momentum outside of a few privileged restaurants has mostly moved towards corkage. The most expensive bottles being drunk in the dining room are rarely purchased off the restaurant list any longer. A Boomer generation wants to drink what they already have, and a group of young sommeliers is very curious to try those same wines. Where sommeliers once courted wealthy clients as customers, they now find them to be benefactors. Private holdings eclipse what it is now possible for restaurants budgets to compete with, and less restaurants are making the effort to try.

Where the momentum has shifted, so have attitudes. Enthusiasm has thoroughly replaced certitude amongst the sommeliers. And in the culture generally. There is encouragement to drink more wine, not to say for sure which wine is the best. That suits a wine world where old hierarchies are overthrown by previously unknown wineries on an almost regular basis. And where there is so much generally good wine in the market, that there is less chance of choosing a seriously bad wine. It also suits a world where sommeliers have less leeway to dictate terms to a certain clientele. At the high end of the market, sommeliers rarely set the tone anymore. Notably, it is the collectors who sound like the sommeliers used to: quite sure of their choices, and sometimes dismissive of large swathes of wine production. Those collectors are themselves more knowledgeable than they were about wine 20 years ago, and require less sommelier assistance to make their own choices. Boomers, even with all the changes of time and economy, still define the market for fine wine.
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[Photo: Krieger]