CONSUMERS ARE NOW TURNING TO WINE AS AN INVESTMENT, NOT JUST A LUXURY


The price of bottles of first-growth Château Lafite Rothschild Bordeaux has been rising as the economy and consumer confidence begins to recover.

Rachael Lowe, beverage director of the Trump International Hotel and Tower Chicago, says people seem pretty comfortable spending again.

Some people use the U.S. gross domestic product to gauge the health of the economy. But wine consumption trends may be a more appropriate indicator of people’s spending habits.

The good news–people are spending more money on wine.

The bad news–that trend is being hindered by rising energy prices.

“I feel like bottles and higher-end wines are coming back,” said Chris Pawlisz, general manager at Table Fifty-Two restaurant in Chicago’s Gold Coast. “I’m seeing less and less flinching when suggesting a $200 bottle of Champagne to start their meal.”

Of course, that’s the high-end. Most wines ordered by customers range between $85 and $125 a bottle, Pawlisz says.

Rachael Lowe, beverage director of the Trump International Hotel and Tower Chicago agreed: “People seem pretty comfortable spending again.”

Andres Munoz, restaurant manager of NoMI Restaurant at the Park Hyatt Chicago said he felt the recovery was especially evident in the second half of 2010.

“People were spending more and feeling more comfortable letting loose,” said Munoz. “However, it is not a full swing economy yet. This year will surely be better than 2010. However, the speed of the economy still has plenty to recover from.”

Although improved wine sales are one sign of better times, industry players say the economy is still mending slowly.

“We are not back to pre-recession levels by a long shot,” said David Henkes, vice president of Technomic Inc., a Chicago-based restaurant-consulting firm.

According to Technomic surveys, the current average price “as perceived by the consumer” for a bottle of wine in the fourth quarter of 2010 was about $30.55. This is down from a high in the fourth quarter of 2008 of $35. Conversely, the consumer’s willingness to pay more for a glass of wine increased during the same period from $6.93 to $7.49.

With that willingness, consumers also have become more aware of what they are drinking and expect more bang for their buck after the recession, according to industry professionals.

“Although consumption decreased, awareness has gone up,” said NoMI’s Munoz. “Sommeliers have to work harder to find value added in presentation and quality without sacrificing mark-ups too much.”

Ryan Stetins, a sommelier at a high-end Chicago restaurant, agrees the recession has created a more educated buyer. Customers tend to have more thought-out purchases, whether they have consulted an online bottle value system or pre-ordered bottles to be decanted before dinner, he said.

Wine lover Aristotle Duran says after being laid off he began buying wine at the grocery store and staying in to cook to save money. He typically spends between $20 and $30 on a bottle of wine, or $8 for a glass when dining out.

“I have never been one to buy expensive wine because I believe you can find a decent bottle for a fair price wherever you go,” said Duran.

During the recession, higher-end restaurants were hit the hardest. For example, at Morton’s Restaurant Group Inc. revenues decreased 14.7 percent in 2009 from $354.5 million to $281.1 million. Revenue rebounded 5 percent in 2010 to $296.1 million, another sign of measured recovery.

“People were not going out during the recession,” said Henkes. “When they did go out, they would order one glass instead of two, or order a glass of wine instead of a bottle.”

According to Henkes, when consumers cut back their spending habits, they tend to forgo wine, dessert and appetizers before ditching eating out altogether. And although many continued to drink wine, they traded down for less expensive selections.

“Wine sales seemed to carry through, but there were certainly fewer purchases of expensive old Burgundy and Bordeaux,” according to Trump’s Lowe.

As the market has started to come back, people are turning to wine as an investment, not just a luxury.

Chicago-based wine auction house Hart Davis Hart Wine Co. uses the HDH Auction Index to gauge revenue. The index tracks the performance of 15 key wines at its auctions such as first-growth Château Lafite Rothschild. According to the HDH Auction Index, HDH wine sales dropped in September of 2008 and did not fully recover until January 201,. They have now come back stronger than ever.

“The economy has had a direct effect on prices over the last 10 years,” said Marc Smoler, marketing manager at Hart Davis Hart. “Prices went down significantly during the recession, but as the economy has improved, they have bounced back very quickly and even surpassed previous highs.”

A similar trend can be seen in the global secondary market for wine.

Liv-Ex Fine Wine 100 Index is an industry benchmark that tracks the price of the 100 most sought-after fine wines that trade frequently in a secondary market. According to the index, fine wine prices dropped 19 percent from August 2008 to August 2009. However, they increased 33 percent from August 2009 to August 2010, surpassing their previous pre-recession prices.

Technomic’s Henkes remains cautiously optimistic about the further recovery of wine consumption and restaurant sales. Still, there are plenty of obstacles to overcome before full recovery is reached, including rising energy and commodity prices.

“For every sign you see of things getting better, you see two more signs of things getting worse,” said Henkes.

With gasoline reaching its highest price in three years, nearing $5 a gallon, people have less disposable income to splurge on wine. Rising commodity prices already are causing some restaurants to increase menu prices, which will increase total dining tabs.

Bridget Kearney, a Chicago self-proclaimed restaurant lover, holds similarly skeptical views on the economy.

“I think it has improved but is nowhere near what it was during the bubble,” said Kearney. “I think there is a bit more to get to pre-bubble levels.”

Despite the promising signs, many wine consumers, including Duran, remain cautious in their spending habits.

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~ by Liz Palmer on May 18, 2011.

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