The downturn in the economy has continued to put a dent in the on-premise business' slice of the wine profits. Fine dining continues to suffer the most, and purchases continue to skew to the retail sector. Some store sales volume, in terms of yearly average growth, was down in 79 percent of fine dining and 59 percent of casual dining operations as of December 2008, according to National Restaurant Association data. Consumers are purchasing more wine to enjoy at home with the hope they can buy a great bottle of wine for two to three times less than it would cost even at the most wine-savvy restaurant. Table wine purchases in the off-premise sector increased 4.8 percent in the 52 weeks ending Dec. 12, 2008, according to The Nielsen Company.

One major casual dining chain has turned this whole equation successfully upside down with the launch of its $10-bottle wine program. For New Year's Eve and Valentine's Day, the approximately 900-location, Maryville, Tennessee-based Ruby Tuesday offered three different wines on its nationwide, company-owned and franchised restaurant lists for less than many bottles are sold at retail.

"We have had a constant push to promoting compelling value in the last 18 months," said Ken Lennox, director of quality beverage for the chain in March of this year. Ruby Tuesdays has locations in 45 states. The three wines offered during the promotion were Coastal Vines Chardonnay, Beringer White Zinfandel and Lost Angel Mischief, a red blend. One of Lennox's multi-franchise location owners in Minneapolis has even made the promotion a permanent fixture on his lists, and Lennox is debating making this refreshing price structure a regular part of his national line-up.

The brilliance of this promotion lies in the fact that it has broken with traditional restaurant wine pricing at a time in which the economy and cash-strapped consumers are more than ready to embrace a change. It's not a surprise that a chain like Ruby Tuesday would have the insight to bring this type of promotion to fruition as the concept has proven itself adaptable in challenging economic times. The restaurant has ranked among the top 30 chains in the country in recent years. It ranked 30th in the United States in 2007, according to Nation's Restaurant News, and 29th in 2006 and 32nd in 2005.

The Math Adds Up

This wine promotion has been a win-win for both producers, and Ruby Tuesday's. Fred Franzia--who originally challenged restaurants years ago to price wines at $10 a bottle and who is chairman and CEO of the Bronco Wine Company, the Ceres, California-based parent company of the Coastal Vines brand, said the wine promotion "has brought a lot of new business to the restaurant." Both he and Lennox, as well as other participating producers, declined to discuss margins or mark-ups. He added, however, there is clearly room for profit to be made on even such a well-priced program.

Lennox agreed that the promotion has been beneficial for all parties involved--although he noted that some of his producer partners have also made substantial financial commitments to the promotion. "Lost Angel has given us a great rate, and it's a big investment for them," he said

Giulio Galli, vice president strategic accounts of the Franklin, Tennessee-based Sapphire Brands, which in 2007 acquired the Paso Robles-based EOS Winery that produces Lost Angel, confirmed that the same wine on Ruby Tuesday's list generally retails for $12. Although Galli wouldn't comment about the mark-ups used to sell the same wine on-premise for less money than it sells at retail, he did say that it was Ruby Tuesday's "choice to work with a different type of margin with that wine." He added that the promotion is "a shared effort." That difference in pricing obviously represents a deep cut into Lost Angel's on-premise returns for the Ruby Tuesday promotion, which the company obviously hopes will pay off in the long term.

Wine has long been, along with other alcoholic beverages, mercilessly marked up on restaurant lists. By-the-glass prices have historically hovered around the wholesale price for the entire bottle or sometimes even $1 more than that price. The classic mark-up embraced by many wine directors has been an attempt to recoup the entire cost of the bottle on the first glass sale. By-the-bottle mark-ups generally range from two to three times the wholesale cost of the bottle, with higher mark-ups reserved for less expensive wines.

Producer Franzia added that he is currently negotiating with nine other national chains to create similarly priced, or even more affordable, wine promotions. This is pretty exciting news given Ruby Tuesday was the first to debut this kind of program. Franzia expressed a lack of concern about the ability of such value-focused promotions to make money for the wine producers involved, noting: "Every bottle of wine I sell I make money."

Joe Yurchukonis, the Atlanta-based southeast regional manager for Bronco Wines, added, "Similar promotions can only help spark interest in wine, elevate dining experiences and create more wine consumers. Restaurant patrons that enjoy an affordable wine while dining out will be more likely to purchase wine to serve at home.

"The Ruby Tuesday Restaurant chain is the first national company to work with us to establish such an innovative program," he said. "Everyone wins: the restaurant customers, each individual restaurant, as well as the winery.

"This program has been really exciting, and we share the success with Ruby Tuesday as it has literally launched this new wine brand," Yurchukonis added.

Ruby Tuesday's Lennox said he chose the price because "$10 is a great, round number." He added that total wine sales by the bottle increased by 20 to 25 percent during February of this year, with sales increases primarily driven by sales of the three $10-priced bottles. Both promotions lasted for a week surrounding the two holidays during which time the sales of the wines accounted for 5 percent of Ruby Tuesday's total wine sales. During the Valentine's Day promotion, the wines accounted for 75 percent of the restaurant's total wine sales by the bottle.

The demographic Ruby Tuesday focused on was an age range between 25 and 50 years old, according to Lennox. He described the target as "young business professionals really looking to discover new wines." He added that the promotion had the most dramatic success in the Minnesota, Atlanta and Florida markets.

Other Ways of Creating Value

The $10 wine promotion is only one of the ways Ruby Tuesday has focused on bringing added value to its customers. In March of 2008, according to Lennox, the restaurant increased the size of its by-the-glass pours to approximately eight ounces, from the normal standard of five and a half to six. This was done without the restaurant taking a price increase on any of its by-the-glass prices. Partially as a result of these types of innovative approaches to the market, the chain "increased wine sales by $3 million in 2008 with significantly less foot traffic," according to Lennox.

As of April this year, Lennox said he hoped to feature both Lost Angel and Coastal Vines regularly on all his restaurant lists at the $10 price-point. He also plans to stay focused on California wines for the time being.

He added that the dynamics of this particular promotion--as with the rest of the chain's list--might make it challenging to work with smaller brands as all the restaurant's featured wines need to be available in the 45 states. He noted that he has also relied on his featured producers to help with nationwide distribution. He confirmed that all the operation's wine lists are consistent, except in the control state of Pennsylvania and in California where managers are allowed to include a couple of additional high-end wines. The bulk of Ruby Tuesday's locations carry 18 wines by the bottle, currently priced $21 to $42.

In many ways, Ruby Tuesday's approach to restaurant wine pricing may represent the wave of the future. Smart consumers and the trade have long supported restaurants with rational wine mark-ups. However, the cat may be finally out of the bag as to how much wine has been marked up on-premise, and it may be time for producers, restaurateurs and wholesalers to sacrifice a bit of profit to support the current state of the economy and their brands. wbm