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Will Danny Meyer's No Tipping Plan Change Wine Drinking?

When Danny Meyer eliminates tipping and raises prices at all of his full service restaurants, which he plans to do by the end of 2016, he'll need to work hard to help consumers find value in food that costs more than it used to, and he'll need to work even harder to convince guests to shell out a few extra dollars for drinks. John Ragan, Union Square Hospitality Group's director of wine, explains why. "We all know that wine is, for so many people, an additive part of a dinner or a lunch and not an essential part," he told Eater. In other words: when prices go up, many will be more inclined to cut down on alcohol before they cut back on food. The primary purpose of any restaurant, after all, is to feed people, not to imbibe them.

Under Meyer's so-called Hospitality Included program, wine prices will rise by 21 percent on average, which is not a heck of a lot more than what guests are currently paying since they won't have to tip. But psychologically, seeing an $18 glass jump to $22 on a list can be frightening. Making things even more challenging is the notion that consumers already perceive restaurant beverage prices to be quite high. Wine programs, like food, often operate at or around a 30 percent cost of goods, meaning that a $90 bottle of pinot noir on the list probably cost the restaurant $27 to purchase. But a guest is more likely to be critical of a pinot price than that of a steak marked up by the same amount – cooking a dry-aged ribeye requires practice; opening up a bottle of riesling does not. And sites like Wine Searcher make iPhone-equipped consumers explicitly aware of how much more they're paying for wine in a restaurant than at a wholesaler nearby.

None of this is to discount the value esteemed restaurants add to the drinking process. Your cramped studio in Williamsburg isn't as convivial as Blue Smoke, nor is it equipped with as many light-as-air Zalto stems as, say, Momofuku Ko. And your home cellar, located under a heap of laundry, isn't filled with a curated list of hard-to-find bottles that will pair with wherever takeout you're ordering. But the more prices rise, the more guests might overlook such benefits.

Ragan, of course, has a few ideas on how things will all work out. The 41-year-old is charged with keeping people drinking (while adding to the company's bottom line) and he's got a staff of 40 sommeliers and wine directors to make that happen. Here are his tentative plans.

1) USHG Will Do Whatever it Takes to Keep People Drinking

The definition of a successful wine program is not something you find in formulas and spreadsheets, but rather, in the words of Ragan, it's "when you go into the restaurant and everyone there is drinking wine." The wine director explained: "It doesn't matter whether they're drinking a $40 bottle or a $400 bottle. That's the best determiner of whether you're doing the right thing, that everyone chooses to play."

To make sure everyone continues drinking under Hospitality Included, markups, just like with food, will vary. "It wouldn't be good business to lay a certain percentage across the board," Ragan said. "It's really important that you still have your $9 glass of wine and your $28 bottle of wine – in the right venue. We're going to do everything we can to preserve that idea. You don't want to signal to anyone that this isn't the place where you can pop into and have a simple glass or a fun bottle. And so that means that there might be some other spots where you make that up."

When I mentioned that diners can be scared off when a glass of Champagne starts at, say, $34 at a service-included venue, Ragan suggested that emphasizing volume could be a better path to profits than traditional markups. "If I go to a restaurant and that glass of Champagne is $34, that's the best way to tell me you shouldn't drink Champagne here." So for a $34 pour with a 50 percent profit margin, "why not why not sell twice as many glasses at $26 and make $8.50 on it? That's where we need to think different." Does thinking different also mean perhaps taking a bit of a loss in the short term and charging less for wine than what USHG would like? "Yes," Ragan said.

2) Wine Directors Will Rev Up Bulk Buying to Keep Prices in Check

The concept of bulk buying is simple: A seller provides a good at a lower price in exchange for a buyer purchasing more of it. With that lower price, however, comes a greater risk to the buyer – the risk of having less cash on hand after making that larger purchase, and the risk of not being able to use (or store) the excess product.

USHG, like other smart businesses, already engages in bulk buying. But under Hospitality Included, the wine department, per Ragan, will be "more aggressive" on this front to keep prices in check. Meyer's restaurants, after all, appear to have both cash for buying and space for storing. "So much of the expense is passed on to the guest because restaurants don't want to be sitting on any inventory...they only want to buy a case a wine if they know they can sell a couple of bottles from that case that night, because they're trying to operate that business with as little money tied up as possible," Ragan said. "Maybe the cellar needs to hold more wine. It is liquid. Restaurants in New York will sell through that wine. Not taking advantage of that [bulk discount] is bad business."

