This article was also published in the Financial Times.
When the media picked up yet again on that old chestnut of 'exorbitant wine mark-ups in restaurants' a couple of months ago I decided to seek out the views of a London restaurateur who over the last 20 years has built up a company of five successful restaurants as well known for their wine lists as their food.
But it is not easy to sit down with Nigel Platts-Martin who controls The Ledbury, The Glasshouse, La Trompette, Chez Bruce and The Square, where the sommelier Christopher Delalonde has a loyal following among American wine lovers. Despite strong opinions on the restaurant industry, Platts-Martin tends to shun publicity and he grilled me over the phone for 15 minutes about my intentions before asking me to email him some of the questions I had in mind.
This, however, proved to be entirely worthwhile because when we sat down at Bellamy's, another restaurant whose wine prices are more than reasonable despite its expensive Mayfair address, Platts-Martin had all the answers I was looking for. Stopping only to say that he was sorry that I had to take notes while he enjoyed his chilled pea and mint soup, grilled halibut and a glass of 2006 Pinot Grigio he launched into his analysis of restaurant economics.
"I can only speak for the higher end of the restaurant business because that is all that I have been involved in since I left Warburg 20 years ago. But in this particular market restaurateurs are initially seeking to make the same gross margin on the food as the wine. It is a margin of 66.66% and it involves quite simply marking up both the cost of the food and the wine three times.
"However, this gross profit figure on the food isn't enough to cover the cost of preparing and serving the food and making a proper contribution to general overheads. A kitchen like any of mine or those of my competitors is just too labour intensive. Wine therefore has to be marked up higher to generate the profits we need to survive and to ensure a proper return on the capital employed which is significant now that it costs a minimum of a million pounds to open a restaurant of any note in central London."
This leads to a series of misunderstandings in Platts-Martin's view. The first is that as a result of what is effectively a cross-subsidy, wine drinkers are in the invidious position of subsidising the non-wine drinking food-lover. The food element of a restaurant bill is in the region of 58-60% of the total while the wine and drinks element accounts for 40-42% but any concerted adjustment to the latter would only affect the former leading to higher food bills for everyone. This correlation is perhaps best exemplified in many French restaurants where a low prix-fixe menu is offset by particularly high mark-ups on the wine list.
The second misunderstanding, Platts-Martin believes, arises from the fact this narrow focus on wine prices misses the point of how and where restaurant-goers choose to eat. "People book a restaurant because it is a package, as a combination of the food, wine, service and ambience it offers. When they get the bill although they may look for any errors they tend not to dissect it line by line. They look at the total, decide whether they had a good time and whether it was sufficiently good value to induce them to return. And that is the rational approach because if the margins were to be reduced on the wine they would have to increase on the food. The bottom line, the total, would simply not change."
While he would certainly not defend all of his fellow restaurateurs over their wine prices –"there are good guys and bad guys out there" in his view – he did believe that the current model should not be too hastily tampered with. "Restaurants are busy "he added with a smile, "and if fine wine is considered to be expensive then there are good reasons for this. I happen to think designer handbags and shoes are too expensive."
Platts-Martin then outlined some of the costs involved. His total stock of wine for the five restaurants is currently valued at £1.8 million, some but by no means all of which sits in costly London cellars, but of this only half is currently listed. The rest is slowly maturing, getting better he hopes, while racking up annual storage charges of £30,000. Every year the company spends over £15,000 on replacing the glassware that does not survive the dishwashers and the hand polishing while his wine buying and service team comprises 13 in total.
And what he and his 13 colleagues now spend a great deal of time deciding is which wines not to list, a role he believes is also under-appreciated. Platts-Martin fell in love with Burgundy after a holiday there and then bought initially from only half a dozen merchants. Although he is now equally fascinated by Italian wines he has never visited Bordeaux in his life as the secondary market in these wines is active enough for him to allow him to taste, evaluate and buy in London. During this period he believes that wines overall have got better; that the overall quality of sommeliers has risen sharply but that as so much more wine from so many different countries has become available his particular task has become more difficult. "I would guess that of 50 wines I may be shown we may end up by putting no more than one on the list. It is a kind of strict editing process but one that managed properly means that what customers are paying for in my restaurants is the right not to drink mediocre wines. Chefs are often cited as passionate about the produce they use and I think there are numerous restaurateurs who care just as much about the wines they choose to list," he continued. Platts-Martin cited Hamish Anderson at The Tate, Christine Parkinson at Hakkasan and Giuseppe Turi at Enoteca Turi as three other assiduous followers of this policy.
And although Platts-Martin was looking forward to that afternoon's tasting at The Square, which would involve 2004 Sassicaia, Ornellaia and Castello di Ama three top Italian properties, he ended on a slightly downbeat note. "The extraordinary high prices for the 2005 vintage in both Burgundy and Bordeaux is making it increasingly difficult for restaurateurs who want to build up exceptional wine lists for their customers to enjoy. Higher prices and smaller allocations of the best wines means that the restaurateur will either have to tie up more working capital or hold less stock. I think we should enjoy today's wine prices while we can."