Ragan passes along an illustrative example (see the chart above) of how a restaurant buying five cases per month (versus a purchase of two half-cases per week) can theoretically produce a $10 to $20 discount for the consumer and a higher margin for the restaurant. Then again, what the chart doesn't show is what prices will look like after "hospitality" is tacked on and whether consumers will buy at the same rate at the new prices.

3) Wine Lists Will Keep Depth and Breath, But...

Doesn't the cash required for volume buying mean that USHG will end up having to slim down its wine programs? "We are absolutely not looking at limiting or scaling down any wine programs in this process," Ragan said. "In order for this to be really successful, it will require us to potentially carry a little bit more inventory, so we won't necessarily have to choose between either or of depth or breadth. We can say yes to both." We'll see about that. Ragan, admittedly, is also keen on helping wine lists find focus while keeping their comprehensiveness. "Having a clearly defined idea" of a list can help both the restaurant and the guest, Ragan said, citing Marta as an prime example; the Roman-style pizzeria only serves Champagne and Italian wines.

4) Restaurants Will Cut Down on Wine Waste

Another practice that wine directors already engage in, but will have to double down on if they hope to moderate Hospitality Included price increases, is bridging the TVA gap – theoretical costs versus actual costs. Ragan remarked: "Here's how much wine left the cellar this month; here's how wine much got rung up; and here's the gap in between those two things. You'd be really surprised where that variance can be sometimes." He added that he's seen the TVA gap run as high as $5K to $6K per month at USHG restaurants, or as low as $500-$600. "You're never going to get that number to zero. But the closer you get to it, that's a couple thousand dollars that the guest doesn't have to pay for," Ragan said. The TVA gap can be impacted by voids, comps, spoilage, spillage, unreturned corked bottles, broken bottles, and even heavy-handed pours. "Something like a correct pour; it's the same idea as with a dish. More tartar sauce doesn't necessarily make it better. But it costs more. So we want to get that portion size correct," Ragan said, shortly before he was kidnapped by the vicious tartar sauce lobby.

5) Comp Budgets for Guests Aren't Expected to Fall

The following statement contains a debatable assumption about what motivates the service industry, but here goes: Won't the occasional gratis glass or end-of-dinner top-off fall by the wayside since waiters won't have tips to incent them to give out such freebies? Ragan replied: "If you're hiring people who gain happiness from making other people happy, I don't necessarily know if that's true." Related: "We're not expecting comp budgets to go down at all."

He went on: "If you decide someone needs a half glass of something to make their night great, the server, the captain, the sommelier, the bartender is always authorized to do that. No manager is ever going to look at them funny for saying, this guy had a couple of bites left in his dish, but didn't necessarily want another glass, so I went ahead and topped him off." Thing is, Ragan will continue to stress ringing up those comps so they can be tracked from a cost perspective. "If you don't," he adds, "someone ends up paying for it later."

6) You MIGHT See More Half Glasses and Negotiated Wine Pairings

Since prices will appear higher under Hospitality Included, will Ragan push more half glasses, which naturally involve lower prices? Ragan explained:

That's not necessarily something that I had thought of. But it's a great point. Gramercy Tavern lists everything in both half glass and glass. Obviously in all of our restaurants we welcome the idea of having a half glass. If i can steal that I think that's a great idea. In a lot of ways that $15 glass will turn into an $18 glass, just by adding that 20 percent. So if you can also get that half glass for $9, why not? If the option is either zero, or $9, we all know what good business is. If the option is a guest partaking in a program, or not, the answer is yes, and we need to figure out the rest later.

I also suggested to Ragan that sommeliers should be more active in encouraging diners to negotiate tasting menu wine pairings based on individual budgets and preferences, based on a dialogue (as is common at Per Se), rather than based on the restaurant's monologue of a set price. "I couldn't agree with you more," Ragan replied. "When I was working at Eleven Madison Park for so many years, that was music to our ears. You're kind of throwing down a challenge. When a guest says, I've got X amount to spend, I love X, Y, And Z, and rather not have A, B, and C, let's have fun, for sommeliers who really loves what they do, that's what gets them out of bed in the morning."

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